If you control and perpetuate your special order parts daily, your percentage of idle capital and potential obsolescence can be significantly reduced.
The reality of trying to build a consistent and daily special order handling process can be tedious, but it will produce great rewards if the effort to control special orders is accomplished. To illustrate this point let's look at a comparison of two dealerships that have nearly identical inventory values, but have completely different special order practices.
Dealer #1 has an average inventory value of $148,787 over the past three months. The special order inventory average is $23,057 or 15.50% of the overall inventory investment. Is this too high? The special order inventory is broken down into three categories. They are "Under 30 Days", "Under 60 Days", and "Over 60 Days" since the last receipt date. Looking at Dealer #1, they have 55.01% of the total special order inventory over 60 days old. Dealer #1 also has 16.96% of the special order inventory over 30 days old. Only 28.03% of the special order inventory is under 30 days (or
Let's look at Dealer #2 now. Dealer #2 has an average inventory value of $142,790 over the past three months. The special
order inventory average is $5,581 or 3.91% of the overall inventory investment. Is this good? Looking at Dealer #2, they have 14.82% of the special order inventory over 60 days old. However, you can see that over January and February this dollar amount has been reduced to $2 by February. The Under 30 days is 80.12% as an average and the Under 60 days is 5.06% of the special order inventory.
One very glaring observation is that the "Over 60" for Dealer #1 is growing while the "Over 60" for Dealer #2 has gone to nothing. Experience has shown that the majority of dealers look like Dealer 1. This is because perpetuation and purging are happening on a weekly basis or less. The whole key here is that it is based on the days since last receipt.
Special order parts cannot be tracked effectively by looking only at Months-No-Sale for a very simple reason. Consider this scenario illustrated by a month-by-month movement chart.
Looking at the history of this part, you will notice two things. First of all, you had a completed demand and sale in January. You now get to December, and you have another demand, but the sale has not been completed. Let's
assume that you did not complete the transaction and you now have to pull the part and put it in the general inventory. Your LRDATE is within the last 30 days so your Months-No-Receipt is zero (0). However, your Months-No-Sale is 11 months because you never fulfilled the transaction. With this in mind, if you try to look at your special order parts by AGE for Reynolds & Reynolds, or MNS for an ADP computer system, you will be looking at your special
order parts completely wrong.
For those of you who use the ADP special order function, you have a file called "SOR-LINES" that has a field called 'DAYS' so that you can set up a report to run by descending days aging. This report will show you your oldest to newest parts by days since last receipt. If you don't use the ADP Special order program and you still handwrite your special orders but add the parts to your computer system, you can use the "LTDATE" field in the 'PART-NO.' file and report the parts by descending "LTDATE". The second method will be about 90% accurate since any transaction on the part could destroy the receipt date and move it forward. For those of you who want to have a 'DAYS' field in your 'PART-NO.' file because you have no desire to use the special order program, call ADP and have them copy or build a 'DAYS' field for you in the file.
For ERA users it is much easier. In the "SPEC.ORDR" file on your ERA system, you have an I-Descriptor (or field) called "OFFSET-RECV DATE~" that you can use. This field automatically shows you the days aging since last receipt. Again, you can set up a
report to run by descending days aging in program 6910.
By running this report, you can easily purge expensive parts daily and send them back to the manufacturer so that you don't have to keep them on the shelf and risk special order parts from becoming idle capital. Through informal studies and analysis of inventory, we have found that 65% of all special order parts that go unfulfilled find their way to 10 Months-No-Sale and greater. Out of the 35% that eventually sell, we find that 80% of those parts sell to the original customer who comes in much later than 30 days to fulfill the repair.
Forced stock parts
The cause of most forced stock inventory comes from unfulfilled demand through special order parts. And, the only effective way to truly manage special order inventory is to purge and review it daily. Otherwise, you are putting more holes in a sinking ship. The less often you review and purge your special orders, the faster it will sink.
Back to the Dealer #1 and Dealer #2 comparison. After we installed a report for Dealer #2 in December, they began to purge their special order inventory daily. We surveyed Dealer #1 and asked them how often they purge their special order inventory. The reply was once every two weeks or when we can get to it. There is one final point to make regarding the special order inventory of Dealer #1 and the continued growth. Anything over 30 days old should be nominal. These should be special order parts waiting for other backordered parts that have not come in to fulfill the entire special order request. So, as you can see with Dealer #1, the special order inventory continues to grow, even though these parts are supposedly being purged every two weeks. This is primarily caused by improper receipted and posting procedures. Most of the parts over the 60-day aging fall into one of three categories:
1. The parts were sent back and the quantity was not posted out of inventory
2. The parts were double-posted off the manufacturer shipper
3. The parts were purged and located but not posted in "PM" or "2101" with the bin location
We recently worked with a dealership that had its inventory grow to $60,000 worth of special orders. It grew steadily each month to $60K until it was time to do the physical inventory. After the physical inventory was done, the special order inventory was actually $8,000 total. This was a $52,000 swing in the dollar amount. Upon investigation, all three of the above categories were present. The dealership had a 2% increase in appreciation
after the physical inventory reconciliation. Inventory accuracy and performance is truly guided by the special order process and how effective and consistent these parts are reviewed and handled. As the old saying goes, "The fish stinks from the head down," and the head of the fish in a dealership parts operation starts with special order parts and how they are processed.
Dealer #1 Dec-00 Jan-01 Feb-01 Avg Pct%
Under 30 Days 9419 6285 3686 6463 28.03
Under 60 Days 2283 6719 2730 3911 16.96
Over 60 Days 10997 10313 16739 12683 55.01
Total Special Order Value 22699 23317 23155 23057 100.00
Inventory Value 149740 144365 152256 148787 15.50
Dealer #2 Dec-00 Jan-01 Feb-01 Avg Pct%
Under 30 Days 5509 3299 4605 4471 80.12
Under 60 Days 743 0 104 282 5.06
Over 60 Days 2339 141 2 827 14.82
Total Special Order Value 8591 3440 4711 5581 100.00
Inventory Value 144010 139602 144759 142790 3.91
1 0 0 0 0 0 0 0 0 0 0 X 1 x = demand without completed sale
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC YRSL