Wow! What an avalanche of off-list replies to my earlier post. Thanks. I
suppose one might live in hope that this second and last submission from me
on this clearly emotive subject might serve to put the matter to bed for
another six weeks? I think you'll agree that having read (and thought?)
about it, the problems I referred to might come into a little more
perspective. I've just been digging through some old papers I wrote up about
eight years ago for a chain of Japanese franchised dealers in the UK. The
CEO wanted to know how much it cost his Group to hold stock on the shelves
for a prolonged period. I won't go into the whys, wherefores and tedious
details of what criteria we used to give an entirely incontrovertible cost
analysis, but the results frightened me.
We discovered from our studies that to keep an item in stock and obviously
unsold for one year, cost the dealership 82% of the item value. It's
important to point out that we were not falling into the obvious trap of
trying to compare net for retail. This was retail. Essentially, if the item
sold for $100 and was bought on Jan 1, it would have cost the company $82 in
quantifiable and measurable costs (but which didn't show in the Annual
Report) to have kept it there until Dec 31. This rounds out the on-shelf
cost to the firm at $6.83 a month. Overall parts gross profit for this
Dealer Group was 34.7% and the direct operating costs of the parts operation
came out of this sum. So, if the gross profit on immediate sale was $34.70,
that same profit was eroded by $6.83 a month BEFORE direct overheads to keep
the item on the shelf unsold. My calculator tells me, that profit went
negative after 5.08 months in stock.
Hopefully this puts the whole thing in a little more perspective and
hopefully goes some way to explaining that whopping costs are largely
unavoidable and in the CLASSIC parts business, long shelf life for some
pretty expensive components is probably more the norm than the exception.
Finally, this begs just one question in my mind. Why the hell bother to
stock tonneau or hood studs in the first place - apart from just providing a
service to the customer.
John Mac
Book 1: http://www.toolbox.ndirect.co.uk/triumphbook
Book 2: http://www.toolbox.ndirect.co.uk/crocus
Triumph Over Triumph magazine: http://www.cyberware.co.uk/~chips11
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