Return It Now!
Steve received a degree in Electrical Engineering and then served in the US Navy. He started with Komatsu America 1978. For the next twelve years Steve worked through various equipment sales positions before becoming the Vice President of Parts, Vice President of Service. During this period Steve sat on the board of a major distributor in the North east US as well as Hensley Industries. After twenty-five years Steve moved from the OEM side of the business to the Distribution side by joining Tractor and Equipment Company in 2003 as Vice President of Product Support.
Throughout his career Steve has learned the Industry from the ground up. This allowed him to have a very clear view of what was needed to support customers, employees and owners in their pursuit of excellence. Working at high levels in both the Manufacturing and the Distribution side of the business gave Steve some great learning opportunities and chances to develop insights. Steve retired in January of 2020. After spending 40 plus years in an industry we are very pleased to be able to share some of Steve’s insights with you and honored to consider Steve a friend.
Most manufacturers have several categories of parts in relation to their return classification. It usually goes something like returnable, non-returnable and order-on-demand. For our purposes we are only worried about non-returnable parts. We can return the returnable parts and suppliers won’t take back order-on-demand parts if you threaten them with a gun. Non-returnable parts usually have a loophole. You can usually return them on an ordered-in-error claim with most manufacturers if you do it within their specified time window. This is completely legitimate. There might be a restock charge but you can return them. Manufacturers want parts returned quickly so they have them for resale.
This is where I am going to suggest you need a hard, never to be broken rule. You are going to return those parts every time and do it in the window. No exceptions. You will get lots of excuses and I am going to suggest you accept none of them.
Your problem of non-compliance usually happens because of a lack of cooperation with the service department or poor management from the parts department. Having reports will let you stay on top of this.
Service managers are usually only worried about getting parts when they need them. They are not too concerned about getting them back within a specific window. This is actually understandable. They fight fires everyday and returning parts falls pretty low on their emergency scale. They like to tell a parts manager that they are going to need this part anyway in a few weeks so go ahead and put it into stock. That has actually probably been true at least three times in the history of the business. The rest of the time you got stuck with a part that will never move. Your money is not sitting idle. It is gone and you have just not acknowledged the fact yet.
We need to track the parts, warn the parties about an approaching deadline (let the report provide the warning) and if the service department fails to return it, we charge it to them. There is an account that lets us track that issue. We talk about that account.
There is really no good excuse for a parts manager not getting a part in their will- call bin legitimately billed to a customer and delivered. One of my really great branch parts managers would call customers after a week to make sure they still needed it. If the customer said yes, they asked when they could expect them to get it. He gave the customer a date he had to return the part. Nobody got mad. It worked. If you have a branch parts manager that can’t get this right then you need to look for somebody that can manage the branch inventory investment properly. Once again, have an account that these parts are charged to for branch parts generated issues.
Parts managers usually were trained to avoid restocking charges at all costs. At least that is my experience. This can be a hard habit to break. I put it on a white board for them. I have a $100 non-returnable part that I return and it has a 25% restock fee. I get a $75 credit which I reinvest in my good inventory that turns 8 times a year and has a 30% gross margin. I get that fee back the second time I turn the money.
If I leave it in stock, I will lose the return opportunity. In 3 or 4 years I will scrap it and get nothing and write off the total value of the part. I will also have a lost opportunity cost of not turning the money over its time in inventory. Today interest rates are very low but who know what the future holds.
Always send the part back when you can. Track non-returnable parts every week and figure out how they got into your inventory. Close off all the possible ways this can happen. Controlling the cancer of a growing non-moving inventory will help your operations in all kinds of positive ways. Make this a top priority. Put up signs, get tattoos, talk about it every time you meet a branch parts manager.