Issue Date: Parts Manager Aug 1, 2010, Posted On: 8/10/2010
Parts Management 101 FAQs about lost sales Here are some observations and facts about posting Lost Sales. Let's call them the Lost Sales FAQ's (Frequently Asked Questions):
What is the definition of a lost sale?
Any part request that cannot be filled the day it is requested. This is where the confusion comes in so let me take a different approach and define what DOES and DOES NOT constitute a lost sale.
a) This DOES NOT include parts where the technician comes to the counter and requests a part which can be picked up locally or specially order it to fulfill the demand. Posting a lost sale at the point of not having it, only to procure it by other means is nothing more than posting two demands for one sale.
b) This DOES include parts where a technician comes to the parts counter and requests a part but clearly points out that he/she doesn't want to wait for it and not to bother.
c) You would post a lost sale on all aftermarket purchases of OE parts to fulfill demand, but you post the lost sale to the OE number, even though you are selling an aftermarket part to fulfill the sale.
Where do most lost sales postings occur?
Reality in today's dealership parts operation totally points to two areas where most of the lost sale posting is going to happen:
a) From other Dealerships calling to "check a number" to see if you stock it. If you don't stock it, surely post a lost sale to that part!
b) Customers who call you on the phone to see if you stock a given item. If you don't, you really don't know if they will come in and get it once they hang up, so post a lost sale anyway. This is the only time that I know of that you might actually end up posting more demand if the customer does indeed come in and have you order or procure it from another source.
In my experience, this is where 90% of all "true" lost sales posting occurs. When you have a customer at the front counter, or in the service drive, or at the tech counter, you have a "very captive" customer that won't turn down an offer to get the part locally or on special order after you have found that no one else stocks it. Surely, it could be that the customer is not satisfied with your price for the part and leaves, and then I would say "post a lost sale." It is too bad that our DMS vendors don't have the ability to give us a "LOST SALE REASON" or table for why we lost the sale. Also, it would be great to have the ability to "turn on or turn off" using lost sales posting in our stocking levels and phase in criteria.
Are there times when we should not post a lost sale?
Some industry consultants say that you should "post a lost sale" when you go to clean up your unfulfilled special orders from the special order bins and put them in stock for sale, what I call "forced stock inventory." This is, in my opinion, the worst thing you can do! First of all, you have no way of knowing if the parts were really needed. Second, especially with the ADP system, there is a report called "NEW PARTS NO SALES," which tracks parts with no history of demand (Zero Year's Sale) and having an actual on-hand quantity in the system. Once you post a lost sale, you have destroyed the integrity of this report.
We see two extremes when it comes to the lost sale posting criteria. Either too much lost sales posting is done (usually because a manufacturer demands it) or not enough lost sales posting is done. The reality is, based on the standard criteria such as phase-in and days-supply settings, the above lost sales posting procedures promote the integrity of the inventory database.
Can posting lost sales affect my phase-in criteria?
Yes, and No.
Yes, if you are basing your phase-in criteria based on a mathematical calculation of "X pieces sold with an average demand of X pieces per month." The example here would be in the Reynolds ERA system with 2323, Option 5, Number 2 being used.
No, if you are basing your phase-in criteria on the standard scenario of "with demand in X months out of the last X months with a total demand of Y pieces." This is the typical 3-in-9, or 3- in-12 criteria, meaning 3 months with sales in a 9 month period. Here, you can sell 50 in a given month, 100 in another given month, but if you don't sell at least 1 piece in a third month, this part would not phase in.
Can posting lost sales affect days supply?
Yes. Once a part has been stocked, the liberal posting of lost sales demand can indeed cause unnecessary depth in inventory. My point here can be summed up in a simple issue we dealt with a few years back in a Ford dealership. As we processed the stock orders for these folks day-in and day-out, we found that a lot of lost sales were being posted. 5 or 10 lost sales demands were being posted to multiple numbers day-in and day-out. The parts manager tried to narrow down his parts advisor culprits doing this, but his ADP system had those "floating" TIPH port numbers that changed each time people logged on and off. And, none of them would admit to posting these "gremlins" into the system. We finally suggested "turning off" the lost sale prompt (you can do this with ADP) to control the system and stop the abuse, allowing the part number population to get back to normal and save a lot of editing on the stock orders due to this issue. It turns out that two parts advisors were trying to manipulate the system into overstocking parts. They only have a vested interest in selling, not controlling the inventory. Thus, they did not care about inventory control as long as they had the part on the shelf. They knew by posting lost sales they could increase the BSL's and save them headaches.
Right, wrong, or indifferent, following the definition of a lost sale and knowing where most lost sales postings are likely to occur will yield the best results. Don't let the manufacturers lead you down the path of "unrealistic" lost sales postings, just to satisfy some program. Use common sense as you post demand to your inventory population. And, remember, if you purchase the part via special order or outside purchase, you are already registering the demand and sale. Don't post it twice.
Chuck Hartlé is the editor of The Parts Manager and president of PartsEdge. Contact him by e-mail at CHartle@partsedge.com.