CEO's Blog

Managing Excess & Obsolete Inventory

No one likes inventory languishing on the shelf, but if you carry any at all, you’re likely to end up with some amount of excess and obsolete goods at one point or another.

Robert Coolidge President & CEO

Robert Coolidge
       President & CEO

Parts distributors for multiple manufacturer brands are especially challenged to stock enough inventory to meet current demand, while trying to predict when that demand is likely to plummet and create E&O. It’s a fine balance between stocking just enough to get the sale, but not enough to end up on a scrap list. With new technology and product models constantly evolving, this is no easy feat. Other contributing factors to E&O are:

·    Normal failure rates falling short of historical demand
·    Customer returns/cancellations
·    Changes in the repair process
·    Decrease in product costs making repairs not feasible
·    Increased part costs
·   Gray market, generic or reclaimed parts in the marketplace and not adjusting OEM price to compete
Understanding the underlying reasons for having excess or obsolete stock in inventory is key to reducing your future exposure. Demand today increases and decreases based on vertical. The appliance market is seasonal, while the printer market is more consistent. However, in all cases, demand should decline consistently across verticals depending on the warranty coverage period and longevity of the product’s lifecycle.
To help minimize E&O inventory from accumulating in the first place, work closely with your suppliers to meet their return policies. Consider assigning someone to take ownership of parts returns whether they be cores, new/unused or new defective parts. In some cases, the value of the part could mean the difference in making a profit on a job or actually losing money for failure to return a part.
If returns aren’t possible, offer the goods for sale at a steeply reduced price.  Seek out online marketplaces to advertise E&O inventory to a wide audience. Salvagers are another channel to move dead stock through. Keep in mind, one person’s trash can be another one’s treasure.


Customer Loyalty and the Ultimate Question

Net Promoter® score (NPS) has been championed by many Fortune 500 companies as a surefire way to predict whether a business is likely to grow or contract based on an “ultimate question” posed to customers: Would you recommend this company to a friend?

Robert Coolidge President & CEO

Robert Coolidge
       President & CEO

Based on their answer, customers are categorized as “detractors” or people likely to harm the company’s reputation and defect to a competitor; “passives” who are generally positive about the company; and “promoters” who are extremely satisfied and can drive the company’s growth. A company’s Net Promoter score is calculated by subtracting the number of detractors from the number of promoters.

Depending on whom you ask, NPS is either the single best metric of customer loyalty and business growth potential or way too simplistic to be more meaningful than any other similar measurement. Regardless of its actual predictive capabilities, the overarching concept behind NPS remains sound – measuring how well a company is serving its customers and earning loyalty.
In the past, distributors were measured strictly on pricing and availability of their offerings. Now we are much more involved in the customer experience throughout the supply chain. For example, servicer networks of extended warranty companies are measured on how well they support consumer end users. As a parts distributor to these networks, Encompass is directly responsible for ensuring their success (and ultimately the companies or clients they work for) by getting them the components they need to quickly respond and make a field repair.
With customers at a premium, retention is a key factor for success. If you are unable to maintain customer loyalty, especially in a declining economy, you’re in big trouble.  At Encompass, we don’t compete on price – we compete on value. We are singularly focused on improving our value to customers through a variety of means, from making technology enhancements that streamline
parts ordering and account management to continually adding new manufacturer brands in multiple product categories. We consider ourselves an extension of our business partners. We want them to be successful, and we do what we can to provide support throughout the supply chain to make it happen.  This holds true for the manufacturers we represent all the way to the dealer who is buying the parts.  We like to call it “building brand equity.”
Encompass recently distributed our 2013 Customer Satisfaction Survey and urge you to participate. Your feedback is critical to us because we can’t make changes if we’re not aware of the issues.
Input we’ve gathered from previous surveys has led us to enhance our website, change packaging procedures, extend our call center hours and more.
If your business is not already surveying your customers by some means, now is the time. Keeping tabs on the customer experience is vital to the ongoing health of your business and should help give you insight into the answer to the ultimate question as it relates to your organization.

Value of Our Service Division

Encompass is the only consumer electronics parts distributor that also performs board-level repair and other reverse logistics services — such as returns management and asset value recovery — through our company division Encompass Service Solutions. The fact we provide repair services through agreements with extended warranty companies sometimes doesn’t sit well with our independent servicer customers. But in actuality, this capability can help them more than they realize.

Robert Coolidge President & CEO

Robert Coolidge
President & CEO

Encompass has on hand hundreds of defective circuit boards for multiple product categories that we are able to repair and return to the supply chain. Through a collaborative project, the Parts and Service teams work together to identify the boards that are in highest demand by our customers and prioritize them for repair to get them back in circulation as quickly as possible. Our technicians are highly skilled with extensive experience to ensure a top quality product. Techs are also able to test returns to minimize the volume of defective parts returned to manufacturers.

With manufacturer returns privileges getting stricter by the day (a topic for a future blog!), Encompass is seizing on an opportunity to extend the lifecycle of a critical service part and fulfill the needs of our customers, while helping to reduce OEM warranty exposure.