Managing Cores for Profitability
Cores are not just worn-out parts. How they're handled can make the difference between profit center and profit drain.
March 2013, TruckingInfo.com - WebXclusive
Returned cores are the starting point for any remanufacturing process. Manufacturers count on getting usable cores back from dealers, distributors and repair garages to use in their remanufacturing operations.
Dealers, distributors and repair garages that take core management seriously do well, and those who don’t take it seriously don’t do as well. It is as simple as that, according to Dave Clark, manager of consulting at Karmak.
“Everybody needs to treat cores with the same focus they give to the rest of their parts inventory, because it is not uncommon to have 10% to 15% of your total parts inventory invested in cores,” he says. “The amount of cash that is tied up can be pretty significant, so you have to treat it very seriously.”
Doug Wolma, general manager – worldwide operations, Meritor Aftermarket, agrees. “There are both poor and good core managers out there. Dealers and distributors who cannot manage cores effectively find the margins too slim to continue."
A Defined Process
For the core management process to be successful, you must begin with the accurate tracking of inherent cores. The inherent core often is called the clean core, but according to Clark, the inherent core is the value that has been assigned to the core in order to entice the buyer of the part to return the core.
“This tracking must be placed on your perpetual inventory as well as your general ledger,” he says. “At any time you should be able to report the value of your parts inventory, your inherent core inventory and your dirty core inventory.”
In addition, core should be included in physical inventories, cycle counts, and should be a line item on regular inventory reconciliations.
“Your processes should include correct identification of dirty cores. Sometimes cores look very similar, but have different values,” Clark says. "Be sure that you are correctly identifying all core being returned by your customers.” You can do this by using reference materials available from suppliers.
Wolma suggests that cores be inspected as soon as they are removed from a truck so that they can be valued properly and any deductions taken for cores that are in less than perfect condition.
Once cores are removed and inspected, they should be organized in their own separate storage area.
“Many companies have established separate bins specifically for dirty cores,” Clark says. “This allows them to place the cores in a well-organized manner and allows the company to easily control them.”
The company’s business system also should track all transaction in which a core is involved and should be able to show exactly how many of a particular core a customer owes the business.
“The dealership or distributorship should have a specified amount of time in which the customer can return the core. “Their right to return timeline should be defined in part by the suppliers’ core right to return program with the dealer or distributor,” Clark explains.
Remove Obstacles & Assign Responsibility
The core tracking process offers many opportunities for errors to occur.
“If you look at a core, through its life in a parts operation, it has a minimum of five transactions,” Clark says. You buy it as the part, you receive it into inventory along with the part, you sell the core, you credit the core, and then you return the core to the supplier for credit. “There are a lot of transactions and a lot of room for errors if processes are not tightly defined."