Parts for Profit Part Four—Profitable Inventory Control Philosophies

 

Inventory control courses have always been promoted by the manufacturer and inventory specialists know who signs their checks. As a result of this, all inventory philosophies have naturally been biased in favor of the manufacturer. Stock order vs. special orders, designated stock order days, extra days supply, inventory of new model parts, and minimum percentages are good for the manufacturer, not the dealer. None of these policies make the best use of the dealer’s dollars. A slight change of philosophy, however, will result in better profits, the dealer’s main need. New philosophy…lean and mean!
 
Policy and procedures sample
 
Parts for stock (tight control system):
 
·         Part must sell at least 4 times in 12 months
·         Part must sell at least 1 time in last 60 days
·         Part must have no more than 30 days supply on shelf
 
Parts for stock (normal control system):
 
·         Part must sell at least 3 times in 12 months
·         Part must sell at least 2 times in 6 months
·         Part must have no more than 60 days supply on shelf
 
As I have said before, all these parts have permanent locations, in bins close to your sales counters.
 
Other inventory control guidelines:
 
Keep all your controls as simple as possible; a manager should not spend all his time on inventory reports. Use as few sources as possible, used not only for ordering, but also for pricing. Use the min-max, per job, and full bin fields to keep your parts at the proper levels. Watch out for phase-in parts. The computer has no idea of multiple part needs. For example, shock absorbers, spark plugs, etc. will phase in as a suggested order of one only. Manage your inventory by exception and use the hi/low value on reports, the middle will take care of itself.
 
Other inventory control issues: tape updates, part number changes, bin location changes, negative and zero on hand, phase in and out, should be weekly or monthly activities with regular schedules.
 
Missed sales and outside purchases are probably the second most important loss of dealer profits. You must have honest input of these parts in order to keep your inventory current. All shop purchases must be entered as missed sales. Every counterman must record every missed sale. If a man has to take the time to look up a part, it should be recorded. Buying a part from outside instead of taking it from your own supply is always a loss, a loss of time and manpower.
 
The many details of inventory control can take up thousands of words, but if you adhere to these principles, and keep your inventory lean and mean, profit will be the natural result.
 
In part five, I will begin to discuss the hardest part, managing your people.
 
Larry Williams is a former parts manager and consultant with national awards and over 40 years of experience in creating profitable departments. He can be reached at ljoew2@gmail.com.
 
 
 
 

 

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