Parts for Profit—What a Dealer Needs to Know

I am writing this article for you, the dealer. It is your money that I am writing about—all the capital you have invested, and the lack of information you have concerning your investment.

Suppose you invested in real estate. At the end of the year, your manager gave you the profits, and that was all. Would you like to know which property appreciated the most, or more importantly, the least? Which properties returned the most on investment and which ones actually cost you to maintain? Of course, you would want a detailed accounting of all your properties and as much information about them as possible. Why not get the same information on your parts investment!

All that information is available; you just have to ask for it. In all my years as a parts manager, no owner or business manager ever asked for my monthly inventory report. I always assumed they did not need it, but now I believe they simply did not know it existed. You need to look at this report. It is automatically run at the end of every month. It can also be created as a month-to-date report.

For the parts manager, it guides their decisions on ordering, obsolescence, stocking levels, etc. For the dealer principle, it reveals the details about your investment. How much of your money is sitting idle, how much is driving your business, and how effective is the manager at doing his job? The report shows quantity of parts, part numbers, and for you, dollars invested in all areas of your inventory. It even shows you percentages.

 The report runs two pages or more, but I recommend you look at only a few sections in detail. How many dollars are invested in stocking class parts? How many dollars in parts with no sale in over 12 months? What percentage of parts is in the three to nine month sales area? This information alone will aid you in setting guide lines for your parts manager. Compare it to your used car inventory report. You know how many units are 30, 60, or 90 days in inventory. You should know the same information about your parts inventory.

 Even if you consider this information unnecessary detail, your business manager should get their copy every month. There should be very little difference between the amounts shown on the parts report and monthly dealership statement. These numbers will not be identical. Parts in transit, billing delays, etc. will cause a small difference, but they will be similar. Another figure is the appreciation of your inventory caused by price changes. Only the parts report will show the increased value of your inventory on a monthly basis.

Another thing a dealer needs to know about is his obsolescence credit. I will go into more detail in my next article.

Larry Williams is a former parts manager and consultant with national awards and over 30 years of experience in creating profitable departments. He can be reached at [email protected].