Integrated Dealer Services (IDS) issued “Proven Strategies for Effective Parts Inventory Management” to offer dealerships a refresher course on an important aspect of their business model.
According to the guide, “Your dealership’s inventory has a ripple effect on every department. Imagine a customer comes in hoping to pick up a part they requested, only to find it is not available. The inventory was not updated, and now you have to explain this to the customer and find a way to fix the situation.”
IDS said parts inventory can play a vital role in dealers’ bottom lines.
IDS Account Manager Kevin Gribble said, “One big focus now is fixed-ops absorption—if your service department can cover all your bills, everything else becomes a lot less stressful. As long as you do not overextend on inventory, and you keep your costs low, that is a strong position to be in.”
Using the guide, IDS said it can “walk you through proven best practices to help you streamline your dealership’s inventory management step by step.”
There are seven steps in the process.
- Effective inventory counting.
- Get rid of dead inventory.
- Organize inventory for profitability.
- Let your parts manager take charge.
- Set an inventory turn goal.
- Set minimum/maximum levels.
- Organize, plan, review, rinse and repeat.
IDS recommends bar-code readers for accuracy to reduce required employees in the process. IDS said counting cards and sheets take more time and people to complete.
The guide recommended creating a stocking area map to stay organized.
“Divide your stocking area into counting areas and assign your teams to geographic areas, rather than product lines,” IDS said. “Surplus and slow-moving products can be pre-counted ahead of the official inventory date. When the official count begins, focus on high-value and fast-moving items first, as these are more prone to counting errors and have a greater impact on your bottom line.”
An alternative method is cycle counting. The method involves counting different sections of inventory at scheduled intervals rather than a one-time, annual inventory. Dealerships using cycle counting should consider using the ranking method. IDS said the method involves counting high-value, fast-moving items more frequently. It is based on Pareto’s Law, which states roughly 80% of retail sales come from 20% of retail inventory.
Dead inventory is a drain on any dealership, IDS said, and should be moved. IDS recommended bundling dead inventory parts with newer inventory and selling the package at a discount.
IDS Senior Account Manager Wylie Hutchison said, “The most common challenges I hear are around managing aging inventory. It is a serious challenge right now—and has been for a couple of years. When you have really high interest rates coupled with inconsistent sales, you can end up with a pretty serious problem.”
IDS said a dealership’s parts manager should take charge of the inventory process.
“This includes overseeing parts issued to service writers and technicians,” IDS said. “Doing so helps track when parts are removed from stock, reduces the chance of lost items and ensures accurate inventory levels.”
The guide said dealership should also establish inventory turn goals , and plan for slow and busy seasons throughout the year.
IDS said, “During the slow season, aim to keep no more than 30% of your peak inventory on hand, gradually scaling back starting in August.”
Finally, the guide said dealerships should pay attention to customers’ buying habits as part of the inventory planning process.
“The key to planning for the future is consistently reviewing the past,” IDS said. “An effective dealership management system will provide the reports you need to manage every aspect of your inventory. By organizing, planning, and regularly reviewing your inventory data, you can develop a system that works for you and becomes more efficient over time.”
