When you build a house, the roof is a bad place to start construction. A roof needs to rest on the walls, and the walls need to be rooted in a strong foundation. Keeping in the metaphor, KEA Advisors is often called in to dealerships to look at a “leaking roof” that the dealer principal thinks is the problem only to find that the “foundation” is cracked. When it comes to the parts department a key element of the foundation is inventory integrity. What does inventory mean in the parts department? Remember, the only reason to HAVE inventory is to SELL it – profitably. To KEA Advisors inventory integrity falls into a few categories:
- Knowing what is on the shelf.
- Knowing where it is.
- Knowing how old it is.
- Knowing how many you have on hand (system and actual).
- Knowing how many you have on order.
Why is this foundational activity so important? Primarily, parts inventory is one of the largest assets on your balance sheet, and is funded 100% by the owner. We tend to lose sight of the detail because it shows up on financial reporting as a line item, but that line is made of thousands and thousands of parts. If you don’t understand the parts, you can’t fully understand the whole. Second, nothing puts a damper on what you thought was a good year like a parts write down based on parts obsolescence and inventory loss. Some of that is inevitable, but most of it is avoidable if you act in the moment. Losing sight of your inventory integrity leads to bigger losses.
Finally, your parts department is making commitments to customers (external and internal), based on the parts they think are in stock. These commitments, for your service department, impact the highest margin revenue in the dealership, and finding out the parts that should be in inventory are either not there or unable to be located puts those dollars in serious jeopardy.
Ok, so what? I know what it is, I know why it matters. What should I do about it? What are the bedrock actions that can help improve my inventory integrity? What should I measure and how should I measure it regardless of my unique situation?
- Set and enforce organizational expectations for your parts department. The area should be clean and organized. Bins should be clearly marked and parts should be stored appropriately. Leadership at the location (Usually a GM) should conduct a random walk through of the storage area at least once a week, noting specific instances where these standards are not met.
- All non-authorized personnel (technicians and salespeople in particular) should always be kept out of the parts warehouse. Management and department heads can enter the warehouse for specific customer service and emergency events but will need to notify the parts manager in writing by the close of business to ensure their activities are properly recorded and invoiced.
- Identify, manage and understand your inventory exceptions (bin errors, count errors, stock-out errors etc) on a daily basis…and mean it. Your business system should be able to provide the needed data to manage exceptions on a daily basis. This needs to be a regular part of your business review cadence with your parts department leadership.
Strong results in the parts department are built on a strong foundation. That foundation is built by doing the little things right and maintaining inventory integrity. If your parts integrity is out of control, we can help to get it back in line. Give us a call and let’s talk!
