The High Cost of High Inventory

Your parts department might be full to overflowing with parts. And to some dealers, this is a good thing. After all, you have a great selection for customers, which means you’re their “go to” store when they need a part.

But, how much is all this inventory really costing you? And are you really making your customers happy by stocking everything under the sun?

Let’s take a look at the high cost of high inventory.

Cost #1: Your Reduced Cash Flow

You might have $200,000 in parts sitting in your dealership. But chances are you have at least $20,000-$30,000 in parts that you simply don’t need.

That’s a lot of your money that’s being tied up in parts you might never sell. If you’re having cash flow problems then the first thing you need to do is use your powersport office management software to check your parts department. Returning your slowest-moving parts will allow you to get that cash back and have it start earning you interest (instead of collecting dust in your parts department).

Cost #2: High Inventory is Harder to Track

You know all too well just how maddening taking inventory is. But, it has to be done.

If your parts department is jammed with parts, it’s going to take you an incredibly long time to count them all. How much are you paying your employees to do this? How much money would you save on labor if you reduced your inventory by just 5%?

It’s also important to think about your local government when it comes to your inventory. Many governments have hefty inventory taxes that they’re levying against businesses to enhance their own cash flow in this economy. The more inventory you have in stock, the more you’re going to pay in taxes.

For instance, one dealer in Georgia had to pay an additional $30,000 in inventory taxes that he’s never had to pay before. That’s an enormous amount of cash that he could have saved simply by managing his inventory more effectively.

Cost #3: Confusion

The larger your inventory, the more confusing things can get for your team because it’s just harder to keep track of it all. Parts get misplaced or lost, and boxes get moved. This is more money you’re losing, especially if you have customers walking out the door in frustration when service takes too long.

Smaller inventories are simply easier to manage and they take up less space. You could, in turn, use this extra space to increase the size of your whole goods department.

Last Word…

It’s all too easy to let inventory get out of control. But maintaining a large parts inventory costs your business in several ways. You’re not only tying up your cash flow, but you also run the risk of paying higher taxes and losing customers due to inefficiency.

Using quality powersports office management software can help you make intelligent decisions about your inventory and trim it down to start saving money and time immediately.

Are You Measuring These Key Drivers in Your Inventory?

Photo © by marabuchi

Despite some great advances in the powersport industry, there are still a large number of dealers who aren’t managing their inventory correctly. Why? Well, there are several reasons.

One could be because they don’t have the technology to do
it easily (which is why investing in powersport inventory management software is such a smart idea). Being able to manage inventory, and see real-time figures of what you have in stock, can add significant savings to your bottom line. Most dealers find that they pay for the powersport office software within the first year.

Another reason might be because these dealers don’t see the need. But effective inventory management is one of the most vital tasks you need to do regularly to keep your dealership healthy and your costs under control.

So what key measurements should you be looking at?

1. Inventory Turns
You should aim for 5-6 turns per year for your inventory. This may sound like a lot to some dealers, but 6 turns per year truly is the most efficient and profitable for powersport dealers. Anything more than 6 and you’re going to start losing that efficiency because you’re ordering more often. Again, however, without a business management system it’s hard to know where you’re at with this.

2. Parts Sales Reports
Do you know what your fastest moving parts are? Do you know what hasn’t moved at all?Many dealers are unaware of this important information. But this information can help you make important, strategic decisions for your dealership. For example, you want to make sure you don’t ever run out of your fastest moving parts.

You could also make sure that your fastest moving parts are closest to the counter to improve efficiency. Time is often your enemy in the parts department; when a customer comes in looking for a part, you should have closed a sale with them within 4 minutes of them walking through the door. The faster your team can find your most popular parts, the more sales you’re likely to make. At the least, your customers will leave happy because they got in and out quickly.

3. Whole Goods Sales Reports
Most powersports dealers see their peak in early summer. This means you need to be prepared with the right amount of inventory to handle your increased business. But you don’t want too much, because over-ordering means you’re tying up valuable space in cash in your inventory.Monitoring your whole goods sales reports from past seasons can help you make informed decisions about how much inventory you’ll really need for this year’s season.

Last Word…

It’s really easy for dealers to let their inventory get out of control. But investing in quality powersport office software and closely monitoring key reports will help ensure that you’re making informed decisions that will keep your dealership healthy and strong in the years to come.