15 Feb
How to Establish Inventory Goals That Work

My inventory is organized and counted. What now?

Once you’ve accurately counted and organized your inventory, it’s essential to set inventory goals to make sure it never ends up in poor state again.

Jeff Sheets, who has provided dealership consulting as a member of Bob Clements International, explains how to do just that in this guide.

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Put your Parts Manager in charge

Put your Parts Manager in chargeWe’ve mentioned before that keeping tabs on your inventory is very time-consuming, and due to priorities such as sales and management, it’s not something a dealership owner can commit to.

That’s why you’ve got to put your trust into someone who can do that for you – such as your Parts Manager. In fact, they should be in full control of your inventory management.

Keep as few hands on your inventory as possible

​Sheets says that the key to proper parts management is to have as few people dealing with your parts as possible.

​Do not let your service techs handle your parts because they tend to pull items off the shelf without accounting where they come from, which can lead to major stocking issues.

Getting your Parts Manager to cooperate

Let your Parts Manager be the one to handle the parts for the service techs. It will not only help your inventory levels, but result in more billable hours for your techs, because they won’t have to leave their area and waste time looking for parts.

TIP: Consider implementing an incentive plan for doing good work as well. For example, if your Parts Manager keeps the inventory 95% accurate over a set period of time, offer them a bonus. This holds them accountable and drives them to keep your quantity levels and parts movement in good order.

How to Establish Inventory Goals That WorkSet an inventory turn goal

​Sheets says that one of the most commonplace problems is that dealers don’t apply a goal-oriented approach to their inventory management. He suggests that every dealer should at least have an inventory turn goal.

What’s an inventory turn goal?

An inventory turn is defined as the number of times inventory is replenished in a year.

It’s calculated by dividing the average inventory level (or current inventory level) by the annual inventory usage (or the annual cost of goods sold).

The purpose of this goal is to keep your items moving constantly and avoid wasting money on something you won’t be able to sell.

Aim high

It’s common for dealers to have an inventory turn of one or two, but Sheets believes you should set four as the goal. If you have an inventory turn goal of four, then only 25% of your inventory should be on your shelf at one time. If your inventory turn is typically two, then you would already have 25% more in your bank account rather than stocked up on your shelf.

Although four may seem like too much, it never hurts to shoot high. It is important, however, to choose a turn number that does make sense for your business. One thing to remember – if you decide to shoot higher than four, you may run the risk of running into stock-out problems.

With a turn goal in place, it’s time to look for ways to achieve it – and that starts with monitoring your inventory quantities.

Set min/max levels

Setting up minimum and maximum ordering levels for your parts is going to provide you with the most headway in maintaining inventory control.

By setting these levels, you’re putting parameters on your parts, so that you don’t go too far over or under when ordering a certain item. Therefore, it’s extremely important to go through your sales history from the previous year and set seasonal levels that prevent you from becoming too overstocked or understocked.

Account for slower months

It’s no secret that certain times of the year are slower than others. To prevent becoming overstocked during such a time, you need to reduce the number of items you order. So, once August hits, you should start working those stocking quantities down. This way you’ll have the ability to buy the right parts at the right time and take advantage of manufacturer discounts.

TIP: Sheets recommends that you should have no more than 30% of your peak inventory stocked during the slow season.

Reap the benefits of the busy season

Once your busy season hits, you’ll want to make sure you have plenty of parts on hand to keep your customers happy. That way, when your quantities start to get low, you’ll have enough time to react and order more.

It’s even easier if you have industry-specific dealer management software because it can keep track of the levels you put in for each part. When the levels become low, the software will automatically request an order recommendation based off the levels you set.

Similarly to taking inventory counts, you need to analyze your min/max settings on a continual basis. If you don’t analyze your sales history and change your levels on at least a yearly basis, you run the risk of overstocking on parts that may not sell well a couple of years down the road.

Plan for the future

Now that you have your guidelines set, it’s time to plan for the future to make sure your inventory is always in top condition.

According to Jeff Sheets, many dealers are reluctant to plan ahead, which means that their inventory is never quite as lean and organized as it should be.

If you have put all the extra work into counting, getting rid of dead items, organizing, working with your Parts Manager as well as setting turn goals and min/max levels, then you must keep moving forward!

TIP: The most important thing in planning for the future is to constantly check the past.

Know your history

Start planning for the future by analyzing your sales history and seasonal trends. This is where having industry-specific dealer management software can be vital – since it allows you to run reports on every aspect of your inventory control, including your sales history.

Even if you’ve been in the business for 20 years and think you know the trends like the back of your hand, you’d be surprised how much insight you can gain from automated reports.

Look to your customers

Each time your customers purchase something from you, they are casting a vote for the merchandise you carry. Make sure you take these votes seriously, so that you can stock the merchandise based on what your customers want instead of trying to guess. While you’re checking these votes, don’t overlook the importance of lost sales. This is an area where most dealerships struggle simply because their employees don’t want to take the time to record a lost sale.

Make an effort to track this! You never know where you could come across a product that’s in popular demand that you don’t carry. The last thing you want to do is send your customers to the competition.

Plan just a few months ahead

Don’t plan ahead for an entire year all at once – and instead plan only 90 or 60 days ahead.

As you know, working in a seasonal business means that things can change from month to month.

For instance,  your area can go from an extremely rainy period to severe drought, which can easily ruin your carefully laid-out inventory plans and cost you money. To avoid that, plan ahead in small chunks – that way, you’ll be able to readjust your inventory quantities in case something unpredictable happens.