Get Rid of Dead Inventory and Organize for Profitability
Your inventory count is done…Now what?
Once you’ve conquered the daunting task of counting inventory, it’s time to decide how to make your merchandise more profitable.
With help from Jon Schreibfeder, president of Effective Inventory Management, Inc., and Jeff Sheets, independent dealership consultant, we’ll show you how to get rid of obsolete items, add new stock and organize your inventory in a way that will improve your cash flow.
Getting rid of your dead inventory
If you’re going to get serious about any one aspect of your inventory, getting rid of dead and slow-moving items must be a top priority. Otherwise you’re just throwing hundreds or even thousands of dollars away – dollars that could be put toward other areas of your business!
Start by identifying your dead and slow-moving items. If you’ve taken counts, you’ve probably seen some of them already, so add them to the list. If you have an industry-specific dealership software, you can run reports that will flat out tell you what your worst sellers are.
Once you’ve identified them all, you have several options:
Get your people to upsell the items.
According to Jon Schreibfeder, if you give your people an incentive to sell – in the form of commission bonuses and similar rewards – they will work harder to deliver stellar results.
Return the items.
See if your manufacturer will take some of the parts back and in return offer you a percentage of their cost or a store credit. Most manufacturers allow you to return parts at least once per year, so take advantage of that and set up policies to handle this process adequately.
Sell your parts on eBay.
Jeff Sheets has seen a lot of dealers do this with great success. Just because you have parts that aren’t working for your business anymore, doesn’t mean that someone else won’t take them. One person’s junk is another person’s treasure!
Sell the merchandise to a competitor.
This may sound crazy, but according to Sheets, if there is a need for your items somewhere else, you will get compensated for them.
Stocking new products
As important as you think a new product may be, don’t base your purchasing decisions on a gut feeling. Before you even consider adding new parts to your inventory, Schreibfeder suggests the following:
- Don’t let surplus of new inventory turn into your next batch of dead inventory!
- Try negotiating a return of unsold items with your vendor if you’re taking a gamble on them.
Bottom line, always make sure you understand what you have and what you need before you decide to order more.
Organizing inventory in a way that makes sense
Jeff Sheets has worked with far too many dealerships that organize their parts the wrong way – by vendor and vendor type.
This is a problem becasue part numbers change over time, which means that some of your fastest-moving items will eventually end up somewhere in the back, forcing your workers to waste time going back and forth to get them.
Sheets’ solution is to establish bin locations that have all the parts exactly where you need them. It takes time to set them up initially, but doing so will help your people work faster and enable greater freedom of movement in your parts department.
The key to setting up bins is to make them as clutter-free as possible. Sheets suggests using either shelves or a LISTA cabinet – his preferred choice. LISTA cabinets easily allow you to arrange parts by location.
For example, you can place your spark plugs in Unit A, Shelf 1, Position A and so on. That way, when you’re looking for a specific part, all you need to do is identify its location – instead of trying to figure out what it looks like.
This also gives you the flexibility to easily rearrange parts when necessary.
TIP: If you have shelves, don’t overstock them. Carrying 75 parts on a three-foot shelf is not good organization. For a shelf that size, you should have roughly 15 parts – to make it easier to tell them apart quickly.
When it comes to the placement of each part, Sheets recommends sorting by manufacturer rather than vendor. However, he would make an exception for your fastest-moving parts and instead put them in a special section located as close to your parts personnel as possible. In addition, if you go through certain kits on a steady basis, be sure to group them together.
By taking the time to organize your parts in an orderly fashion, you’ve just made your Parts Manager’s job a lot less stressful.