Saving Money with Strategic Inventory Management
Any outdoor power equipment dealer knows that when it comes to making a profit, inventory management is vital. And in a down economy, it becomes even more important. By strategically managing your inventory, however, you can make a big difference in your bottom line.
During the slow time of year, your parts inventory should only be 20% of what your inventory was at peak of the season. For instance, if you carry $300,000 in inventory during peak summer then your off-season inventory should only be around $60,000.
Manufacturers used to be terrible at getting dealers’ parts on short notice, so most dealers overstocked so they could service customers better and do repairs. Now, however, A-level manufacturers have a fill rate of 93-95%, and there’s no need to stock parts that you can order in 24-48 hours. We know that dealers love the idea of having the right part in stock every time a customer needs it, but it’s just not a smart practice in a down economy like this one. Even manufacturers don’t have a fill rate of 100% because it would just cost too much money to stock every arcane part. So, your dealership shouldn’t have that goal either.
To save money going into 2010 dealers should change their expectations and shoot for an 80%-85% fill rate at the counter. Doing this helps reduce your costs in inventory. Many dealers structure their parts department to primarily serve the service department. So, in many dealerships the service department becomes the biggest customer of the parts department, buying 60% or more of the parts in the existing inventory.
So what’s the secret to getting rid of your slow-moving inventory?
The key is to create a good stocking point. One effective strategy is not to put a part in stock unless you get 3 demands for it within 70 days. And, this includes demands made by the service department. You can monitor these demands easily with good OPE business software.
Another mistake that dealers often make is ordering too many parts to stock when demand is going up. For instance, if you sell 4 parts one season and then 12 the next, you might be tempted to keep at least 6 of those parts in stock. But you have to analyze what’s happening with your customers. The reason they’re buying those parts in the first place is that that particular product is nearing the end of its lifecycle. This means demand is going to go up, and then drop off as that product is replaced. If you have several of those parts in stock, you might be stuck with them.
Overall, it’s vital not to let your parts inventory big in the beginning. It’s important to be as aggressive as possible with the manufacturers to get every part returned that you can and keep your existing inventory low during the off-season. Investing in good OPE business software can help you strategically manage your inventory so that your dealership thrives during the upcoming year!