Five Ways to Keep Parts Inventory Under Control
Benjamin DeForest Manager, CPA, MBA
28 March 2019
Parts inventory is a complicated and challenging area for dealerships to manage. With different personnel involved from both the parts and accounting departments, as well as having two separate systems accounting for parts inventory, it is no wonder why this area can be so difficult.
Although complex, the importance of maintaining accurate parts inventory cannot be understated. With significant cash tied up in parts inventory, it is a considerable investment for the dealership and can be an expensive problem if not properly maintained. Think of this example: let’s say a dealership has parts inventory on hand of $300,000 but there is a $30,000 variance after a physical inventory is performed. This is only a 10% variance, which doesn’t seem problematic at first glance,
Parts inventory variances are not unusual and often occur due to obsolescence, shrinkage, poor record keeping, or poor communication between dealership personnel – particularly the accounting and parts departments. While discrepancies in parts inventory will almost always occur, there are ways to identify the issues quickly, improve procedures, and minimize or avoid some of the common pitfalls.
1. Physical Inventory by Outside Inventory Firm
Having an outside inventory firm perform
2. Weekly Bin Checks
3. Hire Good People and Train Them Properly
As with many other facets of a dealership or business in general, people drive the quality of the work. Finding a trustworthy parts manager is a key step toward keeping an organized parts department. The parts manager is overseeing the vast majority of the parts inventory operations so this person should be highly knowledgeable about the inventory itself as well as in-tune with the day-to-day activity of the dealership, knowing what inventory is needed at any given time. Hiring detail-oriented receiving and shipping personnel helps to reduce mistakes when parts are entered or removed from the inventory management system. These employees, once properly trained, can be a strong line of defense against vendor errors and other accuracy issues that often occur in the parts inventory receiving
and shipping processes. Identifying discrepancies before entering parts to the parts inventory management system can reduce accuracy issues in the future.
4. Identify Fast-Moving Parts
It is no surprise, but some parts move faster through the dealership than others. Focus on identifying those fast-moving parts and make sure they are on the shelves and available for customers to purchase. Knowing the parts that not only
knowing what parts to buy at any given
5. Controls Over Inventory
Shrinkage due to employee theft causes variances on parts reconciliations and can cost the dealership a considerable amount of money. If the dealership employs proper internal controls and safeguards around parts inventory, the opportunities for employee theft are greatly diminished.
For example, all parts inventory should be stored in a locked or secured area after hours to prevent easy access to employees or others. Also, segregating the duties of parts employees prevents an employee from having full control over the inventory process.
For example, have different employees order, receive, and record parts inventory.
With so much daily activity in the parts department, accurately tracking parts inventory is as imperative, and difficult, as ever. Implementing new procedures is never easy but applying some or all of these suggestions can assist in improving parts inventory accuracy in the future.