Consider your dealership parts training.
“You can’t sell out of an empty wagon,” an adage from the days when salesmen would sell door-to-door with a wagon loaded with product. They knew early on that they had to have product to sell product. Product availability drove sales and repeat sales helped to keep the right inventory in the wagon. This is one such focus area with ADMI in our dealership parts training.
Do you suppose the early vendors asked the question; “What is the carrying cost of my inventory?” A question that surfaces when working with dealers to re-balance their inventory; a process allowing demand data to drive stocking levels.
In addition to knowing inventory carrying costs, the cost of not carrying in inventory must be considered.
A quick search for ‘average inventory carrying costs’ on the internet provides averages, however carrying cost can vary and each component of the calculation needs to be considered.
- What is your cost of money?
- If not invested in inventory where would you invest and what could you be earning?
- Do you need to borrow the money in order to invest in the inventory?
- Can you reduce your cost by liquidating non-selling inventory?
- Where is the inventory going to be warehoused?
- Does the expanded breath of inventory also require a warehouse expansion?
- Will there be incremental expenses including:
- Inventory taxes (if applicable)
- What about additional personnel needed to receive and stock?
- Physical inventory expenses?
- Do you have a reserve for shrinkage, pilferage, and/or deterioration?
- What about an obsolescence reserve?
- But what if the incremental inventory comes with a return guarantee if it does not sell then you have zero risk of obsolescence.
“What does it cost to not carry an investment grade inventory?” and having to pick-up parts from a local warehouse, competitor’s inventory, or the factory parts depot to supply your service department.
Lost or reduced profits when acquiring the part from a competitor (cost +), lost factory incentives and allowances, increased personnel and equipment expense picking up a part, and lost technician productivity while waiting for the part, or time spent switching jobs until the part arrives, reduced customer satisfaction when the repair is delayed because that part is not available at the time of demand on your shelf.
Optimal profit comes from selling out of your wagon!
ADMI includes proper understanding and idle inventory mitigation and planning techniques in all its most basic dealer parts training programs. For help with perfecting your dealer parts operation processes, procedures, and inventory investment, contact us today.
By Ryan Forsyth, ADM