Do I Really Need to Take Parts Inventory Every Year?

Bruce NewsletterIt’s about this time each year that parts managers get grumpier than usual. It’s time to take their annual inventory count. Now there are some dealerships that don’t take an annual inventory each year. They typically say it’s because their dealer wants to save the expense. But the real question is, “Does it really save the dealer an expense?”

I recently took a parts inventory for a client whose former manager had been doing “the count” the last several years. He had given the “reconciled” numbers to the accounting office each year. This past year his parts manager refused to hand over the counter pad to support the inventory “numbers” he turned into accounting. The controller got very suspicious.

They asked me to visit and validate some other practices that they discovered. They had also learned that the parts manager had been selling parts on eBay.

Some parts were “scrap” parts the manufacturer had authorized to be thrown away. Some were new parts that had been purchased and charged directly to the “parts account.” They even found some older “paper” catalogs from years gone by that were sold on eBay. There were other items that were non-automotive related.

If you gave your employees a choice between participating in your company’s annual physical inventory and going to the dentist for a root canal, which would they choose? Which would you choose? The thought of spending the better part of a weekend in an unbearably hot (or freezing cold) building, trying to count every part, finding material that you can’t identify, and searching for other material that arrived in your building and then disappeared, is not most people’s idea of a good time.

So why do it? If you ask your controller (who usually runs around with a clipboard throughout the process), he’ll probably say, “because the accountant requires it.” Unfortunately, most employees respond to this answer the same way they reacted when their mother told them to eat their spinach (“because I’m your mother and I said so”). They don’t see any advantage in doing a good job or being accurate. Most feel that the accountant is only going to use the numbers we give him on some government reports that no one is going to look at. Boy, is that all wrong!!

Yes, management knows better. Everyone in your organization must realize that the primary purpose of a physical inventory is not to please your accountant or the Internal Revenue Service. It is to verify that the on-hand quantity of each item in your computer reflects what is actually on the shelf. The secondary purpose is to verify that the monetary investment the dealer has asked you to oversee is all still there!!

A physical inventory can seem like an overwhelming task. But just keep in mind that it’s a lot like painting a house. The quality and success of both depend on proper preparation. Take the time now to plan and prepare for your annual count and make your next physical inventory the most accurate one in your company’s history.

Any business needs a “checks & balances” process to monitor the validity of any inventory. You never want to think you have someone you can’t trust BUT don’t be naive enough to think it could not happen to you.

So again I ask the question… Do I really need to take parts inventory every year? If you were to ask this client I worked with on theft and fraud, I think he would not just say YES…BUT HELL YES!!!

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