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The Critical Importance of Regular Parts Inventories

Conducting a comprehensive physical inventory of your dealership’s parts assets at least once per year is an essential practice for properly managing your valuable capital investments and determining what stock is actually sellable. While some dealerships try to cut costs by skipping regular counting, this penny-wise and pound-foolish thinking often backfires.

Let me tell you a cautionary tale that illustrates why inventories are so crucial. A dealer had trusted their longtime parts manager to handle annual inventory counts. Year after year, the manager dutifully provided updated numbers to the accounting department. But last year, when the controller requested the manager’s count sheets to reconcile the results, the manager suspiciously refused to provide any documentation.

This raised bright red flags for the dealer. To investigate further, they brought me in as an expert consultant to audit practices around their parts inventory protocols. What we uncovered was downright shocking. The parts manager had secretly been running an elaborate side hustle, selling dealership items on eBay for personal gain. Some items were new parts, purchased with dealership funds and then pilfered. Other items were old “paper” catalogs and even scrap parts that manufacturers had previously authorized for disposal.

So why suffer through the mind-numbing tedium of a full physical inventory each year? It’s clearly not just to placate accountants or the IRS. The number one reason is to validate that your computer system matches precisely what is physically sitting on your parts shelves and in your bins – protecting against both innocent mistakes and deliberate manipulation. An accurate count verifies that your on-hand quantities are correct. This protects against selling product you do not actually have available.

Additionally, your parts represent one of your dealer’s largest cash investments. By overseeing this valuable asset, your dealer has entrusted you to steward and account for their funds. A full, accurate inventory ensures you have not lost or misplaced items through sloppy practices or theft. When discrepancies arise between book and actual counts, like an unexplained $5K overage, they can signal deeper systemic issues of mismanagement or fraud.

Now conducting a wall-to-wall inventory can no doubt seem daunting. But just remember that in many ways it resembles the equally unglamorous task of painting a house. Much hinges on meticulous preparation and discipline. Meticulously counting each item is the last step of a year-long process. Critical components leading up to a smooth annual inventory include:

  • Creating a detailed map of parts areas showing all bins, shelves and layout
  • Performing regular spot checks of bin counts each week
  • Straightening disorganized bins and ensuring all labels are clear
  • Locking up assets securely to prevent unauthorized removals
  • Processing payables daily so accounting is not overwhelmed
  • Reviewing aged work orders monthly to catch stalled credits
  • Maintaining folders for pending returns, outstanding core credits from vendors, donated parts removed from system, etc.

While no one eagerly anticipates the task of conducting inventory, placing unconditional trust in employees without proper verification can lead to devastating consequences for your dealership. Establishing a robust system of checks and balances through regular inventory counts may require a significant investment of time and effort initially, but it will ultimately save you from encountering massive headaches and potential financial losses in the future. When it comes to safeguarding your valuable parts investment, adopting a proactive and diligent approach is unquestionably the wisest course of action, as it embodies the age-old adage that an ounce of prevention is worth a pound of cure.

Elevate your Fixed Operations department with our custom-tailored solutions. Our team offers in-depth assessments and specialized training programs, crafting strategies designed specifically to boost efficiency, maximize customer retention, and ensure long-term profitability. Weโ€™ll work closely with you to identify areas for improvement and implement targeted solutions that drive sustainable growth for your business.

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