Issue Date: Parts Manager June 15, 2010, Posted On: 6/23/2010
Making a case for outsourcing the annual parts physical inventory The annual parts physical inventory should not be looked upon with dread. It shouldn't even be thought of as a necessary evil, because there's a lot of good that can come out of a well run parts inventory. This is especially true if an independent parts inventory company is hired to do the job. A dealer's parts inventory can be valued at hundreds of thousands of dollars to well over a million dollars. This large asset needs protecting and auditing, ideally, by an unbiased third party. Let's take a look at why "independent" beats "in-house."
Outsourcing your parts inventory helps keeps your people honest. There's an old saying, "Don't let the fox count the hens." Conducting an in-house inventory with your own parts manager and parts personnel is sort of like having the fox count the hens. As they say, opportunity makes the thief. While this is true, you also don't want to foster an environment of mistrust. That's why it's crucial that your parts inventory company takes more of a team player approach than a watchdog attitude. Theft is generally the exception rather than the rule and there are certain safeguards dealerships can take to avert this potential problem. A fastidious parts inventory company will highlight the dealership's areas of vulnerability.
A fresh perspective can highlight inefficiencies. "That's the way we've always done it" doesn't necessarily mean its right or helping the bottom line. Whether it is workflow, procedural or general housekeeping practices, there is always room for improvement in any given parts department. Keep in mind that an experienced parts inventory company has had an intimate view of the inner workings of hundreds of parts departments in dealerships coast to coast. They've seen the best and worst and everything in between.
It's not as expensive as you think. What would take an in-house team days on end to complete would take a skilled inventory company 6 -8 hrs on average depending on the total inventory value? In-house inventories can lead to costly overtime wages, employee burn out or disgruntled employees for being called in on a weekend or after hours.
Minimize interruption of business. With an outside company, your dealership never has to shut down to shift your manpower to counting versus tending to the customer.
Accuracy. Parts inventory companies are highly systemized. They are working with an industry specific, highly skilled and trained work force. Your outside accountants will usually accept the outside firm's count as accurate. Not so with an in-house count.
Another outlet for obsolescence. Many parts inventory companies have the know-how and connections to move or broker your obsolete parts. The parts inventory companies can also help a dealership revise their return procedures and policies to avoid being in a position of excess obsolete parts in the first place.
Experts on the DMS. One of the biggest hurdles dealerships face is management with a limited understanding and usage of the DMS. Pulling and analyzing reports is a parts inventory company's forte and they know how to swiftly access and utilize all of the pertinent information to get a precise snapshot of the inventory value.
Bridging the gap. Typically, the dealership's accounting department has little understanding of the parts department and likewise, the parts department personnel aren't always well versed on accounting procedures. Therefore, if a discrepancy arises, there might be tension and skepticism between the two departments. An inventory company has parts experience, accounting experience and DMS experience.
Added value. Parts inventory companies usually offer consulting services as part of their fee. By implementing just one of their cost cutting ideas or procedural changes, in theory, the inventory company could pay for itself over the course of the year with the implementation of just one new idea.
An outsourced parts inventory report is like a report card for your parts manager. It can be an invaluable gauge of how well the department is being managed.
Most publically traded dealerships mandate a third party inventory. Evidenced by the examples above, independent dealerships would be wise to follow suit.
Jennifer Conner is with Total Dealer Solutions Inventory Company, 3471 N. Federal Highway, Fort Lauderdale, Florida.. To respond to this article contact Jennifer by e-mail at jen@markjpayne.com.
