Cash is King – always. Having cash in the bank – now and growing in the future - is always rule 1 with any business. Our Parts Inventory Health Check will identify specific (by part number and quantity) opportunities to have the correct part on the shelf in the correct quantity. This is both increasing first-time fill from inventory and lowering the inventory investment. The result – more cash now and in the future.
The mission of KEA Advisors is to increase PROFIT for commercial dealerships by transforming their business operations to best in class. The concepts of maximizing total absorption while having an accurate and high velocity balance sheet are our core beliefs.
From a parts department standpoint, this means driving sales and gross profit, eliminating as much waste as possible and turning the inventory as quickly as possible. The parts inventory is always the starting point to address the areas listed above. Our Parts Inventory Health Check will provide you an in-depth analysis of areas of opportunity within your parts department that will lead to improved cash on hand and Total Absorption.
The approach in a Parts Department always starts with getting the right part on the right shelf in the right quantity at the right time. This is “right-sizing” an inventory and will identify specific parts that should be on your shelf (“first-time fill from stock” - drive sales and gross profit) and that should not be on your shelves (can help you liquidate frozen capital in your inventory and provide cash for you.) Right-sizing also helps you reduce redundancies and errors across multiple rooftops.
Once you’ve “right-sized” your inventory, it is important to put routines in place to maintain inventory accuracy as well as have the correct staffing to meet the sales demand and keep the department profitable. Finally, the focus turns to pricing and increasing gross profit %.
First Time Fill Rate from inventory is Job 1. Do you have the right parts in inventory to meet your customer demand? Anytime a dealership is unable to supply the part immediately, it leaves room for that customer to go to a competitor to get what they need. Our Health Check will help you compare demand by part number against your current inventory (supply) by part number and identify areas of opportunity. The goal is a one-month supply of the right part numbers (there are parts that will have over 1-month supply such as low cost parts that it costs more to handle than hold and parts that receive deep discounts on bulk order – just make sure the sales support the deep discounts.)
Next, we focus on duplicate part numbers. Often, you can purchase the same part from different vendors, and it is input into your system under different part numbers. We identify and consolidate these part numbers - consolidating the demand and reducing the total quantity on hand. The impact – potential cash.
After getting the fill rate and duplicate part numbers identified, the focus turns to inventory depth (removing excess, identifying transfers within the various rooftops rather than reordering, obsolescence, etc.) KEA's two most important metric are first-time fill rate from inventory and true inventory turns. If the fill rate is where it should be (guide is 90% for piece fill rate) and the depth of the inventory is in line (a one-month supply for most part numbers), true turns will optimize. The focus is on having the correct depth of parts on-hand.
If you are a dealership with multiple rooftops, ensuring your set-ups across your DMS are identical is vital to inventory management as well as accounting and reconciliation practices. It is important all parts are assigned to the same part source/class for every location, and that the part cost is identical in each location. Imagine the accounting impacts of transferring part ABC123 with a cost of $10.00 to a different location that has the part cost at $25 in their system. If you transfer 3 pieces, your accounting transfer is for $30 of inventory, but your physical inventory jumped $45 (($25 - $10) x3.) Once this part is sold out of inventory, you will have a discrepancy that cannot be reconciled. This is the last step of our inventory analysis – comparing part numbers in all inventories to ensure they are in the same source/class and have the same cost.
Once the inventory is working, focus can then turn to staffing and sales and gross margin %. Developing the correct staffing model to ensure proper coverage and efficiency while minimizing expense is crucial in addition, while pricing structure is important to your overall margin, it is also vital the same structure is in place across all rooftops. This includes making sure all parts are tied to the same part source, and that price codes and escalators are identical. By ensuring this, you make sure the pricing rules are applied equally and consistently to all products and customers and can control the outcome of your gross profit.
Are you looking for a real-life example? Just last week we compared 2 rooftops from the same dealer group. By working through the analysis described above, we identified the correct inventory needed to yield a consistent 91 – 93% first-time fill from inventory while also finding approximately $4 million in cash opportunity. The return on investment possibility is immense (over 500%.)
Our Parts Department Health Check provides detailed analysis of these areas of your parts business to help you identify and pinpoint actions you need to take. Our advisors are industry experts, with the experience and knowledge who can help you take the analysis and implement solutions to lead your team to success.
Contact us today to get started with your parts inventory health check., or email Amber at email@example.com to discuss how we can partner with your dealership.