Automotive Dealership Parts Departments: 5 Steps for Minimizing Inventory Loss

  Mike Bachara   |     Aug 30, 2019

Handing over car keys

Every automotive parts business has inventory problems – overstock, obsolescence, the wrong mix of parts and many more. The difference between a successful business and a business with increased losses is how the management chooses to deal with these issues.

By taking the time to address these inventory problems and find viable long-term solutions, you will become more efficient, save money and release capital for other opportunities.

To help you on your way to greater success, here are five steps that you can take to minimize inventory losses.

1 - Identify the problem

Before you can start resolving your inventory issues, you must first be able to identify the issues. To do this, you want to take a look at your inventory records and identify key areas of losses. Areas that could be causing you your biggest inventory losses include:

  • Lost sales opportunities due to misplaced parts.
  • Lost sales opportunities from insufficient stock.
  • Obsolete parts.
  • Capital tied up in overstock.
  • Defective parts.

2 - Determine the value and prioritize

Once you have categorized and identified problematic inventory, you need to determine the cost associated with these losses and determine which areas require your immediate attention and which ones can be looked into at a future date.

For missed sales opportunities, you will want to keep track of how many times a customer came in and didn’t choose you for the job because you didn’t have (or couldn’t find) the parts they needed and the revenue lost from these sales.

To determine cost of obsolete parts, take a look at how much the value has deteriorated and how much you can recover.

For capital tie ups, you will want to include interest and holding costs associated with not being able to use that capital elsewhere, as well as lost opportunities if this capital could have been used elsewhere to increase revenues.

Finally, for defective parts, you want to look at the cost of the time you spent replacing the parts that you will not be able to collect on, as well as the effect the defect had on your customer satisfaction.

3 - Identify short-term solutions

Now that you have determined the underlying issues and know which order you will look at resolving them.

Which means determining whether there is a need for a short-term solution, such as unloading obsolete and overstock items. This may include finding a buyer, using manufacturer return programs, breaking down parts to use the individual components for training or sending for scrap.

4 - Find the source of the problem

Once you have decided how to deal with the immediate issues, you will want to identify how the problem happened in the first place. Often times, it is a lack of policies and procedures that focus on managing problematic parts, however, other common reasons can include:

  • Over optimistic forecasting.
  • Lack of communication between the parts, service and administrative departments.
  • Improper use of inventory management programs.
  • Inadequate restock levels or excessive safety stock.
  • Bad inventory records.

5 - Implement a long-term solution

Now that you have dealt with the immediate issue and have identified the underlying problem, it is time to fix it. Often times, the solution will uncover itself as the problems are identified. Some solutions will be easy to implement while others may require more time and transition.

The important thing to remember throughout this process is that taking the time to follow these steps and implement a real solution will ultimately lead to greater efficiency, improved customer service, greater revenues and the overall success of your business.

For help identifying problem stock, resolving immediate issues and implementing long-term solutions to improve your inventory position, contact our team of inventory professionals.

Guide to Optimizing Inventory MGMT

By Mike Bachara

Mike Bachara | Owner of Pro Count West
Mike Bachara | President Pro Count West

Our Latest Blog Updates Delivered to Your Inbox