Ordering parts is a tricky business – if you order too much, you increase holding costs and increase the likelihood of obsolescence. If you order to late, wait times will end in decreased turnover, disappointed customers and possibly even send business to your competitors.
That’s why knowing when you need to reorder parts and how much you should bring in is critical to the smooth operation of your parts department and services shop.
Setting reorder levels will ensure you always have the products you need when you need them, while also giving you time to order new parts.
To determine the minimum number of units that should be maintained for each SKU, there are a number of elements you will want to consider:
While it would be nice if we could see into the future and know with 100 per cent certainty what parts we will need and when, this just isn’t possible. That is where forecasting comes in.
Forecasting looks at past sales trends, seasonality, proposed marketing initiatives and similar information to come up with an informed prediction about how much of a specific SKU your automotive parts department will need in the future.
Delivery isn’t instantaneous – while some suppliers may be local or provide same day delivery, this is often not the case. In most situations, you will have to wait for your order to be processed, picked, packaged and delivered, which can take days. That is assuming your vendor has everything in stock as well.
That is why, when determining the optimal reorder point, you have to consider how long it usually takes for the new inventory to arrive. If lead times are shorter, you can set a lower reorder level. If the lead time is higher, you will want to give yourself some additional units so that you can continue to fill orders while you are waiting for the next shipment.
If your supplier is not as dependable as you want them to be when it comes to the consistency of delivery times, consider adding additional safety stock or look for a backup vendor in case of a sudden surge in demand.
Turnover is the time it takes for a part to be sold once it enters your inventory. The longer your turnover is, the less you will want to stock at any given time and the lower your reorder point can be. For fast moving parts, with a higher turnover, you may want to consider a higher reorder point, to ensure you can fill orders while you wait for new stock to arrive.
When it comes to determining inventory minimums and maximums, the higher the holding cost the less you will want to stock at any given time. This is because expensive parts tie up more capital and put you at risk for greater losses if the part becomes obsolete.
While this should not be the sole reason for reducing your reorder point, it should be a strong consideration. This can ensure that you aren’t left with expensive stock that you can’t move because of a sudden change in demand.
As you know, when it comes to certain parts (such as spark plugs), varying quantities are needed depending on the vehicle and engine model. While this may seem like an obvious consideration, ensuring you have enough parts to fulfill the largest possible job/order is sometimes overlooked when setting reorder points.
That is why you want to be sure that, at any given time, there is enough in stock to complete a job. There’s nothing worse than trying to complete a job, only to realize that you are one spark plug short.
Once you have determined your optimal reorder point for each part, be sure to enter it into your inventory management system. That way, everyone on your team will know when it is time to reorder.
Remember that all of these factors (especially demand), change over time, affecting your optimal reorder level. Be sure to review your re-order levels on a regular basis to ensure they fluctuate with current patterns.
For more information on setting reorder points or to have our team of professionals help implement this into your parts department, contact us today.