Many businesses manage their inventory based on reorder points, ordering new stock once the previous stock gets to a specified minimum.

While this can be effective, there are many other ways to manage inventory that ensures you have the parts you need, while helping you to minimize obsolescence and use space more effectively.

Two major inventory management methods that businesses use to ensure they have a timely flow of inventory while also optimizing capital and space are Just-in-Time (JIT) and Material Requirement Planning (MRP).

Just-in-Time                 

Just-in-Time inventory management was coined in the automotive industry as a way for automotive manufacturers such as Toyota, Ford, and other imports to:

• maximize space,
• minimize insurance costs,
• eliminate waste,
• lower inventory carrying costs, and
• free up capital

JIT inventory management is a demand-driven management system that focuses on real usage. To employing JIT, your parts department would order and receive inventory only as it is needed and not before.

While JIT can be very advantageous, it can also be risky. If demand unexpectedly spikes or a supplier fails to deliver goods in a timely manner, you may find yourself experiencing stock outs that have a negative effect on productivity and customer service. It can even affect the reputation of your business, pushing customers to your competitors, if stock outs occur on a regular basis. 

Material Requirements Planning

MRP is projection based and uses sales forecasts to determine how many of each part should remain in stock and how often it should be reordered. To effectively predict this information, your parts department must have accurate sales and inventory records. As a result, poor predictions can result in overstock, leading to increased obsolescence and profit losses. 

Like JIT, MRP aims to eliminate excess inventory, but unlike JIT it takes into consideration uneven demand and seasonality.

While both JIT and MRP have their advantages and disadvantages, many companies experience the best outcome when using both solutions in tandem, allowing your parts department to enjoy the best of both worlds by balancing the risks of overages and shortages.

For help on assessing your parts inventory for your dealership, contact us today!