Establishing Inventory Goals that Work

Once you’ve accurately counted and organized your inventory, it’s essential to set attainable goals that will allow you to gain control and plan for the future.

Offer an incentive plan for your Parts Manager

We’ve mentioned before that the main reason you probably aren’t keeping good tabs on your inventory is because it’s too time consuming and not something that you want to commit to. Owners are salespeople. They don’t want to do the administrative aspect of the business. That’s why you’ve got to put your trust into someone with more expertise, and that’s your Parts Manager.

Your Parts Manager has one of the most demanding jobs of your business. If you’re getting serious about implementing an effective inventory control plan, they need to be heavily involved. In fact, they should be in full control of your parts.

Set an inventory turn goal

As a business owner, your whole livelihood is based around goals. You probably wouldn’t be running a business right now if you didn’t have them. So why wouldn’t you have concrete goals for your inventory?

Sheets says a problem he often sees is that dealers don’t take a goal-oriented approach to what they want to get out of their inventory.

If you have expectations for how much of your inventory you want to sell in a year, then shouldn’t you have expectations for how much money you want tied up in inventory and how you’re going to turn it into a profit as quickly as possible? Keeping your inventory lean can cause you to see a tremendous difference in your bottom line. But it takes some discipline. You need to set goals for how you’re keeping your items moving so it’s not money tied up on your shelf. You need to have an inventory turn goal.

An inventory turn is defined as the number of times inventory is replenished in a year; generally calculated by dividing the average inventory level (or current inventory level) into the annual inventory usage (annual cost of goods sold).

It’s common for dealers to have an inventory turn of 1 or 2, but Sheets believes you should set 4 as a goal.

 

Set Min/Max Levels

Setting up minimum and maximum ordering levels for your parts is going to provide you with the most headway in maintaining inventory control.

By setting these levels, you’re putting parameters on your parts so that you don’t go too far over or under in ordering a certain item. Therefore, it’s extremely important to go through your sales history over the last year and set seasonal levels that prevent you from becoming too overstocked or under-stocked.

Obviously there will be certain times of the year where you’ll want minimal quantities of certain items, because you know they won’t sell. Sheets recommends that you have no more than 30% of your peak inventory stocked during the slow season. Once August hits, you should start working those stocking quantities down. This way you’ll have the ability to buy the right parts at the right time and take advantage of manufacturer discounts.

 

Plan for the future

Now that you have your guidelines set, it’s time to keep the process moving and plan for the future. Again, one of the biggest problems Jeff Sheets sees is that dealers are reluctant to plan ahead or have goals when it comes inventory.

If you just put all this work into counting, getting rid of dead items, organizing, working with your Parts Manager, setting turn goals and min/max levels, then you must keep moving forward!

The most important thing in planning for the future is to constantly check the past. You must look and analyze your sales history and season trends and this is where having an industry-specific dealer management software in place is vital. There are numerous reports you can run that will help you with every aspect of your inventory control, so you can plan ahead. Even if you’re a 20-year veteran of a particular business and think you know the trends like the back of your hand, you’ll never be in full control without sales history reports.

You can also look to your customers to help you plan ahead. Each time they purchase something from you, they are casting a vote for the merchandise you carry. Make sure you take these votes seriously and plan ahead to stock the merchandise that’s most popular, not just based on what you like.