Inventory Control in the Parts Department

compiled by: RVAA, The RV Aftermarket Association

RV distributors and suppliers are dependent upon the dealer community for the distribution of parts and accessories. Based on this fact, programs for monitoring and maintaining dealership parts and accessories inventories should protect the equities of both the dealer and the distributor/supplier.Win-win solutions ultimately mean better service for the customer, which translates into increased sales.

Grouping of Parts
A parts distribution program must include all parts offered for service and through the parts and accessories departments. Since the annual piece sales of different parts in inventory may vary from no sales to hundreds of thousands, the economics of parts distribution requires the grouping of parts based primarily on piece sales used as a guide in the development of distribution and sales programs.

Keep Dealers’ Parts Investment Flowing
The increase in dealers’ parts and accessories inventories have been tremendous; therefore, accurate sales statistics and quality parts management are important in keeping dealers’ parts investment flowing.

The percent of slow moving and no sale items adversely affects the day’s supply of moneymaking items. The comparison of cost of sales to inventory investment to determine turnover will be misleading in the same proportion as the inventory of no-sale parts is to the total inventory.

Dealers’ parts inventory analysis indicates that from 20 to 65 percent of their parts investment represents parts with little or no sales. This condition is due to:
1. Dealers’ buying practices based upon speculation rather than actual sales statistics; and
2. Dealer evaluation of parts inventory investment without considering the effect of slow moving and no sale items.

Eliminating this poor condition requires a change in the dealers’ concept of parts inventory control from speculative buying and total inventory investment turnover to the use of accurate sales statistics by individual part number. This should result in a reasonable day’s supply of profitable items and a decreasing day’s supply of slow moving and no sale items. Do this using an effective parts inventory control program.

An effective inventory control program requires:
1. The development of accurate monthly statistics showing actual quantities received or sold, including no sale items, for each part in inventory, and using these statistics as the basis for ordering a pre-determined day’s supply of saleable items.
2. A monthly program to isolate and liquidate slow moving and no sale items based upon past sales statistics.

Give sufficient time for the parts and accessory manager to compile required statistics for preparation of a monthly or weekly parts order. A well-organized longlasting parts inventory control system will be most effective when maintained with accounting accuracy by the person in the parts and accessory department whose job responsibility is the maintenance of the system.

Parts orders should be based upon a formula using accurate past sales statistics to determine inventory requirements for a pre-determined day’s supply. This will eliminate the general practice of speculative buying.

Monthly Statistics
Compiled monthly statistics are required to:
1. Determine and record purchase requirements.
2. Select slow moving items showing no sales within the past nine to 18 months.
3. Depending upon model usage, designate selected items for preparation of “application for authorization to return new material,” if the dealer has a return policy with suppliers.

For example, a current or late model part could remain in stock for 18 months with little profitability of inventory loss, while an old model part for which no sales have occurred during the past nine months could represent an immediate inventory loss. A graduated formula between these two extremes should prove satisfactory.

Any dealer agreeing to this practice of controlling and evaluating parts inventory and installs a parts inventory system using accounting principles, may use these procedures as a guide for installing, maintaining, and operating a successful parts inventory control system. The procedures above are flexible. Many outstanding computer software programs now make many of these functions automatic. Dealerships should review their own systems and make any alterations in the suggestions above to correspond with any peculiarity in their accounting systems.