It’s a fact: Dealers have massive sums of money tied up in inventory. From the new vehicles on the showroom floor to the used vehicles on the back lot to the seemingly infinite number of items in the parts department, each and every item has to be ordered, shipped, received, inventoried, stocked, safeguarded and sold.
From cars to cotter pins, the financial success of your dealership lies in inventory management. For this reason, it’s imperative that you stay on top of this critical task.
New vehicles: The biggest challenge
What to order for the showroom floor is typically a dealer’s biggest inventory challenge — especially when a new model is unveiled. In these cases, manufacturers often make your life easy by building only fully loaded, premium vehicles.
But, once “new car fever” has cooled, your choices become more difficult — and more important. With floor planning costs now taking a bigger bite out of most dealerships’ profits, many dealers are ordering only what they know will sell quickly — even if that means passing on some sales.
Others, however, are banding together and pooling inventory. These dealers typically handle the same brand and are close enough geographically to make this sharing practical but far enough apart to not directly compete for customers.
Parts: A tricky balance
Dealers are increasingly looking at the turnover rates for inventoried parts. If yours are too long, you may be wasting money tying up funds in slow-moving parts or vehicles. Then again, too short a turnover may mean you’re losing sales by not having the parts or products customers want because these items aren’t in stock.
One way to find the right balance is to closely track pattern failures in any or all of the vehicles you stock (or typically service). When a clear pattern emerges, it’s a safer bet to order larger than normal quantities of the appropriate parts, as there will likely be a greater-than-normal demand.
If you still find yourself holding excessive quantities of some items, look at your return allowances. Can you renegotiate these with your suppliers? Are your parts managers using them optimally? These are important questions to ask.
Technology: More important than ever
Whether it’s vehicles, parts or some other product you sell, having an adequate — but not excessive — supply on hand is the name of the game. And, to this end, technology is more important than ever.
Meet with your financial and technology advisors regularly to discuss whether you’re getting the inventory data you need (and when you need it) and to look at what new hardware and software has hit the market.
Of course, the best technology available is only as good as the people using it. So also be sure you’re providing your staff members with the necessary ongoing training.
New Year: New opportunity
As we usher in a new year, you have a prime opportunity to make 2012 your best inventory management year ever. You’ll no doubt find the fruits of this endeavor quite sweet.
Frankeberger Vausher + Company, CPAs…is a full service CPA firm whose partners have collectively served the dealership industry for over 35 years. We provide a full compendium of professional services including traditional taxation and financial statement preparation as well as strategic consulting for dealers in such areas as: Financial and Operating Controls, all activities for Buy/Sell transactions, valuation requirements, estate planning assistance as well as being Expert Witnesses in Litigation Matters. In addition, we provide expertise in Forensic, Fraud and Embezzlement situations as that need may unfortunately arise.
Please contact Dennis Frankeberger at 909-597-1100 to discuss this article or any other dealership issue that may be of interest to you. Email address dennisf@FVCPAS.com
Our recommendation – – we have known Dennis for many years. He has helped and guided dozens of our clients when buying or selling a new car dealership. We highly recommend his services should you need a CPA in general or a second opinion from a real expert.