In any business that includes product, goods, or "inventory", having good "Asset Management" practices is essential to the overall success of any business and that can't be more true than in the automotive dealership.
In the case of the automotive dealership, these assets include the two biggest "assets", which are the Used Vehicle and Parts Inventories. In most dealerships, the Parts Department is the second highest asset, but then again, in some dealerships, the Parts Department is the highest asset in total stated value.
The real question is as in any inventory asset is...
Is this inventory asset really "liquid", meaning...is it really "worth" the dollars represented on the dealer financial?
Even though we show specific amounts of these parts inventories on Page One of the Financial, could we really "exchange" that figure into real cash? One thing for sure though is that we have to insure that amount shown as well as all the other "acquisition and holding costs" that go along with that amount shown.
Whether we can turn that amount into cash or not, these acquisition and holding costs still apply. Industry acquisition and holding costs on any inventory, including in this case, the parts inventory, can be as high as 25%-30% of the total parts inventory investment each year.
When calculating these acquisition and holding costs on the average dealers parts inventory, these costs include, but not limited to are;
- Labor to manage the parts inventory
- Storage space costs & rent
- Insurance costs
- Inventory maintenance costs, i.e. physical inventory counts, cataloging, data processing, etc.
- Depreciation & Obsolescence
- Lost opportunities
- Are all my entrances and exits to the Parts Department locked and secure at all times?
- Can anyone access the Parts Department other than approved personnel?
- Do technicians walk in and out of the Parts Department throughout the day?
- Are all outside parts storage units locked and secured?
- Are there any parts outside of the Parts Department, including dirty cores?
- Is your Parts Department a general storage area for filing, used office furniture, tire and wheel take offs from the Sales Department, etc.?
- Are parts delivery drivers coming and going in loading areas without management supervision?
- Are parts employees monitored when leaving the Parts Department daily?
- Do you have a camera monitoring system installed in and outside the Parts Department?
- Do I have parts reconciliation issues and variances at the end of each year?