Finding the right balance is crucial, because too much inventory ties up capital, but too little can result in lost sales and driving business to competitors.

All parts managers struggle with the question of what and how much inventory to keep in stock. Too much inventory ties up capital and increases the cost of doing business, while too little inventory can cost sales. This problem is amplified by the fact that the parts department is simply one cell within a much larger organism.

The ramifications of upsetting a customer over the lack of inventory on a $15 part can cost the company thousands in potential rolling stock sales profits. Interest costs associated with carrying inventory and the dollars that are wasted on obsolete parts can cause an otherwise profitable department to lose money. How does a manager find the proper balance between these forces?

Finding a balance between the issues has been a major debate in the past. Three of the biggest issues are:

1. The retail inventory model: Carry only the parts that produce enough retail turns to justify not being special order.
2. The customer service model: Carry parts based on satisfying customers’ needs who have made major purchases in the past without regard to retail turns.
3. Safety issues: Carry parts in stock that are required in order for a customer to safely operate their RV.

Balancing these issues will vary greatly between dealerships and geographical locations. Dealers who sell more motorized will need different parts than a dealer who is exclusively towable. The issue of delivery time from OEM sources and distributors should also be taken into consideration when determining inventory quantities. Dealers who have manufacturers or distributors in close proximity can alter inventories due to the ease of obtaining emergency parts. The exact mixture of inventory will be as personal to each dealership as any other marketing plan and should be given as much consideration.

The Retail Inventory Model

A large percentage of the personnel that are currently employed by RV parts department have worked previously in other retail endeavors. Inventory control has become a major focus in the retail environment because of the costs associated with too much inventory. Parts that do not sell should not be carried in inventory.

The generally accepted rule of thumb is only carry parts that will turn or sale at least four to six times per year. Employees are taught to log ‘lost sales’ or number of time a part could have been sold if the part had been in stock. Once a part is registered as a lost sale or is special ordered on a pace to meet the four to six turn rule, it should then be stocked. If it does not meet this requirement, the part should remain a special order item.

This rule is valid in the RV parts industry for all parts that are most frequently retail sales. Items such as toilet chemicals, cleaners, waxes, and add-on items should be tracked and controlled using the four turn rule.

Items that have substitutable products or their use do not affect the ‘usability’ of the RV also fall into this category. All impulse items must be subject to this criterion. Customers may not develop a relationship for lack of these types of parts but will not hold negative feeling for a company that does not stock such items. A dealership may even develop a strong customer service reputation by special ordering other parts for its customers. These types of items should not be stocked unless they will generate enough income to justify costs.

Unfortunately, the turn rule was designed to apply to retail organizations that function as completely independent entities. RV parts departments must recognize the negative effect of not stocking particular parts. Customers who have spent tens of thousands of dollars at a dealership for a new RV will not be as forgiving for not having a part in stock when it delays the use of their RV.

The fact that the part is only required two or three times a year is not their concern. The customer has trusted you with their business and they expect the dealership to be able to service the vehicle without any delays. Sometimes a RV parts department must be willing to stock parts that do not produce enough turns in order to satisfy customer expectations.

The Customer Service Model

The parts department’s dilemma is that it is required to show a profit for its operations but also to maintain good relations with consumers. It may not seem like much of an inconvenience for the parts department to have to special order a part, but a customer might feel different for having to wait for that part.  In order to provide quality customer service certain parts need to be kept in stock even though stocking them does not prove profitable.

The determining factor in whether to stock a part or not is how much of an effect the lack of the part will have on the customer. If the part will stop the customer from being able to use the RV, it should be stocked. It is not fair to ask a customer to trust your dealership with their business and then have to change their vacation plans because of your business philosophy. Dealerships might find it is actually more profitable to stock a few extra parts then to disappoint customers.

Some dealers have attempted to circumvent this concern by simply paying for special freight charges, such as next-day air, when they are trying to satisfy a service issue. This is simply a way to pass the cost of inventorying items into a different category.

If dealerships would take into consideration all of the extra freight they have paid, and instead just purchase the part and stock it, they might find that stocking it is actually less expensive. This philosophy also neglects to consider the extra cost of labor associated with the special handling of ordering and receiving these parts. If a parts department is going to be held responsible for ensuring the satisfaction of customers, they must be able to pass along some of the cost associated with stocking parts to accomplish this task. 

Safety Issues

One special category that must be considered is parts that will create a safety issue for the owner if the part is not replaced. When it comes to the safety of our customers, profitability needs to take second place. A customer should never be placed in the position of having to decide whether to be placed in peril or have to miss the only two weeks a year they get to use their RV. Parts of this importance need to be kept in stock so customers do not have to make these decisions.

The propane and electrical systems on today’s RVs help to create the attraction for the product. Consumers want all the comforts of home when they take to the road. In order to safely operate these systems, certain parts are required such as valves, breakers and alarms. These types of items must be kept in stock for the new units the dealership is selling to maintain good customer relations.

Finding a Balance

RV parts departments need to be profitable to justify their existence. But the department is also charged with maintaining satisfied customers by having the right parts in at the right time. These two factors can conflict with each other with the cost of inventory. A successful RV parts department has to find the right balance of these issues.

Dealerships need to find a way to separate retail parts from required service parts and treat each area differently when it comes to inventory. There is no need to stock add-on parts that do not sell enough to be profitable, but customer service must take precedence over inventory costs. Dealerships that find a way to accomplish both of these tasks will find very successful parts departments and those that do not will find their business going to the mass-merchandisers.

If RV dealers do not want to see the parts department go the way of auto parts with nationwide chain stores then they must be willing to increase inventories and depend less on just-in-time deliveries from OEMs and distributors. Consumers who have spent over $100,000 should not have to wait to use their RV. The extra cost of inventory can be overcome with the increase in customer satisfaction and repeat business. The cost of not increasing inventory might be devastating to a dealership in the future.