Keeping Tabs on Fast-Moving Inventory Items

The primary theme of last month’s issue of RV PRO was the recognition of RV industry professionals who qualify as “40 Under 40,” so I have selected a variation on that concept this month’s column: 40 Over 40. The 40 refers to items in your parts and accessories inventories that incur more than 40 demands per year.

If an item incurs more than 40 demands per year, then it most likely qualifies as a “fast mover” or “frequently requested item.” To ensure demands for these items are met, at least one of these items should be on hand and possibly more. Because these items are frequently requested, they should be counted each week to maintain an accurate value of the quantity on hand. These weekly count verifications are a form of cycle counting, which is sometimes termed as a perpetual inventory.

It being December, many of you may have scheduled your annual counting of your parts and accessories inventories (the physical). Assuming your personnel have properly prepared to process the physical, at the conclusion of the physical, the value obtained for the parts and accessories inventories and the count of each item should be accurate.

Yet how long is that value and those on-hand quantities accurately maintained? By using various cycle counts, there is a better opportunity that your parts and accessories inventory items will be accurately maintained.

Cycle Counts: The ABCs & Ds

Some inventory managers assign parts associates to count each of the items in a specific bin location or series of bin locations. This is one method of using cycle counts as part of a perpetual inventory. This process could require several weeks to fully count the entire inventory. And since items in one bin location unit could be frequently requested goods as well as items with less demand, there is some wasted effort.

The DMS (dealership management system) software calculates suggested orders based on velocity of movement and the on-hand and on-order quantities of the parts and accessories. Since those parts and accessories that incur the highest volume of demand generate a large portion of the gross sales and gross profits, it is important that the on-hand quantity of those items is very accurate. For this reason, I suggest that you consider scheduling your cycle counts based on demand volume and velocity.

To assist you in considering the use of demand as your method of processing cycle counts, here are some guidelines that you could apply. These count cycles are identified by the letters A, B, C and D, which some DMS inventory software uses to classify movement. In this case, you might be able to run a report to list your parts and accessories using these four letters.

A Cycle: These are the type of goods that I mentioned in the first paragraph of this column that have a very high volume of demands per year, usually as frequently as each week. These items should be cycle counted each week because you don’t want to run the risk of an out-of-stock situation because the on-hand and/or on-order quantity is incorrect. Items such as hardware, common electrical components, packages of toilet paper or cleaning agents could be in this group of goods. Since many of these common items can be purchased elsewhere, you don’t want your customers to experience an out-of-stock situation because if they shop at another retailer, they might make it a habit.

B Cycle: Items that incur demand 10 or more times in one year should be cycle counted every two weeks to minimize the chance of either an overstock or out-of-stock condition.

C Cycle: Items with four to 10 demands in one year should be counted once each month.

D Cycle: These are slow-moving or nonmoving items experiencing less than four demands in 12 months. It is especially important to verify the on-hand quantity on those items showing zero demand and zero on-hand because if any of these items actually have an on-hand quantity greater than zero, you don’t want to delete them.

Count Discrepancies

If an item is found to have a discrepancy between the actual value and the computer value, then this discrepancy must be recorded and reported to the accounting department. Some DMS have a function that allows any adjustments made in the parts/inventory aspect of the software to be reported to the accounting/inventory aspect of the software. The caveat being that the accounting department associate must make the adjustment to the appropriate general ledger account. Some accounting managers require supportive documentation for each adjustment, so the DMS report might not be sufficient. I suggest that the dealer principal, the accounting manager and the parts manager meet to discuss and develop an appropriate DWP (detailed written procedure) for adjusting, reporting and documenting any adjustments to the parts and accessories inventories.

One More Thing

An aspect of inventory accuracy that may not be evident is the verification of the on-order quantity. This is important because most DMS use three primary values to determine if an item should be suggested for ordering and in what quantity. These three values are:

• Demand for a specified period of time
• Current on-hand quantity
• Current on-order quantity

Therefore, if the on-order quantity for an item is showing other than zero, the suggested order program will assume that eventually that item will be received in your dealership. If your parts manager doesn’t generate an on-order report at least monthly and compare it to each supplier’s on-order/backorder report to confirm the reported values are equivalent, then I suggest that she do so. The results might be surprising. When I consult with a client about causes of inventory discrepancies, this comparative review is one of the first processes that I suggest should be performed.

If there are discrepancies between your internal on-order report and those of the suppliers, then perhaps you should investigate your receiving processes through careful observation. The receiving function is the gatekeeper to your parts and accessories inventory. If the gate isn’t functioning properly, then you might need to repair it.