The acronym – which stands for What Inventory Management Is Needed – means taking a deep dive on inventory management methods.
In this month’s column, I will be presenting two types of inventory management – the software offered by dealership management system (DMS) vendors and the personnel who use those software features to manage your parts and accessories (P&A) inventories.
For this column, I am assuming that you either use a DMS to assist in managing your P&A inventories, or you are considering the purchase of such a system.
Inventory Management Software: The Basics
Going out on a limb, I am going to guess that your P&A inventories contain at least 2,000 items. Each of these items has a unique set of data with regard to sales, receipts, adjustments and other operational factors. Together, these separate items contribute to the overall performance of your inventory investment.
To determine if your P&A inventories are performing to your expectations, it will be necessary for you/your inventory manager to establish objectives for various aspects of the inventory performance. I have termed these Inventory Performance Factors (IPF). Some of these IPFs that could be used are:
- Gross turn
- Lost sales
- Minus on-hand
- No bin location
- There are other IPF that could be incorporated into your inventory management portfolio, however, these five basic factors can probably be tracked within your DMS inventory management software.
Inventory Management – a Concept and Tool
As mentioned previously, your inventory manager might have 2,000-plus items to evaluate to determine if each is performing as expected.
I suggest this could be accomplished in two parts, which are:
- Your inventory manager establishes the IPFs and the objective for each
- Using the report generation capability of the DMS, she creates and runs reports that provide data for each of the IPFs
When creating these reports, I suggest that your inventory manager apply the concept of management by exception (MBE). The basic premise of MBE is to look at the few rather than the many. It is important to clarify the term exception as used in MBE: These are exceptions to the performance of a specific part number (PN), to a subset of the entire inventory or to the entire inventory can be good or bad.
Perhaps an example is in order: Your inventory manager has been mandated to achieve an overall gross profit value of 30%. She creates a report to identify the gross profit percentage for the entire inventory – or she uses a report offered within the DMS software. The gross profit percentage for the entire inventory is 28.78%, which is below the objective. Now, she needs to determine which specific PNs are performing below the 30% objective, which she could possibly do by requesting the same report, but by setting the parameters to only show those PNs achieving a gross profit percentage of less than 30%.
However, there are 254 PNs that qualify. To determine which of these are impacting the overall performance the most, she might add a filter to her report that shows those having the highest gross sales amount or those that have the highest volume of transactions.
By filtering her reports, she can focus her attention on those culprits having the greatest impact on the profitability of the P&A inventories.
Using the same reports, she could also identify those PNs that have a gross profit percentage greater than 30%, to determine if each of them is being stocked at appropriate levels to preclude an out-of-stock condition that could incur a lost sale.
If the DMS has limitations to the filtering of reports, then I suggest exporting the DMS report to Microsoft Excel or some other spreadsheet software and using the data sort function to identify the exceptions of the IPF in question.
The application of management by exception is a powerful tool to assist your inventory manager with operating an efficient, profitable department. I urge you to make certain it is contained within your inventory manager’s portfolio.
The Inventory Manager
When the term inventory management is broached, we frequently think of the hardware/software that is or could be used. I suggest that it is also important to consider the human factor – the inventory manager.
Because the inventory manager is responsible for a substantial investment of money, the control of which can impact customer service either positively or negatively. It is important that she is trained in concepts, techniques and tools related to the effective, profitable operation of the P&A inventories.
Your inventory manager should possess the knowledge to establish operating parameters and to evaluate the performance of the inventories to those parameters. She should also know how to modify the contents of the P&A inventories to achieve the objectives that you have established for the P&A department.
Many inventory managers are in that position because of attrition and may not have received the training that is necessary to properly and to effectively control the P&A inventories. If this is the case in your business, then I suggest that you consider contracting for an inventory management consultant.