Grab These Cycle Count Bargains

This month’s special theme is centered on the two-for-one concept, so I have decided to piggyback on that theme for this month’s column.

I am assuming that you have completed processing your yearly parts and accessories inventory and have reconciled it with the accounting department. Also, that your two departments are starting the year with balanced, equivalent values for your parts and accessories inventories.

It will be important to maintain the accuracy of your parts and accessories inventories throughout 2025 — and for each year. To assist you in accomplishing this accuracy, I have included five cycle counts that I call “2-for-1 Cycle Counts.”

Each of these “2-for-1 Cycle Counts” is intended to enable your parts and accessories associates to perform a cycle count while they are processing another routine. Most Dealership Management Systems (DMS) will contain functions to enable you to perform these five “2-for-1 Cycle Counts;” however, you should confirm this in your DMS so that you can decide which is applicable within your system.

What Are These 2-for-1 Cycle Counts?

1. Price and availability check cycle count
2. Daily transaction report cycle count
3. Stock order cycle count
4. Stock return cycle count
5. Phase-out cycle count

How Are They Processed?

1. The price and availability check is performed when parts associates are processing a transaction and can be performed in any DMS. This is for items that have less than five on-hand. The majority of the items in your inventory will have five or fewer on-hand.

The parts associate researches a part number in the DMS. She notes the quantity on-hand and the bin location. She goes to the bin location and verifies that the computer value of the on-hand quantity matches the actual quantity in the bin location. If there is an apparent discrepancy between the values, she reports that to the parts manager so that the apparent discrepancy can be investigated, adjustments made as needed and reported to the accounting department.

2. To process the daily transaction report cycle count, your DMS must include a function that will enable you to generate a report of all transactions for a period, which in this case is the previous business day. This report will include warnings of exceptional conditions such as stock levels. These warnings could be:

• Order point — to indicate that an item has a quantity insufficient to meet anticipated demand
• Zero on-hand — which indicates that the item has a zero quantity and might require reordering
• Minus on-hand — indicating that a count discrepancy has occurred and needs to be investigated

However, if your DMS doesn’t offer this function, you could direct your parts associates to provide you with notes when they see that an item is below a reasonable on-hand quantity.

Each of these on-hand exceptions should be investigated to determine if the actual on-hand quantity equals the reported DMS quantity. If the quantities are equivalent, then the parts manager reorders if necessary. If the quantities are not equivalent, then the discrepancy can be investigated, adjustments made as needed and reported to the accounting department.

3. For those items that are frequently requested and therefore reordered, you could apply the stock order cycle count. Since most of the items contained in a suggested stock order are frequently requested, you have the opportunity to maintain accurate inventory counts for those items that generate a majority of your profits — before they are ordered.

To initiate this process, generate a suggested stock order in your DMS. Select at least 10% of the suggested stock items and verify that the reported on-hand quantity and the actual on-hand quantity are equal. If there is a discrepancy, it will be necessary to investigate and resolve the discrepancy prior to finalizing the stock order. This is important because you want to order the necessary quantity so that you don’t achieve overstock or understock.

By performing this cycle count, you will be confirming the accuracy of your most frequently requested items.

4. Some suppliers might permit the return of overstock or slow-moving inventory (SMI). If that is the case with any of your suppliers, you could implement the stock return cycle count. To process this cycle count you:

• Calculate a trial return report — if you don’t know the exact return amount, use a reasonable estimate of a greater value than expected.
• Assign parts associates to verify the quantity and the condition of each item listed in the trial return — have them affix fluorescent labels (3/4-inch round red and green) to identify them as “verified yet not eligible for return — red” and “verified and eligible for return — green” — this could also serve as a precount for your next physical inventory, especially if the quantity is recorded on the label.

Note: You could develop a spiff (sales performance incentive program) for your parts associates if they sell an item identified for return.

As with the other cycle counts, if there is a quantity discrepancy, it will be necessary to investigate and resolve the discrepancy.

5. Also, related to those items that have been identified as SMI, you could implement the fifth of my suggested cycle counts — the phase-out cycle count. Assuming your DMS has a phase-out function, you could generate a report of items that have had no demand in a specified period and have a reported zero on-hand quantity.

It is extremely important that each of these items have the on-hand quantity verified, because if you run the update feature of this function, these items will be removed from the database.

As with the previous four cycle counts, if an on-hand quantity discrepancy is revealed, it will be necessary to investigate and resolve the discrepancy prior to running the update of this phase-out report.

By now, some of you are commenting that this is another of Selway’s projects — and you would be correct in your statement. However, if you want to have an accurate inventory, then it is necessary to maintain continual vigilance.

In a quote originally attributed to Aesop (of fables fame) and popularized by legendary football coach Lou Holtz, talking about doing something is easier than doing something: “When all is said and done, more is said than done.”