Article > Business Operations

Analyzing Dealer Inventories

By Gary Goms

If a jobber delivers a multitude of single-item orders, perhaps it’s time for him to analyze his dealer and fleet inventory accounts.
With the advent of online ordering and other methods of instantaneous communication, it would appear that the need for dealer and fleet repair shops to maintain an in-house inventory would be declining. But the evidence appears otherwise when a jobber routinely delivers a single-item order like an oil filter to a dealer or fleet repair shop.

At the jobber end of the distribution chain, money-losing parts deliveries steadily eat away at the bottom line until the store might be looking at reducing one major payroll position to accommodate still more unprofitable part deliveries. At the other end of the distribution chain, excessive wait times are costing a jobber’s dealer and fleet shops thousands of dollars each year in lost production time.

Because lost production time in a repair shop results in lost sales at the parts counter, it’s important for jobbers to periodically review the status of their dealer and fleet shop inventories. If a jobber is delivering a multitude of single-item orders, perhaps it’s time for him to analyze his dealer and fleet inventory accounts.

If you don’t think wait time is expensive, consider that hourly labor rates are either approaching or crossing the three-digit mark at many independent repair shops. Although local hourly rates vary widely, let’s start with the $90 number because, for our purposes, it works well mathematically. At the $90 per hourly rate, your local dealer is charging $1.50 for one minute of a technician’s time. While $1.50 per minute might seem outrageous, the cost of doing business for independent shops has been soaring in response to the equipment, training and information costs associated with modern vehicle technology.

At the rate of $1.50 per minute, a wait time of 10 minutes for the delivery of an oil filter or hardware part can add $15 to the cost of a $5 oil filter. A wait time of 10 minutes can boost the cost of a 3/8-inch, grade-five bolt from 50 cents to $15.50. Wait times can become expensive because many shops find that they must provide each technician from two to three bays just to keep that technician working while he’s waiting for replacement part deliveries.

For this reason, shop inventories are all about saving money by reducing or eliminating wait time. Depending upon the breadth and depth of your dealer’s inventory, “we” (meaning you and your repair or fleet shop) can make money or we can lose it. Once lost, it comes off both our bottom lines and can never be replaced.

Now that we have a basic understanding of the math involved, let’s analyze the needs of each shop in our dealer and fleet base. To begin with, never classify any shop as a first- or second-call shop. If a shop calls your jobber store first, then it deserves your full attention as a profitable and paying customer. If a shop uses your store as a second-call source, then you need to analyze the reasons for becoming a second-call jobber.

While it’s obviously not true in all cases, my observation is that the first-call jobber also is the store that correctly maintains efficient in-house inventories throughout their dealer base. Notice that the operative words in the above sentence are “maintain” and “efficient.” To illustrate, it’s very easy to sell or consign an inventory of filters in a shop. It’s quite another challenge to maintain that inventory of filters so that it serves the jobber store and its customer in the most efficient manner possible.

Any jobber store that doesn’t maintain the inventories it has sold or consigned will, in many cases, become a second-call store simply because the shop operator reaches for the telephone when the part isn’t on the shelf. Unfortunately, the call is often made to another store because the delivery time could be shorter or the price cheaper. To re-emphasize, when a jobber isn’t correctly maintaining his dealer and fleet shop inventories, he’s losing his status as a first-call store.

Even in this dire economic climate, no jobber store can afford to be without outside sales activity. If nothing else, outside sales allow a qualified professional to analyze a shop’s unique inventory needs. To better define the term “unique,” keep in mind that no two shops are equal in either the clientele they serve, the vehicles they service or the parts and hardware they need.

Most repair shops fall into one of the following categories: general service, undercar, service specialist, nameplate specialist, private fleet or public fleet shop. Undercar shops generally include wheel alignment, brakes and exhaust as core services. The shop might also offer under hood, air conditioning and lubrication as peripheral services.

Although general service shops service all makes and models, they might not offer in-depth services such as advanced diagnostics or module reprogramming. Because of the breadth of their services, inventories in general service shops can be tough to analyze. Nevertheless, lubricant, fluid, filter, fastener and chemical inventories are good places to start.
The specialist shop falls into service and nameplate specialist categories.

A service specialist might be a radiator, exhaust, transmission or engine rebuild shop. The nameplate specialist might, for example, specialize in servicing unique automobiles like Porsche or specialize in specific manufacturers like Toyota or Honda. While a very few specialize in domestics, most specialize in European or Asian nameplates. The needs of all of the above shops are generally obvious. The only deviation in buying habits would be that nameplate specialists generally buy OE parts. But keep in mind they still need the traditional range of fasteners, chemicals and fluids.

Private and public fleet shops are just that. A private fleet shop is usually operated by a construction company or trucking firm. Either type of shop generally requires filter, lubrication and other expendable part inventories. Public fleet shops are operated by local townships, cities and government agencies. In most cases, public fleet shops buy the majority of their routine maintenance parts in case lots on public bid and generally service a narrow range of models and model years on passenger and light truck vehicles.

Remember that all shops need inventories of filters, fasteners, hardware, automotive chemicals, and fluids. When analyzing a shop’s unique needs, always begin negotiations with a recommended inventory of these commodity parts in hand. In addition, always be prepared to offer a cost benefit analysis with each type of inventory. The easiest to sell is a fastener inventory because the math is simple when you add expensive wait time into the relatively minor cost of a nut or bolt.

Sales histories are the shortcut to analyzing and servicing a shop’s inventory needs. A shop’s sales history should be reviewed quarterly to provide a long-term analysis of the shop’s sales trends. Oil filter needs, for example, should be assessed at the beginning of each new model year. To illustrate, oil filter sales follow a type of bell curve, with sales starting out slowly as a new filter number is introduced.

Sales usually accelerate as the vehicle population peaks and slow down as that vehicle population declines. Most hard-part inventories follow a similar bell curve and that is precisely why jobbers should work hard at analyzing inventory needs and maintaining that inventory at effective stocking levels.

As a last thought, any shop inventory must be shelved for easy restocks and protected to allow acceptable credit returns.
Cabinets are always a good way to store, analyze and protect inventories. Cabinets also allow quick-turn inventories like oil filters to be stored in a lube bay area.

Slower-moving inventories should be stored away from shop activity as much as possible. Always remember that any in-shop inventory is an investment in future business for you and your jobber store. Keeping it safe and clean is part of maintaining that investment.

Gary Goms is a former educator and shop owner who remains active in the aftermarket service industry. Gary is an ASE-certified Master Automobile Technician (CMAT) and has earned the L1 advanced engine performance certification. He also is a graduate of Colorado State University and belongs to the Automotive Service Association (ASA) and the Society of Automotive Engineers (SAE).

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