Dealer Insights - May/June 2013 - Inventory Management: Turnover is the Name of the Game
Among the stickiest wickets facing any dealership is proper inventory management. Supply and demand trends yo-yo as the economy fluctuates, consumer buying power ebbs and flows, and factory gluts and shortages strike. Let’s look at a few common inventory challenges — and some ways to overcome them.
RISK AND CHALLENGES ABOUND
Turning over your new-vehicle inventory eight times a year (sometimes considered the optimum rate) means keeping a 60-days’ supply of new vehicles at your dealership and a 15-30 days’ supply on order. But sluggish sales, being unable to select the vehicles you want, and changing market preferences can impede that goal.
Nonetheless you must diligently pursue your turnover objectives, because the risks of excess inventory are great and include:
- Floor plan interest and overhead costs (car washes, storage and so on),
- Lower margins (because of discounting prices to move units), and
- The cost of lost opportunities — what your working capital could have accomplished if it weren’t tied up.
Conversely, if you maintain too little stock, you risk losing customers (missing out on sales plus future service revenue and potential loyalty). Frustrating your sales team is another danger.
MANAGEMENT STRATEGIES TO THE RESCUE
A wide variety of software packages are available that help manage inventory, and some include online marketing functions. Such tools can provide the data your sales managers need to make sound decisions, but they’re no replacement for strong management in the first place.
Your managers must know their markets (what sells well and when) and stock accordingly. Here are some suggestions for helping them meet your dealership’s turnover goals:
- Be mindful of historical trends — successful managers retain an accurate record of which units sell at specific dates throughout the year.
- Create and monitor benchmarks after analyzing your store’s historical trends.
- Establish lead time reports to understand how long it takes to replenish the inventory.
- Develop a give-and-take relationship with factory reps — this will be their best shot at getting the desired inventory.
- Provide sales incentives — it’s easy for salespeople to overlook aging inventory, so managers need to incentivize their sales teams to move older product.
- Rotate what’s being promoted — don’t keep the same vehicles on the roadside or in the showroom.
Managers should adjust orders as necessary. Don’t be afraid to reduce orders and lose an incentive if certain vehicles aren’t selling.
MOVING, MOVING, MOVING
Inventory is only valuable as long as it’s moving. Stock for profitability and empower your managers to make the right moves at the right time.
Dealer Insights - May/June 2013 Issue