Page 169 - DMGT310_ENTREPRENEURSHIP_AND_SMALL_BUSINESS_MANAGEMENT

Entrepreneurship and Small Business Management

Notes
1. Inventory Analysis
Inventory analysis consists of assessing every vehicle on your lot, including those vehicles
you are accepting in trade and those you have planned for disposal. With thorough analysis,
you can identify and maintain the right mix of core and non-core inventory. A dealership
can also determine the optimal turn cycle to prevent inventory remaining too long on
your lot and costing you money, as well as determine the optimal time to buy and sell
inventory. It can also help establish pricing parameters that work for your dealership’s
market.

2. Proactive Strategy
Once you have a handle on your inventory, you need to create a proactive strategy for
actively managing, marketing, buying and selling your vehicles. Your proactive strategy
should include plans for buying and selling vehicles that take into account gross profit,
Return on Investment (ROI), days to turn, average cost of sale and seasonality. Your
strategy should also include best practices for evaluating and appraising trades realistically,
establishing a concrete aging plan, and setting a pricing structure that fits your market and
region.
3. Inventory Sourcing
How you source your vehicles is an integral part of inventory management. Your sourcing
strategy includes how the dealership determines how often wholesale vehicles are
purchased and how trade-in decisions are made. When assessing a trade, many dealerships
look at the condition of the vehicle and forget to evaluate the need for the vehicle. A sound
remarketing strategy takes into account a particular model’s past sales performance and
aging history, as well as the current market demand and residual value.
4. Inventory Management Systems
Inventory management systems were created to help dealerships implement, maintain,
and fine-tune their inventory plans. Dealers who use inventory management systems
realize quicker vehicle turns and a higher ROI than dealers that don’t. Choosing the right
system can make a significant contribution to your inventory management efforts.
Source: http://www.fi-magazine.com/Channel/Certification-Training/Article/Story/2009/05/4-Keys-
to-Inventory-Management.aspx
11.1.3 ABC Analysis

Pareto (ABC) Analysis can be used to classify stock groups. Stock items are ranked in descending
order of usage value, and plotted on a cumulative frequency curve. It is common to find that 20%
of items account for 80 % of usage value, the next 30% has 15% of value. The final 50% have 5%
of value.
ABC or Pareto analysis points the way to where control efforts are best directed. Judgment is
needed on critical inventory items or security matters that Pareto analysis in itself does not
reveal.

164 LOVELY PROFESSIONAL UNIVERSITY