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Materials Management

Notes
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Caselet 4 Keys to Inventory Management

ook at the capital sitting on your lot and showroom floor and you’ll quickly see
that your pre-owned and new-vehicle inventory are your dealership’s most valuable
Lassets. So, is your dealership’s process for converting these assets into profit
extracting the maximum value from every vehicle? If not, there’s a four-part inventory
strategy that can help jump start growth and ensure your store’s inventory is working for
the dealership in the form of more deals, more profit, and less waste.
If your dealership is buying and selling on gut instinct, or you don’t have a handle on
which models turn in 20 days versus which sit for 90, or perhaps your trade-in strategy is
to get the customer in a new vehicle instead of considering where you can move his or her
old vehicle, you’re throwing money away every day.
To be successful in today’s market, dealers need to have concrete inventory strategies and
processes in place. This means doing much more than just stocking the correct quantity of
vehicles. Managing your inventory for profitability consists of four interlocking pieces
that make up a comprehensive inventory strategy: inventory analysis, proactive strategy,
inventory sourcing, and inventory management systems. Let’s take a closer look at each
piece of your inventory strategy.
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

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