If you visit most any auto recycler you will find that they all have a few things in common. They all have vehicles waiting to be dismantled, vehicles that have already been dismantled and parts that have been removed and placed in some type of warehouse or storage facility. The collection of these three is what makes up our inventory.
There are many moving components within the inventory that are factors in our ability to sell the inventory. History shows that we normally find a way to sell the inventory that we have when we tend to the basics of accurate inventory with realistic pricing. What we don’t really know is how long it will take to sell all of the parts off of a vehicle. Having some method to determine what a vehicle is going to produce in sales is the starting point in being able to start determining the true sales amount of inventory we currently have.
Most recyclers are producing half of their sales off of vehicles that have been in inventory for 90 or less. Some of this makes complete sense. We bought the vehicle because parts were in demand and they immediately started to sell. Other parts on that same vehicle need to go into the warehouse or field to wait for their opportunity. The last parts are held till time or crush with a small glimmer of hope that someone will have a need for them.
Everyone has a method or some type of software that they use to determine the value of a vehicle. The truth is in one way shape or form a value of the parts and core commodity / scrap is calculated and overhead + profit subtracted to determine the amount we will pay for the vehicle. Consistently tracking that number on every vehicle purchased will allow you to start to forecast your monthly in stock sales. Using this projected sales number takes any bargains or bad buys out of the equation as it is strictly looking at the sales dollars expected by the buyer.
If we get this number from the buyer consistently we can compare it to what the inventory person and yard management system have to say about the same vehicle. There should be a direct correlation between the buyer’s projected sales number and what the inventory person comes up with. In truth, the inventory person should have a higher projected number than the buyer since they inventoried some parts that the buyer put little or no value on that will sell for good money. If the inventory person has a smaller anticipated sales number than the buyer a reason needs to be found. This disconnect will happen as parts are bad or broken so that is not the problem. The problem comes in when we disagree over price or likelihood of sale. Keeping the buyer on track is important and the inventory person has the opportunity to do that.
We also have the opportunity to measure the projected sales after the vehicle has been dismantled. This final measurement point gives us the true picture and makes sure that the buyer & inventory departments are in agreement with everything that is going on.
Once we have all of these things in place we can start to work on the sales department to be able to hit a target sales number that has some science behind the amount of inventory that we have available to sell. We all want to sell as much as possible. The first item that we want to sell is in stock parts. We need to have a realistic idea of what we have to sell. Tracking projected sales will let you do that.
If half of your in stock sales are coming off of your 0 – 90 day inventory you can run your total projected sales for the last 90 days and divide it by 3 and you will have a very close number to what the in stock sales goal for the following month should be. You can then divide that amongst your sales team for their individual goals. You can then multiply your brokered, warranty & freight percentages and come up with individual and a company sales goal for the month.
Those are a few basics in how to set a solid foundation to make sure that you are supplying enough inventory to accomplish the goals of the company. If you question how important the inventory is, walk around your site and see how much of it you have to have to produce your sales number. Focusing on what you will get in sales from what you buy will drive you to better buying and also better sales with the chance to have accountability among a number of different departments.
Mike Kunkel Lee Worman
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