So what’s the best strategy for your parts department? Stock as many of the most common parts you are likely to use or save your capital and order in when needed? Ok, we know it’s not quite that simple but managing your stock and balance sheet is a crucial element in running a successful garage.
The long held rule of thumb that 20% of your parts stock makes up 80% of sales is likely to be fairly accurate, but keeping tabs on your parts sales so you can be certain that you are indeed stocking enough of the right parts and selling them quickly enough to maximise your profits, is imperative.
Knowledge, so they say is power, understanding your parts sales and parts stock turn will help you to run a much more cost effective operation and could enable you to free up more of your capital.
As a garage owner, anything which frees up cash flow appeals, if you’re the parts manager, your concern will be to have the right parts to hand when you need them. There is, however, no reason why you can’t have both.
Managing your parts with a more scientific approach and a mindset of an accountant needn’t be as off-putting as it first may sound. As long as you keep track of your parts sales over a period of time and you analyse your data, it will be relatively straightforward. If you run your garage with the help of a management system, you will be able to run reports to deliver that information and the more familiar you are with the software, the more in depth your information and you will be able to make more accurate decisions for an improved bottom line and ultimately profits will follow suit.
With so many of our operatives having worked in aftersales, we’ve picked their brains for a few top tips which we hope you’ll find useful.
- Anything aged over 12-months should be considered absolutely obsolete and parts which have been on the shelves for between six and 12 months should be viewed as obsolete and careful tabs should be kept on them so similar stocking mistakes are not repeated.
- If more than 30% of your stock is aged six months or more, take a look at your parts purchasing policies.
We’re probably not telling you anything you don’t already know and the issue is identifying them which is why keeping a careful eye on your parts purchases and sales will provide you with the information you need.
It isn’t just a question of keeping tabs on the stock that is not selling but actively reviewing all stock to ensure your business is not over stocking the fast moving items. When undertaking your review, don’t just take the last report as your starting point, for a full picture, you will need to understand your current stock, age and how it compares to sales trends.
Parts which have been on the shelf for more than a year and for which there has been zero demand are simply a liability for your business.
Things to be aware of would be over ordering parts to meet incentives, order errors, customers who don’t return for repairs and speculative stocking.
Manage your obselete stock well
When we were looking for some expert advice on this topic, one piece of good advice we came across was that once a part reaches seven months old, it has just a 15% chance of selling and an 85% chance of becoming obsolete. Thus knowing stock in the seven to 12 months age range is imperative in forecasting obsolete parts. Once you become much more proficient at identifying obsolete stock, you can then manage it much more effectively.
If you bear in mind that Trend Tracker, in its analysis of the service, maintenance and repair (SMR) market, suggests the spare parts market (including oils and paint/materials) has declined by 10.5% to £8.5 billion between 2004 and 2014, managing your parts has never been so important to the overall well-being of your business.