Inventory & Parts Management: Control the Chaos, Protect the Profit [E221] - Chris Cotton Weekly Blitz
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It's your weekly Blitz with Chris keeping you in the game.
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This is Coach Chris Cotton from AutoFix AutoShop Coaching.
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We're back to the Back to Basic series.
This is going to be episode 8, Inventory and Parts Management.
I want you to control the chaos and protect the profit, okay?
We've talked about diagnostic safety, KPIs, tools, communication, and today we're digging into something that quietly eats profits if you're not careful, Inventory and Parts Management.
So this episode is for every shop owner who's ever looked around and thought, why are there parts everywhere?
Where did that alternator go?
Why is my oil order $3,000 this month?
And how the heck do I have $40,000 in parts but still can't fix this Honda?
If that's you, then don't worry. Today I'm giving you the blueprint to get it under control.
In this first segment, Inventory Management matters. Let's put it that way.
Look, inventory isn't sexy. It's not as fun as new equipment or raising your average repair order.
But it's a leak that can drain thousands of dollars a month from your bottom line if left unmanaged.
I want you to walk into your parts room and not see parts. I want you to see dollar signs.
Some of those dollar signs might be dusty because they've been sitting there too long.
Some might be broken. Some parts rooms have used parts, new parts from like four or five years ago that we didn't use then,
haven't had since. Why are we keeping it now?
Okay. I want you to think about that in terms of dollars, not just a part sitting there.
Part is an inanimate object that doesn't cost you anything unless you see the dollar bills.
Okay. The other thing is, if you don't manage parts properly, people can steal from you.
A lot of times when we catch people employee stealing, we can see the numbers and be like,
man, based off everything you've told me, it looks like somebody's stealing from the business.
And then you have to figure out how that happens.
A lot of times people will make a ticket, order the parts. It has a PO.
Then when the part comes in, they delete the ticket, hide it,
and then they take cash for the repair. See that a lot.
It's probably a whole different podcast, not in here, but you should be reconciling your accounts.
Like what are the invoices I'm paying for? Does it match up with a repair order?
Is this really happening? Okay. So anyway, to get back into it, here's what sloppy parts control leads to.
It leads to lost time chasing parts that are already on site or something that you received and it's not there.
Displaced or mixed up items, holding onto cores until they're no longer returnable or just flat out losing them.
Overstock consumables that expire. I'm using air quotes.
Advisors ordering parts just in case, and then maybe they don't get returned.
And worst of all, massive amounts of cash tied up in inventory that doesn't move or cash tied up in inventory that got lost, whatever.
Parts are not an asset if they're collecting dust. They're a liability.
So let's walk through the systems you need to run a lean, organized and profitable inventory department.
Okay. One of the things that I think is great in the industry now is what we call JIT or just in time delivery.
You don't need to be Amazon Prime, but you should aim for lean inventory with fast delivery.
If you got a vendor, like we have a great vendor right down the alley from us. We order it.
A lot of times they just walk it over, which is amazing. I love that service.
But if you don't need to stock it, then don't stock it. Use local vendors with reliable time drop offs.
Not we'll get to you when we can. Only stock your most used filters, fluids, wipers, bulbs, the stuff you sell daily.
Everything else you order once sold. You need to build relationships with vendors who can guarantee delivery windows or have guaranteed delivery window times.
Just in time delivery, it keeps cashing your bank and not on your shelves.
Also a parts receiving system. Every shop should have a dedicated structured receiving process.
Here's what that looks like. Parts come in and are checked in against the RO and invoice immediately.
Typically by the service advisor, if you have a parts person, then that's fine. I don't like parts people in my shops.
I just rather have a service advisor that does that. But that also means that the service advisor visually verifies on the box, on the RO, what they just received.
They don't just sign it and move on. If it doesn't have an RO attached, it doesn't get shelved.
We're going to talk about the labeled parts bins here in just a minute, but everything should have a place.
Assign somebody to receive and tag parts when they're received and make sure that that person is the person in charge of the overall parts process.
Other service advisors can receive the parts, but one person should be in charge of making sure that cores get returned,
making sure that new parts get returned, everything like that. Make sure you have somebody in charge of that.
Every technician should have clearly labeled parts shelf and then on that shelf should be bins and every bin should have the RO number and the customer's last name.
Now we do this in, we have red bins in our shop and then we use a dry erase marker that we mark on there and then we can erase it every time.
So we keep up with them that way. Is our system perfect? No, but it's better than nothing and sometimes it gets nuts, but you need to have system and a process and procedure that you're striving for.
So when the parts come in, you label the bin, part stay in the bin until installed or returned. I like the bins.
If you have parts in there, you can grab the bin, take it to the technicians area or the technician area can do it and then return the empty bins back.
If they stay in the bin until they're installed or returned, this is going to reduce lost parts, duplicated orders, mainly text wasting time planes, scavenger hunt.
So your parts bins should be as sacred as your toolboxes. Touch them with purpose, both from the technicians and the service advisor standpoint.
Your weekly consumables should be checked every week. Oil, washer fluid, brake cleaner, shop towels, gloves, shop supplies, and then you stock those based on turns,
not a gut feel, a simple sheet or tablet checklist works great. If you have a good shop management system, you can check your inventory.
You can even make minimum stocking levels so that you get an alert when you get low and then it tells you to reorder it.
I want to talk about the core management system just a little bit more. Cores are money sitting on the shelf and if you wait too long, they become money lost.
This is one of the biggest things we see when we go in and clients are using the parts matrix like they should.
And by all means, everything looks like it's working like it should, but then you go and they're like, oh, okay, well, cores are getting thrown in the trash.
New parts are not getting returned. You know, this can have an easy 10% negative effect on your parts margin if left just unchecked or even worse, right?
When a core is removed, it goes straight back to either a core return bin with an RO number and vendor info or back into the original box labeled with a core return sticker.
Our shop, we had little red labels made up that say core return. I think they're round. And then we also had new parts returned, which are red, but they're rectangle.
And then you set a schedule to return cores as often as allowed.
My view, every time the parts truck comes through, if there's a core on the list on the shelf, it should go back.
If you need to use a simple Google sheet to track what's been returned and what's still pending, then that's fine.
Make a process and procedure for you. Also, whenever your paperwork's floating around, you know, either market in your shop management system or paperwork when the credit is issued.
We're tracking parts when it's received. We have a quarter return. The core's been returned. Now the credit's been issued. Okay.
Similar process for the new returns, but not exactly. So if you have the wrong part, unused part, here's how to handle it.
Advisor receiver logs it immediately and corrects the shop management system.
The parts gets bag tagged, stored, whatever way you're doing it in a dedicated returns area and labeled new return.
Returns go back as soon as possible, not when you get around to it. The very next opportunity you have to send it back, send it back.
Then you go through and track the refund or credit in your shop management system or shared spreadsheet, just like we talked about in the course.
Okay. Returns should be seen as dollars on the table. Don't let it sit. Don't let it disappear.
One of the things I like to track, especially because we do lots of tires is inventory turns.
I need you to know your numbers. So if we're talking inventory turns, this could be an important KPI that you're not tracking.
And here's how it works. Inventory turns equal annual parts cost of goods sold plus average inventory value.
So let's say you spend $300,000 a year on parts and you keep an average of $25,000 in inventory on hand.
So if you take $300,000 and divide it by $25,000, that gives you 12 turns per year.
That means you're turning your inventory every month and that's great.
If you're only doing three to four turns a year, you're overstocked.
I think if you're doing less than six, you're overstocked, you should really be in that 8 to 12 range.
Fast moving inventory equals healthy inventory. Statenant stock equals wasted cash.
I want you to remember that formula there too.
I want you to think about coaching your others.
And as such, coach inventory and parts management doesn't have to be complicated.
It just has to be disciplined.
Again, processes and procedures.
When you put systems in place, your base move faster, your advisors get more efficient, your cash flow improves and your team feels more in control.
That's about creating less chaos, fewer mistakes and more profit, all from one of the most overlooked areas in our industry.
If you can't measure it, label it or find it in under 10 seconds, you've got a parts problem.
If you want help building out your inventory control system, parts tracking sheets or training your team on how to make this stick,
I need you to go to AutoshopCoaching.com and let's put together a system that supports your growth, not stalls it.
I want to thank you for joining me on The Weekly Blitz.
Next week, we're going to talk about marketing and customer retention, how to keep people coming back, how to track ROI
and how to build community trust one service at a time.
Okay.
I'd like to give out another shout out to our sponsor, Shop Marketing Pros.
They are the only marketing company I recommend and they handle all the marketing for my own shop as well.
If you're serious about growth, you need strategies that actually work, better websites, higher Google rankings and ads that bring real customers through your doors.
I want you to go visit ShopMarketingPros.com forward slash Chris and partner with a team that understands your business because every great shop deserves marketing that's just as great.
Thanks for tuning in.
It's time to rise, grind and keep your mindset positive.
It's time.
Coach Chris Cotton signing off.
Have a great day everybody.
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