Want to Grow Dealership Profits? Focus on Automotive Spare Parts Inventory Management

From the recession to the present, dealerships have depended heavily on service and parts departments to drive profitability. In 2014 alone, total parts sales amounted to $50.6B, with service and parts accounting for a whopping 11.4% of those total dealership sales dollars.

But while many dealerships focus on new and used vehicle inventory optimization, aftermarket parts inventory management is often overlooked, or performed solely by the parts manager, who may have little support from dealership management. In this case, revenue is simply lost because of management’s negligence of parts availability and ultimately, customer service.

To solve this, dealerships can increase customer service, sales and market share by increasing availability of the right parts (and at the right time). Ultimately, this intentional behavior will result in higher customer loyalty. If customers feel that the dealership’s parts department adds value and provides solutions, it’s only logical that this will impact repeat business.

How does this directly affect dealerships profits?

Well, without paying attention to common inventory issues that frequently tie up cash flow, like a decrease return on assets and carrying costs, which impact P&L, profits can quickly be eroded by:

  • High stock obsolescence
  • Uninformed, poor purchasing decisions
  • Excessive stock of slow-moving parts
  • Time spent in creating and submitting spare parts orders
  • Significant costs in fulfilment of emergency orders

That’s why measurement, evaluation and optimization of aftermarket service parts is critical to a dealership’s bottom line.

Measurements like gross inventory turns, true inventory turns, purchase performance, level of service and obsolescence levels are all key levers in automotive dealership parts departments, according to WardsAuto.

With parts planning systems like Syncron’s Inventory Management solution, dealerships have the support of best-in-class forecasting, replenishment planning and inventory optimization.

By integrating with Dealer Management Systems (DMS), data quality related to these key measurements is improved, and the interface is super easy for dealership employees to quickly learn and use on a daily basis. Not to mention, the system’s advanced user permission logic opens the door for differentiated roles among users.

Dealer Inventory Management is designed with supply chain visibility for dealers to interface with their OEM’s globally distributed supplier base, features such as exceptions to automated forecasting are controlled at the dealer level, OEM inventory analysts can adapt policies and stocking strategies to address changing market conditions.

And since many parts managers only have history (or personal experience) to rely on, stocking strategies provided by the OEM can better position parts managers to sync with a dealer’s overall business objectives.

Here’s how dealerships can benefit from these advanced functionality, planning and optimization tools:

  • Stocking logic for initial and critical stocking
  • Integrated return logic that syncs to system-generated replenishment
  • Analytics to reduce excess stock and obsolescence cost (while improving service levels)
  • Control of inventory carrying costs
  • Focus on inventory with significant demand changes (rather than line-by-line ordering)
  • Buyback processes between the dealership and the OEM to return excess inventory

And while the focus might be on optimizing new and used vehicle inventory, it’s just as critical to optimize parts inventory when it comes to hidden profit levers at the dealership level. Increased sales, reduced inventory and fulfillment costs, improved productivity and efficiency, increased customer satisfaction and advanced supply chain execution drive dealership profitability from the parts department.