Physical Inventory

[STUCKINPARTS]

So we just had our annual inventory, the first one since the previous parts manager retired after 16 years here. Previous manager was consistently positive after every physical inventory, almost always in the 10k range, the only parts manager in our dealer group (20 stores) to do so. This inventory, we are positive just over 11k, on 142k worth of inventory. High fives all around, right? Wrong! This time the corporate parts and service director visited our store and had a meeting with us and the GM to say that he doesn't like a positive. He says we are doing something wrong and inventory should be spot on and balance with what the ledger says. I'm a bit confused about the reaction. Thoughts?

[possum]

That percentage of variance is bad either way, from a statistical point of view. The bump in money is good, but it leads me to believe there's a lot of "grey area" decisions or plain sales/purchasing issues and keeping your 242/687/policy/write-offs on errors/etc. properly distributed. Are you reconciling monthly with Accounting? Have you or your comptroller done a review of the journal setups?

[RLWOLF]

Also, check on whether or not they are booking appreciation/depreciation on a monthly basis, end of year, or not booking it at all.
If it isn't being allowed for, that could be the bulk of your appreciation over a 12 month period.
Like possum said, that's way too much for an inventory that size. I think 1%-2.5% is acceptable.

Good Luck,
RLWOLF

[Mike Nicholes]

In addition to comparing the dollar after the physical account with the general ledger; look to see how many parts required a minus or plus adjustment in order to get the count right. A very, very low number in this area means an impeccable inventory or somebody is messing with the numbers. Help direct? miknik@aol.com

Mike

[ChuckL]

Also, keep in mind items you buy in bulk with discounts, and items you buy from other dealers - how are those getting entered in accounting and in your DMS on the parts side of the street...similar to Appreciation/Depreciation considerations

[LivinDaDream]

I had a feeling that Mike would chime in. He's REALLY the inventory GURU, the godfather of all inventory things GREAT, and can steer you to the truth. I believe he has an inventory reconciliation worksheet that I'd recommend you use monthly to reconcile with your accounting office. Sounds to me like you, or they, aren't accounting for local pickups (paying a higher cost and taking the difference to 687), or as someone else had mentioned, possibly G/L accounting setups aren't proper. I DON'T believe that your static variances were off by THAT MUCH; so it's gonna be discounts or other cost-of-sale items that weren't applied properly. Industry standard is less than a 2% variance at physical inventory time.