Physical Inventory (Farmin out)?

[imacdude]

As I prepare for another Parts Department Physical inventory I am presented with the question:

To farm out, or not to farm out?

We have always (except for one tragic year) performed our own physical inventories. I have gone through the pros and cons before with different individuals and am curious to here from the group. How many people do their own physical versus hiring an outside firm or group? We have taken our own in an attempt to empower our parts staff, and to encourage them to "take ownership" of their environment. We have been pleased with the results as they have been fairly acurate. What are your thoughts?

[mh]

We've done our own for years. We have about
$175,000. Takes 5 of us about 8 hours on a Sunday with some "pre-inventory" stuff the week before. 3 Admin people do the keypuching. We all usually finish at the same time and we have time to reheck pages with large discrepencies. From what I remember the last time an outside firm did it, there were numerous errors (1 box of brake pads counted as 4, etc.)

[fburrows]

If you have the choice then I can't see why anyone would want a bunch of strangers counting your parts instead of people you know and trust. I am sure that there are a couple of people in the dealership that you would not want to involve but when an outside firm does the work you don't get to choose. We also used technicians to help count since it was in their best interests to have an accurate inventory and they have good parts knowledge. I think it is really important to choose the people carefully and still check behind them.

------------------
Frank Burrows
Automotive Business Solutions LLC
fburrows@absdata.com

[scotstrong]

Just like any business, there are outside physical inventory service providers who are considerably better than others. Some dealers and dealer groups will only allow an outside company to perform their physical inventory; often to obtain "certified" results to satisfy their accountants, bankers, owners, etc. If you are either required to use an outside firm or are interested in possbily using an outside firm, simply ask for references and check them out with the parts manager of dealerships they have inventoried.
You should also insist on a list of exactly what all the services the outside firm will provide. Do they use parts people as crew members, or do they count shoes one day and parts the next? A quality outside company can bring a lot of experience to the table as far as knowing where to look if there is a problem or discrepancies that many people who do their own don't realize. If nothing else, some companies will offer to come in and for a lesser fee help you and your people administer the physical inventory. An independent set of eyes can often see things that you might miss that kind of "blend into the scenery". An independent can also offer suggestions about how to better do things or handle certain situations based on gleaning the "best practices" out of seeing how many dealerships do things. Again, like anything in life, you get what you pay for. Just do your homework and check the references.

[This message has been edited by scotstrong (edited 10-25-2002).]

[Mark Burnett]

Use your own people, then have your company CPA spot check some of your counts....
This seems to work the best for us!

[jazdale]

My question to you.

I know that a single 'count everything' so we can have accounting and parts values be identical for a very brief point in time is the norm, but this does seem to wreck many people's thanksgiving or new year's eve.

Is it legal (in an accounting sense) to perform mini perpeptual inventories throughout the year? Maybe make sure you count every bin at least twice a year.

Dale

[turbo59]

hello group,

we use our own people.....dodge store with 375,000. we have the scan system and it can be done in four hours. we use our team of parts employees (10) and on person to transfer the data from scanners to dbs.

i firmly believe in using parts people.....the multple packs really can get you in trouble by outsiders..

chrysler has red dots for multiple packs......

just my opinion,

turbo59

[imacdude]

Dale, Great question.

I am uncertain as to the legalities, it may vary from state to state, but I think it is necessary to continue with perpetual inventories throughout the course of the year. Though at our dealer, it may be like pulling teeth to prod our parts departments to keep the perpetual momentum, so to speak, I think it has the ability to capture problems early. A sourcing, loss prevention, or billing problem may be impossible to find if you have to dig through a years worth of records to do it. To explain to an owner that the move that happened 10 monhs ago was the cause of lost, missing, or damaged parts doesn't fly very well.
I don't think that one weekend out of my year to run an inventory just to "clean the slate" is too much to ask, and the "ownership" issue for the parts employees is invaluable. I do like the technician idea posted above also, but it would be a long weekend with some of our techs around.
Thanks for the post Dale,

John Belen

[MADMAX]

I never realized that there were so many parts managers out there that ran their own inventories. That's great! You guys all deserve a raise!!!

Just to comment about 'parts people' doing the counting. Yes, it definitely helps (especially experience in your franchise) but someone with experience working dealership parts inventories alone can do a good job of it. What is scary is when you see someone new being trained to count YOUR inventory.

A word of caution maybe to those who have never run your own before. Depending on the size and condition of your store, it can be a major undertaking. Take the advice of some of those above and run your own perpetual inventories ahead of time. And the first time you run it yourself, at the very least, have a phone# of someone you can call to help if/when you need it. Your system support will usually help, though you may need to pay for it.

Also, if I were changing jobs or taking over as parts manager I would certainly want an outside company to do that first inventory and do it as soon as possible. Once that is done you can now take ownership of the inventory and run your own.

Yes, I run my own too. Still waiting for that raise though .....

[sallen1]

A comment for Frank...

We have used an outside inventory company for 10 years and while they may be termed "strangers", they do know the job. They are also monitored by our CPA firm.

It's good insurance: Outside inventory provides the "shareholders" of the corporation with an independent, third party audit of our $500,000 inventory.

Prior to this, the parts department took their own inventory which always looked straight so I thought the inventory company wouldn't have much trouble. Well, the first year took them 2 days and they discovered a $25,000 shortage. Wonder where that came from, eh? The manager had a lot of excuses but the audit was clear.

The second year went a little smoother but we had a $20,000 overage. The manager expected to be praised and rewarded for this but he was fired.

Ever since, the inventory counts/value have been within 0.25% of what accounting shows and the group gets done in 3-4 hours. That's what I expect from management.

my opinion, of course.

scott