I'm interested to see how other dealers take their annual physical inventory. We had an outside inventory company do ours, I heard today that it cost approx. $12,000.00 to count less than $1,000,000.00 in inventory.
It sounds like I should retire from the parts business and open an inventory company..
Anyone interested in joining me?
Jack
Cost of taking annual inventory
11 posts
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Cost of taking annual inventory
by Chuck Hartle » Wed Dec 15, 1999 8:52 pm
Hi Jack,
Boy is that a loaded question? Actually, that seems about right for a $1,000,000 inventory. The general rule of thumb is 2 count teams (4 people) for every $100,000 counted. You then have supervisors and a clerk for "Work In Process" analysis.
Not that I am defending the inventory control companies our there, but trying to get that many people coordinated to work and getting them there takes a lot of time as well. If you are going to use an outside inventory company, that seems pretty fair by today's prices.
We used to find the people ourselves and let the outside company manage the count. We would pay the workers directly and this helped reduce the fee by about 30%.
Personally, heading off in another direction, I always wanted to "Cycle Count" our inventory on a daily basis with part time people working at night (when the inventory was stagnant)and then have an auditor come in once a year and take 100 numbers randomly and if we were 95% accurate, book the inventory with the WIP in process and start again. This way the counts would stay accurate more often and the headaches associated with a physical production yearly would be a thing of the past.
I could never get the Dealer to go for it, however, as our Auditor didn't like the idea at all? That always bothered me... why is the auditor (who would now have to work) making that decision. I talked to several automotive auditors not affiliated with our store and they loved the idea! Is anyone doing that now?
Chuck Hartle'
WD&S Publishing
PartsEdge.com
Boy is that a loaded question? Actually, that seems about right for a $1,000,000 inventory. The general rule of thumb is 2 count teams (4 people) for every $100,000 counted. You then have supervisors and a clerk for "Work In Process" analysis.
Not that I am defending the inventory control companies our there, but trying to get that many people coordinated to work and getting them there takes a lot of time as well. If you are going to use an outside inventory company, that seems pretty fair by today's prices.
We used to find the people ourselves and let the outside company manage the count. We would pay the workers directly and this helped reduce the fee by about 30%.
Personally, heading off in another direction, I always wanted to "Cycle Count" our inventory on a daily basis with part time people working at night (when the inventory was stagnant)and then have an auditor come in once a year and take 100 numbers randomly and if we were 95% accurate, book the inventory with the WIP in process and start again. This way the counts would stay accurate more often and the headaches associated with a physical production yearly would be a thing of the past.
I could never get the Dealer to go for it, however, as our Auditor didn't like the idea at all? That always bothered me... why is the auditor (who would now have to work) making that decision. I talked to several automotive auditors not affiliated with our store and they loved the idea! Is anyone doing that now?
Chuck Hartle'
WD&S Publishing
PartsEdge.com
[This message has been edited by Chuck Hartle (edited 12-15-1999).]
- Chuck Hartle
Cost of taking annual inventory
by Robert a Bamert jr » Thu Dec 16, 1999 10:32 am
I just went though inv. a week ago. I payed about the same as you for 155,000.the problem i had was getting the co. to put away for it, acrew though out the yr so dec. didn't look like we fell on our face.It only took 2yrs to get that to happen.And i think we must be in the wrong buss. i'll join the new inv. co. what will we call it? lol
- Robert a Bamert jr
Cost of taking annual inventory
by sallen1 » Fri Dec 17, 1999 9:12 am
We just did one inventory last Sat. and the other is tomarrow. Both run about $300,000 and it costs about $3,000 each (1% of what's counted plus some small fees). Keep in mind that the incentive for the physical inventory people is to count as much as they can, that's why its a % of $$ counted.
Seems archaic especially with the power of computers today, but read please read on.
We have had computer systems in our parts department for about 20 yrs., prior to that was the old 'tub' system. Until I got a new parts manager 6 yrs ago, the inventory always showed either significant (>5%) overage OR underage. On year it was $40K to the good, but anytime I see discrepancies, I get concerned: Proper management should mean accurate inventory. For the past 6 yrs., the inventory has been well within my 5% figure and the last one showed only a $1,300 overage. Seems like we don't need the physical inventory service anymore. Or do we?
A question for Chuck: Does/Did your dealership perform a 'certified audit' of its financial position every year? I would be suprised if it did or still does. The reason here is cost: A certified audit of a medium sized dealership is well over $30,000. We used to do certified audits up until the 70's (I think) until the cost outweighed the benefits. What we get now is rigorous testing of a few accounts and production of the tax returns for about $12,000. It's technically called a 'review' or 'opinion' but is not certified. Lots of legal reasons but basically, if the review doesn't uncover any problems that may exist, there's very limited legal liability on the part of the accountants.
Now here's why the physical inventory is important with repect to the annual financial 'review' or 'opinion'.
Parts inventory is the 2nd largest material asset your dealership has. Obviously, the vehicles are much more valuable, but they are easy to count your bank does frequent flooring audits anyways. No outside, independant service constantly reviews your parts. And parts, oil, tires, gas, etc. can have a habit of wandering off. The physical inventory give the owners of the dealership assurance that what's on the books is accurate. It also provides a legally bound, 3rd party source for information on the inventory used in the financial review. I'm not sure you could find an accounting firm to do a 'review' without a physical parts inventory. Therefore, you could save the $$ on the inventory only to spend it later on a certified financial audit.
Some of you may see this as a bunch of non-sense, but the stockholders of your dealership rely on the accuarcy of the financial information reported to them on the monthly statements and especially on the tax returns.
By the way, we always require our accounting firm to send someone to observe the physical inventory. They think its a little 'old-fashioned' but I make them do it because my boss tells me its a rule. We have never had the parts inventory questioned.
If you are interested in forming a company to do audits, it could be a good business. Remember this: When you present your findings you are giving an legal opinion to its accuarcy and if it ever comes into question, you will be on the hook.
scott
Seems archaic especially with the power of computers today, but read please read on.
We have had computer systems in our parts department for about 20 yrs., prior to that was the old 'tub' system. Until I got a new parts manager 6 yrs ago, the inventory always showed either significant (>5%) overage OR underage. On year it was $40K to the good, but anytime I see discrepancies, I get concerned: Proper management should mean accurate inventory. For the past 6 yrs., the inventory has been well within my 5% figure and the last one showed only a $1,300 overage. Seems like we don't need the physical inventory service anymore. Or do we?
A question for Chuck: Does/Did your dealership perform a 'certified audit' of its financial position every year? I would be suprised if it did or still does. The reason here is cost: A certified audit of a medium sized dealership is well over $30,000. We used to do certified audits up until the 70's (I think) until the cost outweighed the benefits. What we get now is rigorous testing of a few accounts and production of the tax returns for about $12,000. It's technically called a 'review' or 'opinion' but is not certified. Lots of legal reasons but basically, if the review doesn't uncover any problems that may exist, there's very limited legal liability on the part of the accountants.
Now here's why the physical inventory is important with repect to the annual financial 'review' or 'opinion'.
Parts inventory is the 2nd largest material asset your dealership has. Obviously, the vehicles are much more valuable, but they are easy to count your bank does frequent flooring audits anyways. No outside, independant service constantly reviews your parts. And parts, oil, tires, gas, etc. can have a habit of wandering off. The physical inventory give the owners of the dealership assurance that what's on the books is accurate. It also provides a legally bound, 3rd party source for information on the inventory used in the financial review. I'm not sure you could find an accounting firm to do a 'review' without a physical parts inventory. Therefore, you could save the $$ on the inventory only to spend it later on a certified financial audit.
Some of you may see this as a bunch of non-sense, but the stockholders of your dealership rely on the accuarcy of the financial information reported to them on the monthly statements and especially on the tax returns.
By the way, we always require our accounting firm to send someone to observe the physical inventory. They think its a little 'old-fashioned' but I make them do it because my boss tells me its a rule. We have never had the parts inventory questioned.
If you are interested in forming a company to do audits, it could be a good business. Remember this: When you present your findings you are giving an legal opinion to its accuarcy and if it ever comes into question, you will be on the hook.
scott
- sallen1
Cost of taking annual inventory
by John Belany » Fri Dec 17, 1999 9:34 am
Why the big difference in cost of doing inventory?? from 3000 to 12000 for the relatively same amount of inventory. Is it the 'certification' that is the difference. If my dealer principal had to pay 12000 to do inventory he would have a coronary...lol I do mine in the last two months of the year with my own employees and come out way below +/- 5% (actually near 1%) with a 250,000 inventory and I only have 3 full time employees.
- John Belany
Cost of taking annual inventory
by BUCKWHEAT » Sun Dec 19, 1999 12:07 am
We have tried outside help as well as our staff for counting our $700,000 inventory.
Our own parts staff did a much better job at counting more accurately. Friends and spouses were brought in to complete the teams. Staff were given time off in lieu of pay and the extras were paid an hourly wage.
We track the number of count errors per team and calculate a percentage of accuracy. The teams now have a healthy competition going to see who will be the most accurate each year. The parts counter people also gain an appreciation of the importance of proper binning and inventory control procedures by performing their own count.
An auditor is present throughout the count performing random checks.
This system has worked well for us. Because the costs are low and the staff experienced, we count twice per year. At mid year we count inventory mostly for my peace of mind. At year end we count mainly for the "bean counter's" peace of mind.
Our own parts staff did a much better job at counting more accurately. Friends and spouses were brought in to complete the teams. Staff were given time off in lieu of pay and the extras were paid an hourly wage.
We track the number of count errors per team and calculate a percentage of accuracy. The teams now have a healthy competition going to see who will be the most accurate each year. The parts counter people also gain an appreciation of the importance of proper binning and inventory control procedures by performing their own count.
An auditor is present throughout the count performing random checks.
This system has worked well for us. Because the costs are low and the staff experienced, we count twice per year. At mid year we count inventory mostly for my peace of mind. At year end we count mainly for the "bean counter's" peace of mind.
- BUCKWHEAT
Cost of taking annual inventory
by Chuck Hartle » Mon Dec 20, 1999 11:09 pm
Sallen,
No, ours wasn't an offical "certified" inventory. We practiced exactly what "Buckwheat" did. We also tracked the bins the count teams did.
One weakness I see with many inventory companies is their willingness to recount areas that had the highest rate of errors with different count teams and taking the variance to the slightest degree.
I have had so many managers tell me that their count variance had less than 200 part numbers. I then ask them at what dollar amount did they start looking at their variance? Amazingly enough, these inventory companies start at $50 dollars and managers seem to accept $25 dollars or more as a starting point based on the inventory company's recommendation.
I started the variance at .01 and check it all! Heck, when you have the people and you are verifying counts, you should recheck it all until you are completely satisfied. My inventory company hated me for being this "demanding", but I can tell you that when a count is different, it bares a double check no matter what the difference.
Anyone else go to this detail? I feel some inventory companies "shame" the parts manager into a high variance so they can get the job done quicker. I simply feel that if you gear up and spend the money you should go until you feel confident TO YOUR SATISFACTION instead of someone else's opinion that the count is accurate short of you physically checking it out yourself!
How many managers out there end up "cleaning" up problems in their inventory and on their computer after the inventory was completed????? Be honest!
Chuck Hartle'
No, ours wasn't an offical "certified" inventory. We practiced exactly what "Buckwheat" did. We also tracked the bins the count teams did.
One weakness I see with many inventory companies is their willingness to recount areas that had the highest rate of errors with different count teams and taking the variance to the slightest degree.
I have had so many managers tell me that their count variance had less than 200 part numbers. I then ask them at what dollar amount did they start looking at their variance? Amazingly enough, these inventory companies start at $50 dollars and managers seem to accept $25 dollars or more as a starting point based on the inventory company's recommendation.
I started the variance at .01 and check it all! Heck, when you have the people and you are verifying counts, you should recheck it all until you are completely satisfied. My inventory company hated me for being this "demanding", but I can tell you that when a count is different, it bares a double check no matter what the difference.
Anyone else go to this detail? I feel some inventory companies "shame" the parts manager into a high variance so they can get the job done quicker. I simply feel that if you gear up and spend the money you should go until you feel confident TO YOUR SATISFACTION instead of someone else's opinion that the count is accurate short of you physically checking it out yourself!
How many managers out there end up "cleaning" up problems in their inventory and on their computer after the inventory was completed????? Be honest!
Chuck Hartle'
- Chuck Hartle
Cost of taking annual inventory
by sallen1 » Tue Dec 21, 1999 7:39 am
Hey, I'm not discounting the fact that your employees can provide a quality job doing the annual inventory and I'm sure that the rolling inventory method is actually alot more efficient, you have to keep this in mind: Who's going to back up the inventory value? Especially in the event of theft, what is going to be the number your dealer/owner can rely? The outside inventory and/or auditor oversite during your own inventory provides this protection.
Also, I got a box of junk that was charged off by my controller PRIOR to the inventory. She wanted to know if I wanted to have a garage sale!
scott
Also, I got a box of junk that was charged off by my controller PRIOR to the inventory. She wanted to know if I wanted to have a garage sale!
scott
- sallen1
Cost of taking annual inventory
by Chris » Thu Feb 17, 2000 1:01 pm
$1,100,000 Ford inventory. I hire Ford experienced parts personnel from dealerships throughout the state. We take a full double blind count and recount any discrepencies. Feed the 45 to 50 people breakfast and lunch for around $6,000.
Please keep in mind that doesn't include any espense in the 3 month prep time or the 1 week reconcilliation time I or staff spend during the physical process.
As to vairance? (cough) I'm on a UCS 7000 system. After working an ADP system for 14 years and R&R ERA system for 8, I think this one would make an excellent BOAT ANCHOR. Usually run about 2.5 to 5% overage. Rather be 1 to 2 % over but we play the cards we're delt.
------------------
C. Bledsoe
Pts Mgr
Pulliam Ford
sysop@clynx.com
Please keep in mind that doesn't include any espense in the 3 month prep time or the 1 week reconcilliation time I or staff spend during the physical process.
As to vairance? (cough) I'm on a UCS 7000 system. After working an ADP system for 14 years and R&R ERA system for 8, I think this one would make an excellent BOAT ANCHOR. Usually run about 2.5 to 5% overage. Rather be 1 to 2 % over but we play the cards we're delt.
------------------
C. Bledsoe
Pts Mgr
Pulliam Ford
sysop@clynx.com
- Chris
Cost of taking annual inventory
by Warren » Wed Feb 23, 2000 3:35 pm
Daily parts counts are a must and should be part of any parts manager or counterperson's job description. Every Novemeber we do an inventory. The count is performed by the parts staffs of the three dealerships I own. Each week for three a different store's inventory is counted. The office manager and the company controller oversee the operation and randomly count particular parts numbers. Total inventory exceeds 1.1 million and we haven't had a problem in 5 years and our inventories are right on. We use ADP and don't hold that against us. Total expense for all three stores is no more than $2000.00. With proper organization prior to the actual count (done on Sundays), the staff is done by 2:00PM.
- Warren
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