Nov 20, 2018

Knowing How Much Inventory to Keep On Hand

Knowing How Much Inventory to Keep On Hand

Managing inventory is an important task when running a heavy-duty repair shop. You need to have enough of the right parts available, so jobs don’t have to wait. Then again, overstocking parts that don’t turn over quickly ties up cash and takes up storage space. Knowing how much heavy-duty parts inventory to keep on hand can seem like playing a game of Hang Man. In reality, however, inventory management doesn’t have to be a guessing game.

Inventory Management in a Heavy-Duty Repair Shop

Admittedly, there is an element of uncertainty in inventory management. You can see what maintenance jobs are on the books. Plus, you might have a few pre-scheduled repairs coming up, too. In the heavy-duty repair business, though, there’s always plenty of wild cards. Surprise jobs that pop up as breakdowns and other emergencies occur, for instance.

That’s why managing inventory in a heavy-duty repair shop is different from any other industry. Yet, there is one common element that helps any business calculate how much stock to have on hand. You’ll find it in your historical data. If you aren’t already tracking inventory, start now. The longer history you have, the easier it is to see patterns. For example, maybe you tend to go through a lot of timing belts in the spring. Alternatively, maybe you’re overstocked with an obscure filter you got a really great deal on them years ago.

A shortcut when determining the right amount of inventory to stock is to align it with the industry standard. That can easily be found by contacting a trade association like the Heavy Duty Distributors Association (HDDA). Your shop will likely be different from others, even within the industry. However, knowing the industry standard will give you a place to start. The pros advise keeping about 3 to 5 percent less than the standard on hand to help manage cash flow because it will decrease the time between when you buy parts and when you use them.

Managing the Grey Area

There are a couple of things to consider for optimal inventory management:

  1. cash on hand
  2. supplier minimum order requirements

Unless you have a low-cost line of credit, cash on hand limits stock orders. Plus, you won’t want to spend all your money on an order without projecting how much you can make back within 30 days to keep your shop liquid.

On the other hand, suppliers often require you to order a minimum dollar amount or number of products to get wholesale pricing. Often, they’ll offer bigger discounts for ordering more than the minimum. It only makes fiscal sense to exceed minimum orders if you have the cash on hand and you know you’ll be able to use those extra parts within a reasonable amount of time.

Among other factors to consider is figuring overall costs, which typically include freight with order size. Therefore, just because you might have $20,000 cash on hand, that doesn’t mean you can invest the entire amount in inventory. Part of it will have to go toward shipping.  Also, you need to balance lead time—the length of time between when you order and when the stock will arrive—with how much inventory you think you’ll use during that time. That goes back to that historical data. You can only estimate what types of parts and how many you’ll use if you know what those numbers were last year.

Managing Inventory in Real Time

Even though monthly inventory tracking is optimal, some businesses still do it the old-fashioned way. They manually go through the stockroom at the end of each year, marking down with pen and paper what parts are sitting on their shelves. Then, they compare those numbers to the previous year’s numbers and the current year’s sales. That technique serves the basic purpose of providing the inventory numbers you need to figure out how much inventory to order.

In today’s world, however, inventory management can be done in real time. Shop management software like Fullbay keeps track of parts as they’re put on the shelves and used. Any day, any time, you’ll know without guessing exactly what’s in your stockroom. Plus, Fullbay also builds estimates, invoices, and schedules jobs, so you’ll know ahead of time if you’re running short on parts you’ll be needing. That means never again putting a customer’s job off because of inventory shortages. Also, it will be easier to keep the right amount of stock on hand without overstocking. The best part is, managing inventory is just one way Fullbay helps your shop run smoother. Fill in the form below to test-drive Fullbay and learn first-hand how it can help you.