What are the carrying costs for your auto parts inventory?
Carrying costs is the cost of maintaining inventory in stock. They are also called holding costs and inventory carrying cost and can have a significant effect on your dealership’s bottom-line. Your auto parts inventory could have carrying costs.
- Storage costs
- For goods, interest and fees
Employee costs – Parts employees, administrators
The cost of not accepting another opportunity can be included in your carrying costs. In your service shop this could be the cost of choosing storage space over another service bay. You could lose out on an opportunity to invest capital or resources because they are tied up in stock.
Consider changing if you have high carrying costs.
- Frequency of ordering
- Reorder points
- Ideal stock levels
How fast parts are moved
Have a good safety stock
Your parts department may not have enough stock to meet the forecasted demand. If demand is higher than anticipated or you are unable to get new stock quickly, it can be difficult for your parts department. It is important to have enough stock to meet demand. But, not having enough can cause high carrying costs.
You can use inventory management software to ensure you have the right amount of safety stock. Software that automatically calculates safety stock will usually give you the data you need.
- (Maximum Daily use X Lead Time in Days) – (Average Daily Usex Average Lead Time in Days)
- Whatever method you choose to use, it’s important that you have accurate inventory records. Without them, your safety stock calculations might be wrong.
Reduce obsolete inventory
Obsolete inventory, if not managed properly, can cause capital losses and high carrying cost. Optimizing your ordering process is essential to reduce obsolete inventory. This is possible by using historical demand and seasonality to base purchases. It is important to keep track of inventory changes and inventory age so that you can sell the inventory before it loses any value. You can either offer promotions or reach out to other shops to purchase surplus inventory.
You must ensure that your records and counts are accurate in order to have an accurate picture of your inventory position.
Make the most of your space
Poorly managed inventory can cause higher carrying costs in many ways. First, unorganized inventory can lead in error. This can lead to obsolescence, or ordering parts you don’t know exist.
You may find that your parts are not well organized, which can lead to more space being used than you need. This could increase storage costs and overall carry costs.
You can reduce storage costs by using vertical shelving and properly labeled bins. It is possible to reduce storage costs by placing popular items in central places. This will reduce obsolescence risk and allow for space that can be used to generate revenue. It all depends on how big your storage space is.