Table of Contents s156

Parts & Accessories Department Operations Manual INVENTORY CONTROL

PURPOSE 4-1 BIN LOCATIONS 4-6 DESIRED STOCKING LEVEL 4-1 SPECIAL ORDERS NOT PICKED UP 4-7 VENDOR RETURNS 4-3 PHYSICAL INVENTORY PROCEDURES 4-8 SOURCES & CATEGORIES 4-3 INVENTORY REPORTS 4-11 PRICE FILE UPDATES 4-6

PURPOSE

The parts and accessories inventory is the largest cash asset in the dealership. Effective management and control of this asset is paramount to the success of the dealership. This section contains information that can assist you in better managing your inventory in an effort to maximize customer service and minimize stagnant inventory.

DESIRED STOCKING LEVEL

Gross turns is defined with the following formula:

Gross Turns = Average Cost of Sales per month X 12 / Average Inventory Cost

The larger the gross turns number the more profitable your parts department is. This formula can be used to determine:

How FAST your inventory TURNS;

How MUCH inventory you should STOCK; and,

How MUCH you need to SELL.

Please study the Gross Turns diagram and example on the following page (4-2)

The GROSS TURNS Formula as a Management Tool

What can the GROSS TURNS Formula tell you? By using the 3 elements of the circle shown below, you can derive three equations that will show you: How FAST your inventory TURNS; How MUCH inventory you should STOCK; and, How MUCH you will need to SELL. Three examples have been provided to illustrate these 3 solutions.

In this figure, the letters represent: C C = Cost of Sales (Annualized G = Gross Turn A = Average Inventory Cost

G A The 3 variations of the GROSS TURNS Formula can be derived by processing the three elements noted above.

C C G = ------A = ------C = GA A G

TURNS INVENTORY COS Assumptions: Assumptions: Assumptions: Avg. COS/Month = $47,000 Avg. COS/Month = $53,000 Avg. Inv. Cost = $84,000 Avg. Inv. Cost = $384,000 Desired Turn = 4 times Desired Turn = 3.5 times

$47,000 x 12 $53,000 x 12 ------= GT ------= GT (3.5) x $84,000 = COS $384,000 4 $294,000 = COS

$564,000 $564,000 Desired GP% = 40 ------= GT ------= GT $384,000 $4 $294,000 x 1.67 =

1.47 = GT $159,000 = Avg. Inv. $490,980 in SALES

Reference Item # IC-0002

VENDOR RETURNS

Any part that is in stock that does not have at least three demands per year is sent back using the appropriate OEM return policy. The ‘eventually it will sell’ way of thinking will only burden the department by taking up valuable space and tying up stocking budget money. Sometimes it is more practical and profitable to scrap or donate items and utilize the tax advantage associated with this procedure. Another method of dealing with stagnant parts is ‘marking down to a penny’ after one year of no sale on that particular item. Confer with your General Manager to determine the best solution when dealing with stagnant parts. See also the section titled ‘Obsolete Parts and Accessories’.

Special Order Returns Any items remaining in bin position 21 still not picked up by the customer go into either of two return bins: A. Special orders not paid for, or B. Special orders paid for in full. Items in Bin A are sent back right away if possible to the corresponding vendor. Items in Bin B are pulled every quarter and either shipped to the address on file or returned to the vendor.

See Reference Item # RT-0001 (Returns Shelving Layout) in Module Thirteen (Reference Materials).

See also Module 8, Returns.

SOURCES & CATEGORIES

Sources are a unique two character alpha code used to identify the vendor that a particular item number is associated with. This code accompanies the item number in the dealership computer system.

Primary sources are typically downloaded to the DCS server from a price file CD. For these primary sources a default source code is already set up in the download. For consistency purposes it is important to utilize all source codes already set up on the price CD.

All other products (not included in the price file CD) are to have a unique source code manually created into the DCS. It is important to analyze default codes and manually entered source codes before adding a new source.

For items being purchased from a specialty vendor on a one time basis that will not be re-ordered, the source code MX for Miscellaneous is appropriate to utilize.

This source code is already set up in the DCS and streamlines entering specialty items because adding the new source code is not required.

(EXAMPLE: Let’s say you are in a bind and in order to satisfy a loyal customer, you go to the local auto parts store to buy a heli-coil that is usually purchased from our primary aftermarket vendor. It would then be appropriate to receive the heli-coil using the MX for Miscellaneous source).

Categories are three alpha character codes that are used to identify different types of items in inventory. Default categories are also typically downloaded to the DCS on a price CD. The two basic categories are:

PRT = for hard parts received from the OEM ACC = for accessories received from aftermarket vendors

Advanced parts departments can better quantify what types of products are selling and when by adding more detailed categories into the DCS. What makes this technique difficult is consistent product category entry for products that don’t have a specific category. Outlining the details for this project is comprehensive. Extreme caution must be exercised when adding new categories in conjunction with DCS software guidelines. Some examples of additional categories are:

APP = APPAREL KHP = KAWASAKI HARD PARTS CRU = CRUISER ACCESSORIES LTH = LEATHERS DIR = DIRT GEAR O&C = OILS AND CHEMICALS GLS = SUNGLASSES SHP = SUZUKI HARD PARTS DIR = DIRT GEAR TIR = TIRES HLT = HELMETS YHP = YAMAHA HARD PARTS

All items in inventory have a source and category in the Dealership Computer System.

See Reference Item # OR-0003 (Vendor Contact Information) in Module Thirteen (Reference Materials).

See also Reference Item # OC-0001 (Sources & Categories) on the following page.

SOURCES & CATEGORIES – MotoSports Source Category Name of Vendor AA ACC ACERBIS AL ACC ALPINESTARS AP ACC APPLIED RACING PRODUCTS BB ACC BIG BIKE PARTS CB ACC CORBIN SADDLES CK ACC CLARKE MANUFACTURING CS ACC CAROLINA SPECTRO CT ACC CASTLE SALES CU ACC CURTIS INDUSTRIES EE ACC ENDURO ENGINEERING INC ER ACC ERION RACING FS ACC FULL SPECTRUM DESIGN (PIT BULL) FX ACC FOX GV ACC GIVI INTERNATIONAL HH ACC HELMET HOUSE HI ACC HIGHLIFTER ATV ACCESSORIES HL ACC HELM HO PRT AMERICAN HONDA IV ACC IMPACT VIDEO JM ACC J&M CORP KA PRT KAWASAKI KL ACC K & L SUPPLY KU ACC KURYAKYN LB ACC LA BOITE INC LL ACC LEATHERLYKE LP ACC LOCKHART PHILLIPS ML ACC MARKLAND IND INC MN ACC MOTONATION (SIDI, CYCRA) MO ACC MOBILE OIL MS ACC MOTORCYCLE STUFF MT ACC MOTORCYCLE TIRE & ACCESSORY WAREHOUSE MX ACC MISCELLANEOUS NF ACC NO FEAR OK ACC OAKLEY OY ACC OLYMPIA GLOVES PC ACC PRO CIRCUIT PU ACC PARTS UNLIMITED RC ACC R.C. FIRST ENTERPRISES RE ACC RENTHAL RL ACC RAMPLITE SB ACC SULLIVAN BROTHERS SD PRT SEA-DOO SH ACC SOARING HELMET CORP. SN ACC SUNDIRO SY ACC SPY TA ACC TARGA ACCESSORIES TB ACC TWO BROTHERS RACING TR ACC TUCKER ROCKY VP ACC VP RACING FUELS WB ACC WHITE BROTHERS XF ACC X-FACTOR VIDEO

PRICE FILE UPDATES

Where? The majority of the price book files are available from the DCS support company.

When? The price book update CDs are sent to the dealership about once a month

How? The new price file CD comes with step-by-step instructions on how to load the price update information into the DCS. The source codes in the DCS MUST match the source codes on the price file CD or the DCS will not accept the data.

Why? This process of loading and updating the price information database in the DCS is a very useful tool, especially for non-stock specialty items that are ordered from the OEM and aftermarket parts and accessory catalogs. Having the part numbers and prices already loaded into the DCS database allows for a smooth special order transaction with non-stock items and saves the time required to acquire and add the information manually while the customer waits to prepay for the special order.

How Much? There is normally a cost associated with accessing these price files and the vendor will often reimburse this expense. Always ask for reimbursement from the corresponding vendor if there is a cost associated with accessing the digitized price file. Remember that any reduction in expense costs adds directly to the net profit of the department.

BIN LOCATIONS

Why? Bin locations make it easier to find a given part of your inventory.

How? Every part has a bin location. The bin numbering and/or lettering system is designed with room for growth. For example by skipping a letter or number every 3 letters or numbers when establishing bin locations will leave room for inserting a new ‘bin’ or shelf without having to rename every bin or shelf in that particular section. Every part or accessory has an established bin location with no exceptions. The philosophy of ‘a place for everything and everything in its place’ applies here. This system is system dependant and enables the department to continue running with substitute employees without any major roadblocks in the area of locating a part or accessory.

Even special order shave bin locations!

20 Bin Special Order Storage Rotation System

 The 20 bin system is designed to be rotated on a daily basis while providing a quick access storage system for customer special orders. The system consists of 20 bins arranged in order on dedicated shelves in the parts room.

 The bins are numbered from 1 to 20.

 At the beginning of each morning the bin on the lower right hand shelf is pulled and anything that is in the bin is placed in bin 21.

 All items placed in bin 21 must have the special order cancelled and all deposits forfeited in the dealership computer system.

 All of the bins are shifted left to right and up to down. The shelving unit has five shelves and the bottom four shelves are used to store the 20 bins. Each of the bottom four shelves has space for five bins. The top shelf is used for larger items that will not fit into the respective bin. These larger “overflow” items are tagged with paperwork to identify what special order the item is associated with, since it is not in a labeled bin.

 This empty bin is now placed in the upper left hand slot and now the items received in during that day are placed in that bin and on the top shelf labeled “oversized special order items”.

 The bin number that each special order is placed in is noted in the dealership management system computer within the notes area of the special order. Each bin is labeled with a number from 1 to 20.

SPECIAL ORDERS NOT PICKED UP

Special orders that are purged from special order bin 20 and dumped into bin 21 that are paid for in full are sent back to the customer unless there has been recent communication with the customer and other arrangements have been made. Special orders not picked up that are not paid for in full that arrive in bin 21 are sent back to the vendor and the deposit is forfeited unless there has been recent communication with the customer and other arrangements have been made.

See Reference Item # CL-0001 (Planning Calendar) in Module Thirteen (Reference Materials).

PHYSICAL INVENTORY PROCEDURE

Parts and accessories inventory is the largest cash asset in the building. Having an accurate record of what is in the inventory is the cornerstone of managing the parts and accessories department. The following is a good step-by-step procedure to count the physical inventory ands, when followed, makes the business of counting inventory as painless as possible.

Step One – Plan

Plan physical inventory time and dates at least one month in advance. Physical inventory should be done twice a year. It is recommended to schedule each count approximately 5 to 7 months apart.

Step Two – Prepare

Print out all source codes from the DCS. Utilizing your P&A calendar (CL-0001) document a specific schedule inserting source codes in each day as you would want to count. Consider the size and dollar amount of each source. Listed below is the recommended strategy for building your inventory.

1. Block off a complete month to perform the physical inventory. (slowest months) 2. Primary vendors are scheduled on days that the store is closed 3. Secondary vendors should be scheduled during slow business days 4. Alternate vendors are to be scheduled during the remaining days on the calendar, excluding Saturdays.

Step Three – Organize

Organize, Organize, Organize. The foundation of a successful physical inventory is organization. The number one reason for inaccurate physical inventory is a lack of preparation and organization. The month leading up to the count is spent organizing and preparing for the counts.

1. Eliminate all clutter piles 2. Be sure that every part is in its final destination (bins, boxes, etc.) 3. Be sure that every part is clearly labeled 4. Be sure that bin boxes are in their designated order and are neat 5. Purge Special Order Shelves  Aggressively pursue customer pick up before count day  S.O.’s paid in full but not picked up after 21 days are shipped to the customer

 S.O.’s not paid in full are placed in the appropriate returns bin or placed into stock

Note: Ensure that all parts in “Returns to Vendors” bins have bin locations in the DCS.

Step Four – Vendor Assistance

Contact secondary and alternate vendor sales representatives to schedule appointments with them to assist with the physical counts for their respective source.

Step Five – Count Sheets

Set up DCS Count Sheets in advance: Be sure count sheets are set up with the following fields: Source, Category, Part Number, Part Description, Bin Location, On Order (not mandatory, but preferred), and a dash for the actual count.

Important! – Do not include “quantity on hand” when printing count sheets. It is important that the count sheets show all part numbers in the system for each source. Count sheets showing only parts that are currently on hand do not take into consideration that parts may be found that have a quantity of zero in the computer. When trying to hand write in part numbers that are not on the count sheets, the count sheets can quickly become cluttered and confusing. Additionally, when the count sheets show quantity it is harder for the person counting to be objective.

Step Six – Count

It’s time to count! Based on your inventory schedule start with your primary vendor on the day when the store is closed.

1. Always count your stock in order from left to right. Count in order of numerical sequence and shelving bin locations. Start at left end of the shelf and count everything in order all the way to the right end of the shelf. Do not count from the count sheets! 2. While documenting quantities on count sheets it is important to write legibly. The adjustments may be made by someone other than the person counting. Small sticker dots (obtained at any office supply store) are placed on the bin box and/or part after it is counted. Use a different color small round sticker for each counting session (two sessions per year). This will help ensure that everything gets counted and nothing gets missed.

Important! – When counting parts during business hours it is very important to document any items sold and cross reference the sales with the count sheets. New count sheets must be printed right before each source is counted.

Step Seven – Update

1. After each source has been counted, it is now time to update the data in the dealership computer system. 2. Run the Inventory Valuation report for the source counted and print it out. Label this report as “Before Count” 3. Pull up the source in the DCS and begin going through the corresponding count sheets making the adjustments to the proper quantity in the DCS. It is recommended that a Manager make the key changes in the DCS while the other team members are counting. After the key changes have been made, reprint the Inventory Valuation report. Label this report as “After Count”

Step Eight – Document

Subtract the difference of the “before count” inventory valuation report and the “after count” inventory report. Clearly document the difference on the “after count” report.

Step Nine – Quality Control

Go through the count sheets with a calculator adding up the amount of each adjustment. After totaling the adjustments on the count sheets, verify that the amount matches the difference on the before and after count sheets.

If the amounts of the adjustments of the count sheets on the before and after inventory reports do not match then a key punch error was made during inventory corrections.

This is the quality control system for the key punch changes.

Step Ten – Submit

Staple in order the Before Count, After Count and Count Sheet, have the parts manager sign it, GM sign it, and then submit it to the Accounting Department.

Step Eleven – Accounting

The Accounting Department now makes the inventory adjustments to the General Ledger to ensure financial statements are in balance with actual inventory amounts.

INVENTORY REPORTS

Inventory reports are valuable tools when taking on the job of managing the parts & accessories department of a powersports dealership. Knowing how to generate these reports, knowing what each report is used for, and how to properly read these reports in very important and very helpful in spotting problems with inventory. The following are six different types of inventory reports and all generated on the DCS.

INVENTORY VALUATION REPORT This report shows the total cost of the inventory of a certain source of parts and/or accessories or of the entire inventory including all sources.

EXCEPTION REPORT This report shows part numbers in inventory that have a negative quantity, a quantity greater than 100, or a cost that is greater than retail

SALES BREAKDOWN BY CATEGORY REPORT This report shows sold part & accessories activity based on a certain sales category such as HLT for helmets. This report shows cost, retail and margins.

FAST MOVING PARTS REPORT This report lists the top 100 part numbers in terms of quantities sold. This report is available on the DCS.

BUYING GUIDE REPORT This report assists in the buying of parts and/or accessories based on a sales curve formed from the previous year’s sales history.

SUGGESTED RE-ORDER REPORT This report suggests what part numbers to order based on sales history from the previous year.