Inventory Management is Really a Matter of Choice

Having been directly involved in the retail automobile business for over 40 years now, I have come to learn that every once in a while someone comes along with a great idea that makes a lot of sense. Some of those ideas make a big hit in the marketplace, while others do not. This is largely due to choice. The free enterprise system of capitalism is by far the greatest structure of any economy we know to exist. The basic formula of supply and demand equals price is the backbone for capitalism. Capitalism and free enterprise are all about choice. This is true both on large (nationally) and small (dealership) scales.

When you really think about it, choice is something that is at the very foundation of who we are as individuals. It is one of our inner-core, ingrained human concepts. Starting from a very early age, we make choices. Then, we analyze or somehow process the results and go on about our lives only to make additional choices. This is a never-ending circle of events that really takes us through our entire life cycle. As little babies we learn that we can get attention, or something else we want, by crying or laughing. When babies cry, they get fed or their diapers changed. When babies laugh, they get to see some more of the silly faces the grown-ups are making.

As we grow into children and teenagers, we make more choices. Sometimes we are rewarded and other times, not so much. As we grow older, we hopefully learn from the results of the choices we have made along the way. Naturally, we want to repeat the good choices whenever possible and minimize or eliminate the bad. When we come to that proverbial fork in the road, some of us delay making a choice, thereby delaying the result, whether good or bad. For some, not doing anything is a choice in and of itself. Choosing to do nothing is usually not the best choice. All too often, this is the case when it comes to precise vehicle inventory management.

Today’s technology gives us all the opportunity to make better inventory management choices and more intelligent decisions, more accurately and faster than ever before. Literally, with a few clicks of your mouse in the right program, you can get all of the information you need to make the best possible decisions regarding inventory. While it is impossible to predict economic swings, natural disasters, terrorist activities or wild fuel-price fluctuations, you can phase in a more active inventory. Ask yourself this question: Am I confident that my managers are using all of the tools and data available to them to make the very best possible inventory management choices? If not, why not?

The key indicators that are the backbone of precise vehicle inventory management include, but are not limited to, specific model number, option packages, color, trim, individual options, average age to retail, average gross per unit, average age of inventory, seasonality, and special events. The proverbial bottom line is this: if you want to increase your bottom line (and who doesn’t), it can be done by re-examining and restructuring the way you make new and used vehicle purchasing decisions. It really is all about choice and the system you use to facilitate that choice.

The idea of any good vehicle inventory management system is to quickly give information to management that is easy to read, use and understand, and will help accomplish the following:

1. Continually phase in what’s needed and phase out what’s not
2. Recommend some specific action that needs to be taken
3. Make decisions based on actual data, not gut feel

There is tremendous potential to implementing an inventory management system for both your new and used vehicle departments. By improving your methods of choice, the following is a partial list of benefits that you can enjoy.

• A 5-percent bottom line increase
• Released frozen capital
• Increased gross profit per vehicle retailed
• Monthly floorplan interest credits
• 60-day supply of new vehicles
• 35-day supply of used vehicles
• Reduced wholesale pain
• Reduced variable selling expense
• Continuous training and system implementation
• Feedback and accountability
• Improved market penetration
• Increased closing ratios
• Group reports for multiple locations with different demographics
• Reduced advertising expense
• Significantly impacted return on investment
• Improved CSI
• More units delivered
• Complete new vehicle inventory turn six-plus times per year
• Complete used vehicle inventory turn 10 to 12 times per year
• Knowledge of your highest producing color, package code, engine, etc.
• An inventory stocking guide by specific model number
• Totally objective inventory decisions
• Knowledge of exactly what to advertise and when
• Inventory that matches current market demands

Inventory management is a science. Make no mistake about it. Choosing to do nothing differently will get you just that—nothing different. Making better choices is worth the effort. There are a few good vehicle inventory management systems available from which to choose. The power of choice really does make a difference. We have all experienced it, and we all will continue to do so. I hope you will make choices that are in your dealership’s best interest.


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