We have all heard some version of the story about the man who went to the doctor because he had a pain in his shoulder. After waiting patiently, he was finally called by the nurse and escorted into the examination room. After waiting a period of time, the doctor finally came into the room. After exchanging pleasantries, the doctor asked the man, “What seems to be the problem?” The patient explained to the doctor that every time he lifted his right arm above his head it caused him a great deal of pain. The doctor responded by saying, “If every time you lift your right arm above your head it hurts, just stop doing that.”
If there was a “magic pill” or prescription that would eliminate wholesale pain, would you take it? Unfortunately, there is no such thing as a magic pill, but there are many choices for curing this particular malady. By far, the most effective long-term remedy is to implement a comprehensive, daily inventory management system. The system must show us where we are long, where we are short and be very easy to use and understand. Every one of these “key” words is an active ingredient in formulating the prescription, and it will not work without all of these ingredients combined: IMPLEMENT, COMPREHENSIVE, DAILY, INVENTORY, MANAGEMENT, SYSTEM. These “key” words are defined as follows:
Eliminating “wholesale pain” is simply choosing not to participate in vehicle segments that do not belong on your lot and having a system in place to identify these vehicles from day one. If it is wrong for your lot on day one, it is even worse on day 61. This sounds easy. The truth is that with a well-thought-out system, you can determine which ones are “right” and which ones are “wrong” for your store on the day of acquisition. If you know something is going to hurt, you are not likely to do it to yourself. The opposite is also true; if it is likely to “feel good” you probably would want to do it, and maybe more of it.
You must first come to the realization that your store cannot be all things to all people. Many factors play into determining why your customers are coming to your lot and what they are looking for. These factors include demographics, new vehicle franchises represented, reputation, lot size, location, advertising budget, sales people, inventory choices and many more. Some vehicle categories, model years and specific models simply cause you wholesale pain. When you determine what those specific categories and vehicles are, you can simply eliminate those vehicles from your inventory.
You should implement a system that will separate your sales, gross and inventory first by categories of vehicles (small cars, mid-size cars, sporty cars, full-size cars, small pickup, full-size pickup, small sport utility, large sport utility, mini van and regular van) and then by the eight most recent model years within each category. Your stocking guide must also include your target supply number for each category and model year including the number of units and the desired ready to go ACV. I suggest your target be no more than a 45-day supply. Most large used vehicle operations are now shooting for a 35-day supply.
Pictured below is an example of a very effective stocking guide for the small sport utility segment of a dealership.
We use this guide as a shopping list, an appraisal guide and inventory decision maker. As a shopping list, the above example clearly points out that we need 2004 small sport utilities with ready-to-go money around the $14,000 area. As the appraiser and decision maker, if the next trade you are evaluating happens to be a 2005 BMW X5 that is worth around 22,000, we know we want to trade for the vehicle if possible, but it doesn’t fit our stocking guide. So, the appropriate action would be to secure a buy figure on it, try it for 10 days and when/if it is still here in 10 days, cash it. Do not risk experiencing wholesale pain on something that simply doesn’t fit.
One of the most revealing facts that I have come across recently, as it relates to acquiring the correct inventory, comes from the Car Max annual report. Did you know that over 50 percent of the vehicles Car Max acquired came from “off the street” purchases directly from customers? Are you actively identifying areas of sales opportunities and acquiring inventory to fill these areas? If not, you are missing a tremendous gross opportunity and exacerbating the process of creating your own wholesale pain.
Over the years, many managers have said they are “too busy” to use, or even look at, such a system. They “don’t want to get bogged down in details.” They know what sells and what doesn’t. In reality, many managers fear accountability and they want to keep the “secrets” to inventory management to themselves as some sort of perceived job security. If that is the case in your store, make a change either in the manager, the current process or the manager’s thinking. You should invest in an inventory management system, that will be implemented and used by all of your people all of the time. The benefits of this type of investment will far outweigh the cost. In closing, remember this: It is not very likely that you will begin achieving different results without changing current behavior.
If you would like to see what a stocking guide for your store would look like, please e-mail me a request for the stocking guide file. It is a simple-to-use Excel file that you can populate with your existing inventory and begin the journey on the road to recovery from wholesale pain.