Managing the Parts Inventory Process to Increase Cash Flow

By: Kent Ely

Date: July, 2nd 2015

Managing parts inventory is more than just decreasing obsolescence.  It is about increasing the first time fill rate from inventory, true turns from inventory, and market share and gross profitability, both in dollars and percentages. If is also about improved shelf to system accuracy and GL to physical reconciliation.  All of these lead to an increase in PROFIT!

Why is it important?

Improved Inventory first time fill rate.

Improved technician performance and customer satisfaction because you have the part. This is a domino effect in terms of both increased sales and gross profitability (dollars and percentage).

Increased true turns (cost of sales off the shelf vs. inventory dollars).

Improves cash flow and return on investment. Also leads to a maximization of stock orders.

Improved shelf to system accuracy.

Improved ordering and stocking accuracy.

Improved GL to physical inventory reconciliation.

Integrity in accounting reporting and accuracy of performance calculations.

What to do now:

  1. Identify the key drivers of inventory performance and report/measure/coach on a daily basis.
  2. Install inventory integrity in the inventory system with consistent on-hand count vs. system checks and monthly GL to physical reconciliation with identification of variance causes.
  3. Develop strategic inventory methodologies to better utilize vendor management inventory, first time fill rates, true turns, etc.  This includes strategic “bucketing” of parts, stocking criteria, reorder points, etc.
  4. Develop strategic pricing methodologies to maximize both market share and gross profit percentage.

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