Three basic ingredients to create a simple inventory and ordering system

By: Jim Compton Originally published: May 24, 2017 ABRN

Original  ABRN Article Link

There are several advanced methods to consider for inventory and ordering. Two options include CollisionLink, which is offered through jobbers utilizing the Comcept (jobber) management system. NuVentory is a program that works in conjunction with several jobber systems. Both of these systems provide ordering, inventory and reports. With links to the jobber systems, these programs provide dynamic content that updates current prices part numbers as they come to market. These and other systems can be found online or via your jobber.

However, for this article, we will talk about some simple, basic ways to start managing inventory and ordering. Many find it easier to start off with very basic methods, get everyone onboard then have the option to migrate to more advanced or dynamic systems. While this article is intended to talk paint and materials inventory, a similar approach should work with anything purchased on a regular basis.

For most shops, enlisting the support of their jobber can greatly help and simplify this task. We will use three basic ingredients to create a simple inventory and ordering system — standard operating procedures (SOPs), historic purchases (from the jobber reports) and input from staff.

First, we need to have some basic SOPs in place. These establish a basic framework for how we are going to do things and therefore what we are going to need to get those tasks done. For example, if we have determined that all repair work will be finished with 180 grit by our body techs, we don’t need to maintain body tech inventory in anything finer and only a few grits coarser. Similar SOPs can help reduce the part number count in the paint, detail and other departments of the shop.

Every jobber should be able to provide a report of purchases. Using a full 12 months will provide a very complete list covering just about everything used on a regular basis. Remove anything that is not used on a regular basis and therefore does not need to be part of regular stock.

With our SOPs in hand, we can consider only those products that fit within our SOPs as the regular or “Authorized Stock List.” This can help thin our regular stocked part numbers, making inventory simpler and setting a basis for ordering.

Getting technicians and other staff involved will help get buy in and support. We can now discuss what we need to stock, and then how much we need to stock. The purchase list from the jobber can be narrowed to fit SOPs with input from staff on what products, sizes, grits and methods works best. This can then be pared down to our authorized stock list. I suggest determining 12 months worth of supplies divided by 26 to give us a two-week supply.

A two-week supply can, in most cases, provide enough inventory to last at least one week, with minimal overstock and less rush or fill-in orders. Filling back up to this level with each order will keep inventory fairly stable and aid in accounting for inventory. For example, a shop using 100 gallons/units of clear per year will need 4 (100 ÷ 26 and rounded up) gallons/units on hand, along with the required activators. While the mix of activators may change through the year based on temperature and humidity, the quantity doesn’t need to change very much. For this example, the 4 units of clear will also require 4 units of activator. Sometimes that will be one fast, two medium and one slow, and other times that mix may change.

Why not one week of supply, some may ask. Even though most shops can get multiple weekly deliveries, two weeks seems to work better and reduce added deliveries, time spent ordering, receiving and other administrative tasks associated with inventory. Down the road, reducing from the proposed two-week stock to a one-week level may be feasible. It is at this point that consideration may be given to a more advanced system (like those mentioned above).

Using this pared-down list and calculated quantities, we can now not only create an order form, but also a recommended stock level that ties into our SOPs.

Several shops have taken the approach that only those items on the order form (authorized stock list) can be ordered and delivered by the jobber; any other items require a signature or approval from management.

These order forms can also serve as an inventory form, providing a tool for the jobber to aid in the physical inventory (counting) process. Many jobber systems will allow for an order or quote to be created, providing an extended inventory valuation. These order forms can also be part of the process when reviewing and updating SOPs.

Another advantage of the now-stable set inventory level is an easier accounting for costs. In a production environment, cost of goods sold (CGS) is generally accounted for by taking beginning inventory plus purchases minus ending inventory. (Please keep in mind that this example for calculating CGS is over simplified — there is more involved.) CGS should be compared to sales every month to determine margins or profits. With a fairly stable and consistent level of inventory, we can calculate our margins each month without an inventory count and adjustment. Annual or bi-annual physical inventory counting and reconciliation is still recommended.

Adjusting inventory
As new techniques, procedures and regulations come into play, an adjusted authorized stock list may be needed. Many shops and jobbers have further edited these lists into specific department order forms, including  body shop, paint shop, detail and general shop. Leaving room on these forms for quick additions will help with small changes in SOPs or needs. A regular review of SOPs and authorized parts will help keep this system working.

The other systems, two of which are mentioned above, can be a more precise and dynamic method of keeping inventory and ordering. Here we discussed one of the simplest methods; walk before you run. This can still be a big improvement for those who don’t have a system in place and are just starting to embark on improved ordering and inventory control.

One thing everyone agrees on is that better management of inventory and ordering can help with improved P&M margins, reduced time and inventory on the shelf. Whether you choose the simple methods or some of the more dynamic tools available, better management of inventory leads to better P&M margins.

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