How Parts Inventory Management Software Improves Inventory Turnover

Goooooood morning, Fullbay friends! We’re back with another blog—and this time, we’re bringing the SEO.

That’s right. We’re going all in on the SEO. Fear not, though, for this is a topic near and dear to the hearts of many a shop owner and parts manager: how parts inventory management software can help improve your inventory turnover.

(And more to the point, why that parts management software should be Fullbay. Yes, folks, we’re about to get pretty shameless.)

Parts are a huge component (no pun intended) of a successful diesel repair operation. Owners and parts managers often walk a tightrope of figuring out what parts to keep in stock vs. what they should order as necessary—a task made more difficult by manufacturing and supply chain difficulties.

As you might expect, tracking said inventory can get…well…challenging. Some owners and parts managers turn to spreadsheets to keep track of everything; others refer to Post-It notes or mysterious glyphs scribbled on invoices. Still others try to keep it all in their head.

But all of the above methods can suck down a lot of your time, and they leave wayyyyyy too much room for error—which leads to lost revenue and more time spent trying to rectify problems. How do you avoid such issues? Parts inventory management software takes over a lot of the administrative work you’d otherwise be spending hours on…and it adds in perks like easy re-ordering.

But really, let’s begin at the beginning: What is inventory turnover?

HOW TO CALCULATE INVENTORY TURNOVER—AND WHY YOU SHOULD

Your inventory turnover is how many times you empty and refill your parts room. You can calculate turnover by week, month, or year (and probably daily if you really have a good recordkeeping system!). But for the purposes of this article, we’re going to assume inventory turnover happens yearly.

You can use the following equation for it:

Cost of Goods Sold (COGS) / Average Value of Inventory

The number you get from that equation is also known as your inventory turnover ratio. It matters because it’s showing you how quickly or slowly your inventory is moving. That’s cash on the shelves.

WHAT INVENTORY TURNOVER RATIO SHOULD A DIESEL REPAIR SHOP LOOK FOR?

Every operation is different; size, buying power, and clientele will influence your own inventory turnover. You’ve also got to think about lead and lag time to get orders placed, shipping quotas, and hey, the people to receive stuff, among other things.

But a general rule of thumb is to aim for a turnover ratio of 3. Fullbay COO Chris O’Brien, recalling his time as a fleet manager with Shamrock Foods, remarks, “If you’re holding onto $100,000 or a million in inventory, and you only turn it two times a year, that’s fairly low. That means you’ve overstocked, or you have a poor sales cycle…there’s something wrong.”

If your inventory isn’t moving fast, that’s basically money sitting on your shelves—you’ve got capital tied up in those parts, after all!

THE HIDDEN DANGERS OF BUYING BASED ON FEELING

Most of us have done some emotional buying at some point or another. Mass-purchasing pirate decor after getting bad news, for example.

(Editor’s Note: Suz, that might just be you.)

…okay. Maybe your emotional buying involves project cars or lots of hoses or something.

Don’t worry, we’re actually going somewhere with this revelation. An awful lot of shop owners have purchased parts without knowing quite how fast they’re moving, or if they’ll sell at all. There’s not a ton of logic behind it; just gut feeling and hope. And look…sometimes you might be right. But you might not be.

Repeat after us: Gut instinct isn’t data.

When you know the actual state of your parts room and how fast (if at all) your parts are moving, then you can make solid decisions around what to stock and what you should only buy as-needed.

What can help you make that kind of decision?

Why, parts management software, of course!

WHY USE PARTS MANAGEMENT SOFTWARE?

In short, parts management software that lets you track how your inventory is moving allows you to take safer risks. Again, you’ve got a lot of money tied up in your inventory. Chris has an example about an opportunity that has surfaced for many a shop owner or parts manager: You can get a really sweet deal on 10 of a particular part…but you don’t know if you can move all 10 of those parts in a year. Or maybe you think you can, but you aren’t sure.

“Just buy the one,” he says. “If you don’t have the demand, don’t do it.”

Along those lines, just because a parts house is offering you a screamin’ deal doesn’t mean it’s in your best interest to take it. Parts houses have a business to run, too—and their business is selling parts.

If you’ve read this far, you know we’re about to tell you how parts management software like Fullbay can help you understand which parts do have demand. It’ll also help you make the right decisions about what to keep in stock, what to buy as a one-off, and yes, when you should buy 10 of something.

And yes…we are.

• Real-time inventory tracking: You know exactly what’s in your stock room (or truck bins) right when you need to know it. No guessing, no running back “to check.” Just facts at your fingertips. Knowing what you have in stock and what you need to order allows you to prioritize jobs and get the work done faster.
• Automate your re-ordering: Set thresholds on how low you’re willing to go on some parts—when you hit five filters, for example, the app will alert you to the low supply and you’ll be able to order more. This keeps your fast-moving parts stocked and ready to go.
• Inventory analytics and reporting: You want to see what’s moving and what’s staying put? Good parts inventory management software will do that. Fullbay provides reports for:
  • Inventory reconciliation: “A bank statement for your parts room” is one way to describe this report—it shows you everything your parts have done within a selected time period (bought, sold, returned to vendor, and more).
  • Inventory velocity report: How fast is everything moving, and how much do you have? This report will tell you.
  • Sold parts report: This report breaks down how much you spent on each part and how much you sold them for.

MAKING CUSTOMERS HAPPY, ONE PART AT A TIME

Good parts management software should make your life easier, not harder. Before getting Fullbay, one shop owner remembers just scribbling down parts information on paper and pretty much hoping for the best—only to get smacked with a $30,000 parts bill he couldn’t reconcile at the end of the month.

That story has a happy ending: He picked up Fullbay, and now his parts operation runs so smoothly today, some customers have no idea he’s a one-man band!

For real, though—happy customers are usually repeat customers. If you’re doing PMs and repairs, you’ll need a steady supply of parts and you’ll need to track those parts. Fullbay customer C&W Mechanical said their inventory picture became “a lot clearer” after switching to Fullbay. “We are able to budget, we are able to see items that do not move. As a fleet, when we don’t run this make/model of truck anymore, we are able to deplete that inventory and dissolve it.”

Happy customers and a clearer inventory picture? That all sounds pretty good to us. Want to see how Fullbay can make that happen for you, and maybe see what else we can do? Then you definitely want to check out our free demo. Give us a try and watch your inventory problems shrink down to nothing at all!