How to count the proper year-end inventory of auto parts
Many companies plan for the end of the year as they draw to a close. Here are three steps that will help you conduct an effective year-end physical inventory in your auto partsdepartment. Also, there are some common mistakes to avoid.
Effective year-end inventory counts can only be achieved by ensuring that your employees are well trained.
Although inventory counts seem simple, there are many errors that could be made which can negatively impact your accuracy in counting inventory. These mistakes could include:
Incorrect unit measurement
A wrong unit measurement error is when the unit of measure used in the physical count differs from that in the inventory management software. This error is most common in the case of wire, hose, and other similar parts. You counted inches, but the inventory system uses feet. Bulk fluids may also lead to incorrect unit measurement errors.
To avoid making an error, make sure to refer to the inventory management system unit before you count each part.
Incorrect part number
When you count a part incorrectly, it is when it assumes it has a different number. This error will result in two parts: the part you think it was will have higher counts and the part it is going to be lower.
You can avoid this error by organizing your bins and using appropriate labels (see step 2), as well as verifying the numbers on each piece of material before counting.
Pre-paid or pre-billed parts
Pre-billed or prepaid parts will be counted during a physical inventory. This can lead to an excess in the parts. These parts should be excluded by labeling them as “do NOT inventory” or DNI before counting.
This error is caused by counters counting consignment inventory incorrectly. Although this error is less common in the parts department, it should still be known by your team. To avoid confusion, mark stock consignment inventory as DNI, just like the previous error.
A wrong cut-off error is when inventory is added to the physical count but the invoice has not been entered into the system. It will look like you are short after reconciling your physical count and the quantity in the system. After the adjustment has been made and the invoice entered, you will be paid the amount for which you adjusted.
This will prevent this error from happening.
Parts for WIP
When parts are being installed on a vehicle, but not counted or not associated with an accounting job, a WIP error is caused. This is usually a sign of a process error in the parts department that can lead to inventory discrepancies.
This error can be avoided by making sure that any open work orders that include parts not yet entered into the system are counted in the physical inventory.
After you’ve made sure that your employees are competent and understand the basics of a year-end inventory, it is time to organize your inventory and make sure it’s ready for counting.
Although most dealerships try to keep their inventory organized throughout the year. Parts can get lost or not sorted in the right order. Start by labeling all containers, shelves, and packaging. Keep the same parts together, wherever possible.
Once your inventory has been sorted it is time for the physical count.
Although it might be easier to count during work hours, this is not always possible. If you have to count during work hours please communicate with the other departments (such as receiving and service) to make sure they are aware of their roles and follow the correct procedures.
It is also important to inform your employees not to move any parts unless they are being purchased. These parts will need to be recorded and sold once you have counted them.