Proper purchasing can be a game changer in the auto recycling industry.
By Marty Hollingshead
We’re going to talk about your inventory; how to acquire it, how to manage it, and how to move it.
Do you realize that we are one of the few industries that has to pay for our inventory before we have it?
So, with that being said, when do our purchases become inventory? Answer: when they are in our YMS (Yard Management System) and are available for sale. The big thing to remember here is the importance of doing the work right the first time and realizing that there is no “easy button.”
First, we are going to look at numbers and what drives them. This is what data and analytics are all about. We all know what sales and revenue are, so let’s look at what drives them from an inventory standpoint.
Our biggest expense and investment besides labor is inventory. Sales and profitability, or lack of them, are a direct result of the purchasing and the actual inventory of these vehicles, as well as your process. An efficient, disciplined process in place, which would encompass smart purchasing and a good inventory system, is the best path to ensure a profitable and healthy business. A smart owner’s focus should be on the purchasing, the inventory, and the process. This is what drives sales, increases profitability, and adds to the bottom line.
Purchasing
When I was new to the business many years ago, I will always remember something a wise man once told me. He said, “Always remember, you make your money when you buy the car.” He also said that the parts that come off of these cars are only worth so much. It doesn’t matter how much you pay for the vehicle; the part is still worth what it is worth. Another thing he told me was, “buy the car when you don’t need it.” While I didn’t understand this at the time, I quickly learned what he meant, because when I was out of stock on things, so were a lot of others. Naturally, I had to pay more to get what I needed. This was forty years ago, and even today these statements are still true.
An efficient, disciplined process in place, which would encompass smart purchasing and a good inventory system, is the best path to ensure a profitable and healthy business.
This is why proper purchasing is crucial. It’s the foundation for everything else that comes after it. You need to buy the right vehicles at a fair price and have a margin for error. We have a lot more technology and tools at our disposal now, especially with the technology and our ability to now identify trends in our YMS. But also remember technology is great, but it is only a tool and a guide. It can be a slippery slope if you are going to take it literally and expect it to do your thinking for you.
Your buyer should know the needs of your business. This is why I believe that the owners should be directly involved with purchasing and inventory, if not doing it themselves. With inventory being such a huge investment and so crucial to our success, doesn’t it make sense to have a thorough and concise inventory process, so that your salespeople can take at face-value what they see on their screen?
For your salespeople to be truly effective, they need to have faith in what they’re selling. Now, with e-commerce and all our inventory being available on the internet, we have more opportunities, as well as a lot more competition to sell our parts.
If you want to get your fair share of the e-commerce market, what will set you apart from all the others?
Do you have good pictures? And a plain English description that can be understood by the average Joe, and do you have a fair and competitive price?
Let’s take a look at what a good process should look like:
1. Storage and Handling: Do you have a system in place to properly store and handle your inventory to prevent and/or minimize damage? Damaged goods result in unnecessary credits as well as lost sales.
2. Transportation: Do you protect your parts from transportation damage? Do you have the right vehicles and are they properly equipped to protect your parts from damage in transit? This is very important when you are selling sheet metal (collision parts). We have found that investing in products, such as “Panel Armor” and moving blankets, have more than paid for themselves in lost revenue from damage that is now prevented.
3. Preparation: Do you clean your parts? Do you do things to enhance them and make them look better? Regardless of who your customer is, from a walk-in customer to the fussiest body shop, no dirty part should leave your facility. Your parts should all be clean regardless of what the part is. You can take two identical parts, one clean and one dirty, and you can show them to anybody from a layman to an expert, and they will always tell you that the cleaner part is the better part. You really need to invest the time and effort to make your parts look as good as possible.
4. Quality Control: Do you have a quality control program? Do you have a dedicated person(s) assigned to that area? If you don’t, this is the first thing that you should think about doing. Remember, no matter who you are selling to, your parts represent your company. Basic stuff, like making sure it is the correct part, correct side, and off the correct vehicle is a good place to start. Does the condition of the part match the description? If not, was the salesperson told and did the salesperson contact the customer and communicate the issue?
5. Communication: Does your sales staff do a good job of communicating with your customers? Do they also do a good job of setting realistic expectations? Whenever a customer tells me that the part must be perfect, I proceed to tell them, “New or used, there is no such thing as a perfect part.” We look at credits and returns not so much from a lost revenue standpoint, but from a standpoint of “what did we do wrong; where this part did not meet the customer’s expectations; and what can we do to do a better job?”
Make sure your salespeople are trained to ask the right questions and get all the necessary information for each request. Too often, when a deal goes awry, it always seems to be the customer’s fault. The thing to remember here is, we are the professionals, and we can nip a lot of issues in the bud by simply getting all the right information.
Our number one priority should be to always strive to improve our processes with the goal of consistently delivering quality products, on time and as described.
Remember: Work hard, do a good job, be fair and honest, and you will never want for work.
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Marty Hollingshead has been in the auto recycling business since 1973 and is the owner of Northlake Auto Recyclers, Inc., Hammond, Indiana, since 1984. Marty is a Past President of ARA and current board member. He is a board member of the Indiana Automotive Recyclers Association. Both Marty and Northlake have received numerous awards and recognition for excellence in the industry and the community. Reach Marty at 219-937-3960 or visit www.narparts.com.
