Accurately managing your inventory is a primary focus for car dealers. It presents unique challenges due to the sheer volume of vehicle makes and models and all their options. To expertly navigate these issues, inventory management tools play a crucial role. They help dealerships with the competitive landscape and boosting profitability while reducing cost and waste. To achieve these goals, follow these best practices in inventory management.
The Benefits of Effective Inventory Management for Auto Dealers
With effective inventory management practices in place, you can realize many benefits. It starts with a robust and well-defined inventory management strategy. The fact that consumers are more knowledgeable about vehicle specifications and pricing in the information age drives this need.
The new perspective on inventory management is data-driven. Dealers must keep this accurate and up-to-date, which allows for optimizing inventory accordingly to drive dealership profitability. Decision-making fueled by data keeps you thriving in a volatile and fluctuating industry.
Key benefits include:
- Real-time inventory controls and tracking: See what’s available and minimize time searching for stock data.
- Enhanced customer experiences: Customers can access the current inventory items available on your website, minimizing friction or confusion.
- Greater efficiency and productivity: A centralized system allows for easy tracking and management of vehicle information. It enables a proactive approach to address issues.
- Demand planning: Data reveals what makes and models are turning quickly and those that are not, which supports how you respond to demand.
- Reduced overhead costs: An inventory management system informs your marketing and planning. You can focus on data-driven decision-making instead of pure intuition, which can reduce overhead expenses associated with higher days on the lot.
- More targeted advertising: Organizing and optimizing inventory through technology provides visibility on what cars need more online visibility.
Achieving these advantages requires inventory management best practices.
11 Inventory Management Best Practices to Implement
Best practices for inventory management are essential to define and adopt. Reviewing your inventory management techniques should be a regular exercise. This analysis helps you adhere to and apply them to your dealership. Not all these tactics are universal and work better when you have a multi-pronged approach.
1. Ensure Records Are Accurate and Up-to-Date
Data only fuels reliable decision-making when it’s accurate. It’s difficult to employ successful inventory management without meeting this need. The type of data for inventory includes attributes of each specific vehicle, pricing, sales trends, real-time market analysis, customer information, aging reports, costs, and more. By ensuring inventory accuracy and having a complete set of data, you’ll be able to take action from its insights.
2. Deepen Supplier Relationships
Effective inventory management practices lead to more connected supplier relationships. The first step is regular communication and collaboration, as well as sharing dealer-specific information about inventory levels and forecasts.
Your inventory management platform provides this information and tracks purchase orders, invoicing, and payments. The result is timely delivery and smooth transactions, which benefit all parties.
Employing this strategy supports optimizing inventory levels and delivery schedules. The result of this is reduced costs and greater efficiency.
3. Establish Safety Stock Levels
Safety stock is your cushion should inventory disruptions occur. The recent UAW (United Auto Workers) strike did not impact new-vehicle inventory, according to analysts. With a settlement now in place, most are optimistic that the industry won’t have another pandemic-like supply chain issue. Peaks in customer demand for certain models are also a component in maintaining safety stock. Be in tune with market factors and use technology to manage safety stock.
4. Optimize Your Inventory Turnover Ratio
Inventory turnover ratio calculates the number of times you sell your dealership’s inventory in a year. In general, the ideal number is 12, which would indicate you’re selling existing stock every 30 days.
Should this number drop below 12, it can harm your dealership. Consumers may not consider your dealership if you don’t have fresh inventory. Also, the longer cars sit on your lot, the more inventory costs you incur, and the likelihood of higher profitability dissipates.
By monitoring this cycle counting through inventory management software, you always have visibility of this ratio. You can quickly identify your aging or excess inventory and all the data associated with it, then prioritize VIN-specific advertising to move those vehicles.
5. Regularly Conduct an Inventory Analysis
You should always know what’s on the floor and lot. Performing regular analysis on inventory records delivers lots of data to help you refine resourcing. You’ll have insight into turn cycles, the best times to acquire inventory, aging inventory, and what vehicles should be a quick and easy sell.
Having this information in a centralized, accessible manner builds on your aspirations of data-driven inventory optimization.
6. Increase Transparency in Your Pricing Models
Pricing doesn’t control all aspects of moving inventory, but it is a significant element in transparency. Consumers are demanding this from auto dealers and have access to lots of information about it. They spend 59% of their time researching car information online before entering the dealership.
Establishing trust with customers from the start impacts their buying decisions. Car purchases are big decisions with many different forces behind them.
If you implement transparent pricing strategies, your dealership could increase customer acquisition and generate more revenue.
7. Price Vehicles Based on Estimated Time-to-Sell
A time-to-sell approach involves pricing vehicles based on market demand. Pinpointing cars that will take longer to sell based on data shapes pricing strategies. They’ll need more incentives to move off the lot. On the other hand, cars in high demand may bear a higher price in the market.
To establish this inventory management best practice, study and research supply and demand information to align pricing with what consumers are willing to pay.
8. Research Consumer Behavior in the Vehicle Market
Knowing the market for each vehicle is another method that will deliver benefits. As noted, buyers are doing their research and stating their expectations. Many things affect buying choices, from seasonality to price to vehicle color. Digging into these behaviors can yield business intelligence and aid in demand forecasting.
The data on car-buying consumer behavior comes from third parties. Financial institutions create consumer survey reports on car buying, and analyst firms do the same. Additionally, J.D. Power releases research on brand loyalty and auto shopping trends.
You also have internal data that supports this understanding. Inventory management platforms should allow you to do this at the VIN level. With a mix of data sources, you can have the best picture of what’s driving consumer buying choices.
9. Keep an Eye on Aging Inventory
Cars remaining on the lot cost you money in the form of warehousing and maintenance. It’s essential to stay informed about aging inventory. You can look at things like test drives, online interest, and potential deals. This could help identify gaps in the sales and marketing approach for these vehicles. From this insight, you may find it helpful to create new training opportunities for staff.
For pre-owned cars, invest in correcting obvious issues to increase their appeal. Once you make these, sales should contact those who previously looked at the vehicle to inform them of the fixes.
10. Develop a Strong Sourcing Strategy
A significant factor in vehicle inventory management is instituting a sourcing strategy. It should include:
- Information on how often and where vehicle acquisitions occur
- Trade-in decision parameters
- Digital marketing initiatives
Inventory and consumer data are the foundation of this strategy. Keep current market demand on your radar with regular analysis. Deeper supplier relationships also make this easier.
11. Implement Inventory Management Software
The right inventory management platform is last on this list, but it’s the component that enables you to implement best practices. Solutions characterized by modern architecture, automation of workflows, and artificial intelligence (AI) will serve your inventory management needs today and in the future.
Its integrated tools help you improve inventory turnover, boost dealer profitability, and gain data intelligence. Smart features support the entire lifecycle of inventory and support inventory management best practices of accurate data, inventory analysis, turnover ratio optimization, and more.
You can attain these success factors with Lotlinx, an automotive data platform for inventory management. It allows you to access VIN-level insights powered by AI. It’s a market advantage you can’t get from any other solution.
Efficiently Manage Your Inventory with Lotlinx
Inventory management best practices drive efficiency in your operations. With these strategies, you can have greater visibility and make data-driven decisions. As a result, profitability increases while costs decrease.
Using Lotlinx as your inventory management system helps you sell cars faster, reduce advertising spend waste, and optimize inventory operations. See the technology in action by requesting a demo.