What Counts as Inventory? What Counts as Stock?
First, a quick refresher on the difference between inventory and stock.
“Inventory” includes the parts you sell to customers and the parts that your shop uses to make repairs (such as wrenches, alignment machines, and engine hoists).
On the other hand, “stock” only includes the parts you sell to customers during the usual course of repair work.
Regardless of whether a part falls under inventory or stock, it’s crucial to label every single parts transaction to reduce your risk of accounting gaps, billing inconsistencies, and more.
You can avoid these pitfalls by creating a streamlined parts management and reconciliation process.
Make Any Necessary Adjustments to Your Parts Sorting System
It might seem natural to label all your parts, even the ones you purchase multiple times per month, as inventory. However, while this process seems efficient, it introduces two problems.
First, you won’t be able to get the clearest view of your shop’s metrics. Say you buy spark plugs and sell them to your customers over 30 times a month.
If you count them as inventory, you won’t have a clear picture of just how many spark plugs you’re purchasing a month.
Second, you’ll be adding another layer of complexity to your inventory list. If you buy spark plugs, log them as inventory, then sell them to customers and put them in their vehicles, you’ll have to log all of those steps.
This can quickly lead to confusion.
If you count the spark plugs as part of stock, you’ll have a much clearer view of the metrics and will be better able to track whether or not you have enough of this oft-used, essential part.
The best way to determine when you should count a part as stock as opposed to inventory is to ask yourself these basic questions:
- What is the business function of this part?
- How often does my shop order this part?
- Is this part sold to customers?
- How often does my shop sell it?
The answers to each of these questions will get you to your answer. For example, a tire’s business function is to be used in a customer’s vehicle (meaning, you sell it to the customer). If your shop orders a particular brand and size of tires an average of 40 times per month and sells it an average of 38 times per month, you should categorize that as stock.
Accurately Maintain and Track Stock levels
Ordering too much of a stock part can cut into your shop’s profit margin, but ordering too little of it could keep customer vehicles at your shop longer.
How much of a part to order, and how often to place those orders, depends on your shop’s unique circumstances.
For instance, let’s say you determine that your shop needs to sell customers a part only an average of ten times per month, and a few nearby auto parts stores tend to keep that part in stock.
In that case, you could adopt a “just-in-time” approach toward that part, buying it as close as possible to the time you’ll need it.
Tekmetric: A Shop Management System That Makes Managing Parts Easy
Metrics are the key to accurately maintaining and tracking your stock levels, however, tallying these numbers by hand can be time-consuming. By using a shop management system like Tekmetric, you can simplify and speed up the parts management process.
With Tekmetric, you can log parts as on-hand, in-use, ordered, and above stock or below stock.
You can also filter parts by brand, part name, part number, retail price, and primary vendor and see exactly how many units of each part you have available at your shop—and how much each unit costs to buy.
Additionally, you can directly order parts and create parts markup matrices from Tekmetric.
This article was written with the guidance of automotive repair industry CPA
Hunt Demarest of Paar, Melis, & Associates, P.C.