AUT2017. The Annual Physical Inventory - Not Just Because

The annual physical parts inventory is typically viewed as an accounting exercise – an opportunity to “true up the books to the physical.” The count is performed and adjusted and then the physical value is reconciled to the GL. The conversation around a “good” or “bad” entry is had, some wringing of hands if it was a “bad” entry is done and then life goes one. However, the physical inventory and the following reconciliation is an excellent opportunity to identify profit and cash drains on the business.

Every owner wants more parts gross profit. This occurs by selling more pieces or selling pieces for more dollars (or both.) Selling more is not just a marketing function – in fact, having the right part in the right quantity in the right place at the right price at the right time (also call first-time fill-rate from inventory) is the biggest reason that sales increase. Having more of what is needed when it is needed at the right price will increase sales. People are willing to pay a reasonable amount more if you “always have what they need.” Gross profit is driven by first-time fill-rate from inventory.

In addition, reducing the write off at the time of inventory (a reserve for obsolescence, throwing old parts away, shortages, etc.) will drive gross profit up. If you do not have to write it off, gross profit does not go down. Also, if you manage the excess and obsolescence well, cash is not tied up in inventory.

The annual parts physical inventory is the perfect opportunity to stop, investigate, ask questions and identify reasons that the physical parts inventory, as well as the general ledger parts inventory, does not work as well as it should. This workshop will investigate causes of inventory quality, depth, breadth, and accounting accuracy. The participant will learn the questions to ask and where to investigate to turn the annual inventory from “the CPA says I have to do it” to an event that is high value and impact.

Learning Objectives:

• Identify the questions to ask that cause poor physical inventory performance
• Identify the questions to ask that can lead to physical inventory to general ledger variances.
• Identify the activities that can improve overall parts inventory accuracy and performance