Inventory Management Best Practices: A Guide for Automotive

Inventory management may not be at the top of your to-do list. But not paying inventory management its due diligence could have its own domino effect on your business.

Wondering how that’s a possibility? Picture this:

A customer walks into your store and requests an automotive part. However, you couldn’t deliver it to them because the part wasn’t available in your store when they arrived. And since your dealership inventory is not streamlined, you couldn’t figure out that the requested part was actually available but kept in a corner where your eyes couldn’t reach right at that moment.

So, you ended up giving the wrong information to your customer, losing the possibility of a sale, and negatively affecting your dealership’s credibility – all because you didn’t invest in an automotive inventory software solution

The reverse could also be true. Overstocking can eat up your capital and increase your holding costs, such as storage expenses, financing, and depreciation.

These instances are not isolated ones but are raging realities that cripple automotive dealership owners and inventory managers face time and again.

And the problems don’t just stop there. There are other adverse effects of a mismanaged inventory, like:

  • Aging inventory,
  • Cash flow issues,
  • Increased risk of theft or damage, etc.

So, what’s the fix, then? In simple words, your ready fix is keeping a streamlined dealership inventory that can efficiently track your business operations without all the hassles. 

Understanding Dealership Inventory

Automotive dealership inventory management comes with its unique aspects and challenges because of the nature of the products, customer expectations, and industry dynamics. A few of them are:

  • High product variability
  • Seasonal demand fluctuations
  • Regulatory compliance
  • Complex supply chain
  • Rapid technological changes
  • Warranty and service considerations
  • Used vehicle management
  • Unique parts inventory, etc.

So, counting surplus or slow-moving automotive parts and accessories and used and new vehicles can become a hurdle, especially in meeting customer demands in a hyper-competitive automotive industry. It’s only through streamlining your entire dealership inventory management that you can optimize profitability in a dynamic and complex market. 

How Can a Streamlined Inventory Management Help You?

Optimizing your processes and systems to track and maintain inventory is an absolute must for keeping up with the evolving automotive industry. Not only does it help you be in control of the pulse of your business, but it also boosts your team’s operational efficiency.

A few other not-so-obvious benefits include:

  1. Cost reduction

A streamlined dealership inventory management centralizes all dealership processes. It helps reduce holding costs of excessive inventory levels, which include depreciation, financing, insurance, storage, and maintenance expenses. By maintaining optimal inventory levels, dealerships can lower these costs and free up more capital for other investments.

  1. Reduced risk of overstocking

Proper inventory management helps prevent overstocking, which can lead to vehicles becoming obsolete and losing value. Streamlined processes allow dealerships to actively adapt to changing market conditions and customer preferences.

  1. Informed decision-making

Streamlined inventory management gives ready access to real-time data and analytics, as dealerships can identify trends, analyze sales performance, and adjust inventory strategies accordingly – critical in an ever-changing automotive industry. 

  1. Enhanced customer experience

With an organized inventory, dealers can deliver the vehicles or parts the customers want, effectively meeting their demands, leading to higher satisfaction and increased loyalty.

  1. Competitive advantage

Dealerships with streamlined inventory management respond quickly to market changes, meet customer demands, and follow market trends more closely. As a result, they are more likely to succeed in a highly competitive market than those without.

Now that we know the benefits of effective dealership inventory management let’s check out how you can make the most out of it for your business.

9 Proven Best Practices for Dealership Inventory Management

1. Accurate Inventory Counting

Accurate inventory counting and tracking leads to a faster sales cycle. With accurate inventory counting, the sales staff have a comprehensive idea of their inventory. As a result, they can quickly locate and display car parts, accessories, or vehicles to eager customers, converting them into sales.

Besides, accurate inventory counting leads to faster service, higher sales and revenue, and improved cash flow – a task that can be streamlined with a car dealership inventory management software solution.

2. Regular Inventory Analysis

Real-time inventory management always keeps dealerships in the know as they understand what’s in their core inventory – the parts they have in stock and the ones they have read on the floor. 

Moreover, with continuous inventory analysis, dealers are better equipped to respond to market trends and ensure they have the most in-demand parts and vehicles by adjusting procurement and pricing strategies.

A dealer management system like an auto dealership inventory management software solution can quickly source accurate data to help you make informed choices and demand forecasting.

Data gathered through regular analysis also highlights which vehicles or parts are moving off the shelves quickly and on the slow-moving ones, helping dealers optimize inventory turnover rates. 

3. Organize Inventory

An organized inventory is a no-brainer when tracking and managing a diverse product range. It helps dealers optimize space, improve workflow, cater to orders faster, and undertake maintenance more diligently.

But how would you categorize your inventory? Don’t worry; we have a few tricks up our sleeves.

  1. The ABC Analysis

This technique follows the categorization of products into three groups, ‘A,’ ‘B,’ and ‘C,’ in order of decreasing importance, i.e., items marked ‘A’ are the most valuable and ‘C’ – the least.

  1. Barcode or RFID Technology

Radiofrequency identification technology, or barcode, makes labeling and streamlining inventory plain sailing as items can be scanned and tracked easily with handheld barcode scanners.

  1. Stock Keeping Unit (SKU) Codes

SKU codes include information about the item, such as product type, manufacturer, model, and location. Unique SKU codes make identifying and tracking items simple.

  1. Visual Management

Employ visual cues such as colored tags, labels, or stickers to denote different categories or properties of items. Visual aids make it easier for staff to identify items at a glance.

  1. Inventory Management Software

Go a step ahead in labeling inventory with a dealership inventory management software solution that helps you customize item descriptions and categorization options.

With an organized inventory, your staff is prepared to inform customers about available times and delivery options, resulting in

  • Swift and accurate service,
  • More satisfied customers, and
  • Repeat business.

4. Find the Right Mix of Inventory

Let’s understand this with an example. You are riding the EV wave high and are stocking up more on them. However, by doing this, you are eliminating the average buyers from the scene who want to opt for multi-utility vehicles or sedans for their families.

This is an apt example of how just the right inventory mix can empower you to cater to a wider range of audiences and increase profitability.

Besides, a diverse inventory can meet the customers’ evolving needs, set you apart in the competitive marketplace, and help you navigate market fluctuation without much worry.

An automotive inventory management software solution provides customer insights from its CRM and aids inventory diversification with market analysis data on regional demands and competitive offerings. Besides, dealer management software also allows dealerships to monitor sales by model, manufacturer, brand, and make – everything you need to cater to a diverse customer base.

5. Adopt a Time-Minded Pricing Approach

You wouldn’t want your products sitting on the lot for extended periods, risking depreciation. That is why it’s essential that you time your pricing perfectly. You would want the less in-demand items to sell off fast so they clear up inventory space and create room for more desirable items and automotive models.

Transparency in pricing helps you retain your local customers, as customers often compare prices across multiple dealerships and are willing to make the long journey to other states for more competitive pricing. So, conduct ample market research and competitor analysis to price your items aggressively and keep updating your inventory without aging it. 

6. Avoid an Aging Inventory

An old inventory robs you of opportunities to stock up on vehicles or parts that could generate higher profits and revenue. It increases your holding costs, has your capital tied up, and requires extra efforts like giving off discount deals to attract new customers.

An effective way to manage your inventory is to keep checking the average age of your stock and sell off 50% of your old inventory within a month. This practice will keep your inventory fresh and keep depreciation under control.

But, if you are having a tough time selling used cars (ideally, they should be sold off within 45 days of acquisition), create a narrative around it. Breathe new life into your old cars with emotional values that people resonate with. Highlight the journey the used vehicles have been through and their unique features so that you find the right buyer eager to pay the right price for the used items.

7. Set an Inventory Goal

Setting realistic inventory goals helps you maintain a healthy balance between sales and inventory. Setting up specific targets helps you account for 

  • Seasonal fluctuations, 
  • Factor in market conditions, 
  • Identify trends and demand patterns,
  • Assess the types, quantities, and values of inventory items you have on hand,
  • Chalk out your business objective for maximizing profitability.

By analyzing the above-mentioned factors, you can balance your inventory and optimize your sales keeping in mind the economic fluctuations, the turn of the seasons, and market patterns.

8. Employee Training and Communication

Training employees on inventory best practices and fostering effective communication go a long way in quicker processes, reduced labor costs, and compliance with industry regulations and dealership policies. A trained employee will accurately receive and track inventory levels and fulfill orders, ensuring dealerships always have the right quantities of parts and vehicles in stock. 

Besides, employee training and communication will also encourage maintaining clear inventory protocols, enhancing inter-departmental collaboration, effective vendor communication, regular auditing, and, ultimately, process improvements. A trained employee always documents and reports discrepancies, helping dealerships come up with corrective steps before they escalate.

9. Investing in a DMS

A Dealer Management System, or DMS, is a software solution that specializes in helping automotive dealerships streamline different aspects of their business operations, including inventory management.

DMS software is proven to dramatically enhance the overall productivity and efficiency of dealerships as dealers notice improved revenue generation and faster turnover rates for their business. Moreover, a DMS provides dealers ready insights to truly personalize their store with the market buying and pricing trends.

However, all this data can quickly lead to cognitive overload if your automotive inventory software isn’t easy to use and comprehend to help you make quick, sound decisions.

How Can Autosoft Help You in Inventory Management?

Autosoft’s automotive inventory management helps you bring all your dealer operations under a single dealer management platform. With a cloud-native automotive inventory management software solution, you are just one log-in away from streamlining your inventory and driving dealership growth.

The software has built-in real-time market and historical data features in an easy-to-use interface, with all its KPIs color-code for quick access. Make better investment decisions that suit your market and boost your bottom line.

Interested in investing in a full-suite dealer management system? Schedule a demo call today!


Mark Begley

Mark Begley

About Mark Begley About Mark Begley


Mark Begley

Mark Begley

About Mark Begley