For fleets expecting to see a continuous rise in parts prices, the last in, first out (LIFO) valuation method assumes that the most recent part to arrive in inventory is used first, which can be beneficial when it comes to tax reductions.  -  Photo: Fleetio

For fleets expecting to see a continuous rise in parts prices, the last in, first out (LIFO) valuation method assumes that the most recent part to arrive in inventory is used first, which can be beneficial when it comes to tax reductions.

Photo: Fleetio

For fleets performing all or a brunt of their service tasks in-house, strategically managing parts inventories can boost asset uptime and overall productivity in the shop and on the road. However, such challenges as fluctuating parts costs, supply chain disruptions, and the need for precise cost tracking require a nuanced approach.

Here are tips to help combat parts cost and sourcing issues and aid with tracking and valuing inventory.

Combating Cost and Sourcing Issues

Parts pricing and availability aren’t likely to get back to where it was pre-pandemic any time soon. While late 2022/early 2023 saw a small reprieve in these obstacles, the ongoing skirmishes and military strikes continuing into 2024 have kept inflation on the rise, interest rates high, and stock in limited supply.

This can make choosing the right inventory stocking strategy pretty important to mitigate delays and even avoid experiencing price gouging.

Fleets can opt for keeping a lean inventory to ensure they are not paying for unused stock, which is a good option for smaller fleets or fleets with limited budgets. The stockpile route, though, provides a measure of assurance that common and even some specialty parts will be on hand when needed.

This is a good option for larger fleets — or those with larger budgets — and fleets that experience high backorder rates. Another strategy is the hybrid option, which allows fleets to prioritize their inventory needs to fit a moderate budget. This could mean stocking up on parts for the highest productivity asset/s or increasing stock for asset types that make up the majority of the fleet.

Where fleets source parts can also affect cost and availability. Considering aftermarket, refurbished, or used parts in addition to OEM-supplied parts provides flexibility while partnering with local auto parts stores can result in commercial discounts on commonly purchased items.

Creating a strong working relationship with parts distributors, whether a dealer or parts store, affords the added benefit of being able to inquire about parts availability so you can plan accordingly.

Tracking and Monitoring Inventory

Keeping track of inventory can be a lot more involved than it sounds, yet it’s vital for effective cost control. Knowing what you have on hand, what’s been ordered, what’s waiting to be received, and where parts are physically located are all part of inventory tracking.

Inventory management software — or fleet management software (FMS) with inventory management features — adds automation to inventory processes and makes tracking and monitoring inventory a great deal easier than using manual data entry methods, even if it’s a quite comprehensive spreadsheet.

Once inventory is added to the software, fleets can assign it a location to reduce instances of lost or misplaced stock, and technicians can add parts to work orders easily using the software’s mobile app to scan a barcode, ensuring parts used are accurately reported. Parts can also be added to service tasks so you don’t have to enter or scan them every single time an asset needs an oil change.

Because the software tracks the flow of inventory from purchase to use, fleets can use inventory histories to inform how much of which parts need to be kept on hand. From here, fleets can set auto-reorder thresholds to streamline procurement and ensure critical parts are automatically replenished when inventory falls below a predefined level.

Inventory Valuation

An important part of managing inventory is accounting for inflation. Last in, first out (LIFO) and first in, first out (FIFO) inventory valuation methods can help fleets address this challenge.

FIFO valuation assumes that the oldest inventory is used first, mimicking the flow of physical inventory use (if inventory is properly rotated). This method provides more accurate accounting and real-time analytics when it comes to things like total cost of ownership (TCO) per asset and is beneficial for fleets running into parts price fluctuations throughout the year.

For fleets expecting to see a continuous rise in parts prices, the LIFO valuation method may be a better option. It assumes that the most recent part to arrive in inventory is used first, which can be beneficial when it comes to tax reductions.

When a fleet counts its parts inventory at peak costs, profit margins are reduced, meaning lower taxable income. LIFO is only accepted in the United States, using a special tax election with the IRS.

Inventory management is a big part of both maintenance and cost management and can impact productivity for better — when done right — or for worse. Knowing parts' cost trends and availability, as well as what affects them, can help fleets build a strategy to adapt and pivot as needed.

And with the help of FMS or inventory management software, fleets can automate processes and data collection to optimize inventory counts, streamline parts procurement, improve service workflows, and gain useful information around TCO.

This article was authored and edited according to Automotive Fleet’s editorial standards and style. Opinions expressed may not reflect that of Automotive Fleet.
 

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