Mike Nicholes on Reconciling Actual Parts Inventory to the General Ledger

Transcription

1 Mike Nicholes on Reconciling Actual Parts Inventory to the General Ledger Taking the struggle out of this important monthly process with Mike Nicholes, President of Nicholes Capital Management Moderated by Mike Bowers, Executive Editor of DealersEdge

2 Mike Nicholes, President, Nicholes Capital Management Mike Nicholes, was the founder of Mike Nicholes, Inc., has earned international recognition as a consultant and seminar speaker. He has conducted hundreds of seminars during the past 35 years for more than 42 major vehicle manufacturers. In addition, Mr. Nicholes has functioned as an in-dealership consultant/trainer (in a seminar mode) to over 10,000 automobile, truck, agricultural, and construction equipment dealerships and distributorships. He has been directly involved in fixed operations consulting and training for over 35 years. During his career as a consultant, Mr. Nicholes worked with many dealers, and manufacturers, specifically Saturn Corporation during the design phase of the company, to implement the parts management concept "Beyond EOQ", or source by movement, resulting in greatly improved fill-offthe-shelf to the technicians without a significant increase in inventory investment. In addition, he has researched and assisted many manufacturers as a subject matter expert in the area of daily stock order implementation. He has hosted a television show called Parts and Profits for the cable network Automotive Satellite Television Network (ASTN), and is in demand as a '20 Group' speaker. He is also has been a frequent workshop speaker at the National Automobile Dealers Association (NADA) and American Truck Dealers Association (ATD) annual conventions. Mr. Nicholes is the author of several publications and articles on inventory management including 8th Edition Inventory Management, Inventory Management for Daily Stock Orders, and 3rd Edition Advanced Inventory Management used in his past seminars. In 1994 Mike Nicholes Inc was acquired by a major DMS system. That relationship dissolved in 2004 with Mike starting Nicholes Capital Management LLC to pursue a course on non-endorsing, neutral inventory management training and consulting. Nicholes has been an active guest lecturer for the Entrepreneurial Lecture Series at Brigham Young University in Provo, Utah. Mike and his wife Lynne reside in Portland, Oregon.

3 PARTS vs. ACCOUNTING Reconciling the G/L Inventory to the value on the shelf Who is Right? Is there a Wrong Presented by Mike Nicholes

4 Mike Nicholes Contact Data (Best Way) (9973) Fax: Cell: All Contact Information is found at:

5 Got Questions?? Please Ask!

6 1. Annual vs. Monthly Reconciliation 2. Annual vs. Perpetual Inventories 3. Resolving the Conflicts in Accounting with parts on the shelf

7 Annual Physical Inventories

8 Annual Physical Inventories Why?... A Dealer, CPA or Accountant wants a firm number once a year for Tax and Factory filing purposes Most want an independent report Outside Physical Counting Services (most to a pretty good job).

9 Annual Physical Inventories Why?... A Dealer, CPA or Accountant wants a firm number once a year for Tax and Factory filing purposes Most want an independent report Outside Physical Counting Services (most to a pretty good job). The Major Problem with an Annual Physical Inventory is that It is Annual

10 Annual Physical Inventories Why?... A Dealer, CPA or Accountant wants a firm number once a year for Tax and Factory filing purposes Most want an independent report Outside Physical Counting Services (most to a pretty good job). The Major Problem with an Annual Physical Inventory is that It is Annual If a problem is found when did it happen? Going back over a 12 month period to find a problem is poor at best

11 Annual Physical Inventories Why?... A Dealer, CPA or Accountant wants a firm number once a year for Tax and Factory filing purposes Most want an independent report Outside Physical Counting Services (most to a pretty good job). The Major Problem with an Annual Physical Inventory is that It is Annual If a problem is found when did it happen? Going back over a 12 month period to find a problem is poor at best Finding a problem in a monthly period is very good and easier To discover and fix.

12 The 11 th Commandment

13 The 11 th Commandment when there is a dispute between Parts and Accounting; who wins and who looses?

14 The 11 th Commandment when there is a dispute between Parts and Accounting; who wins and who looses? Accounting Wins Parts Looses

15 The 11 th Commandment when there is a dispute between Parts and Accounting; who wins and who looses? Accounting Wins Parts Looses

16 The Numbers Where Performance is Measured, Performance Improves

17 The Numbers Where Performance is Measured, Performance Improves

18 The Numbers Where Performance is Measured, Performance Improves

19 Measure the Numbers Against What? When we deal in generalities we will never succeed. When we deal in specifics we will seldom fail. Where performance is measured performance improves; and where performance is measured and reported, the rate of improvement accelerates! Thomas Monson

20 This image cannot currently be displayed. The Parts Manager is a Money Manager $100 $100 State of the Dealership National First Biggum Bank of Zip $100 $100 $100 One Hundred Big Ones

21 This image cannot currently be displayed. The Parts Manager is a Money Manager $100 $100 State of the Dealership National First Biggum Bank of Zip $100 $100 $100 One Hundred Big Ones

22 A Style of Parts Department Management

23 Venturi Tube Management

24 Venturi Tube Management Results First: Measure the Current Results and Standards. If You Don t Like What You See.

25 Venturi Tube Management Input Results Verify the Accuracy of the Most Critical Parts of the Input

26 Venturi Tube Management Computer Input Results Daily Processes The Programs and Processes are Last Check the Input First

27 Reconciled Inventory

28 Reconciled Inventory General Ledger Inventory Computer System Inventory

29 Used with permission of Sandy Jerome (sandyjerome.com)

30 Used with permission of Sandy Jerome (sandyjerome.com)

31 Reconciled Inventory General Ledger Inventory Computer System Inventory After Monthly Reconciliation The Difference Should be within 2%

32 So: Exactly How Much Inventory Should I have? As Much as You Need

33 Beyond EOQ The New Guide An Addition to the Standard Guides A A 1 B C D E 1 YRSL 2-3 YRSL 4-9 YRSL YRSL 48+ YRSL NS AP DP MO NC +

34 Beyond EOQ The New Guide An Addition to the Standard Guides A A 1 B C D E 1 YRSL 2-3 YRSL 4-9 YRSL YRSL 48+ YRSL NS AP DP MO NC + Major Discovery!

35 Beyond EOQ The New Guide An Addition to the Standard Guides A A 1 B C D E 1 YRSL 2-3 YRSL 4-9 YRSL YRSL 48+ YRSL NS AP DP MO NC % of all Part Numbers with Sales

36 Beyond EOQ The New Guide An Addition to the Standard Guides A A 1 B C D E 1 YRSL 2-3 YRSL 4-9 YRSL YRSL 48+ YRSL NS AP DP MO NC % of all Part Numbers with Sales 90-92% Total Emergency Purchases & Lost Sales

37 Line #10. Inventory from Financial Statement $ (F/S) Line #11. LIFO Adjustment or Reserve, if any $ (F/S) If a LIFO Reserve or Adjustment is applied to the parts inventory for tax purposes, the amount of reserve must be included in the total inventory figure for all calculations.

38 Accounting Rule #1 Debits = Credits Cost at Purchase Must Equal Cost at the Sale of the part any part

39 Adjustments to Cost 1. Appreciation (Master Tape Update) 2. Lower Cost Price: Jobber Purchase 3. Higher Cost: Purchased from Competitor

40 Appreciation: Master Tape Update Master Tape Updates Cost New Cost Is Given to Accounting Accounting Adjusts Inventory Value Debit Equals Credit at Sale

41 Lower Cost:Jobber Purchase Jobber Offers Factory Genuine To Dealership at Lower Cost Parts Department Buys Jobber Part New Cost is Noted To Accounting Accounting Adds Extra Profit to an Adjustment Journal

42 Lower Cost:Jobber Purchase Accounting Adjustment Pay $75.00 Post to Discount Journal $25.00 Credit Inventory $100 Cost at Sale $100.

43 Higher Cost: Purchased From A Competitor Part Is Needed Immediately Competitor Has The Part/ We Buy It Competitor Charges A Premium We Pay The Premium Accounting Is Notified Of The Difference

44 Higher Part: Purchased From A Competitor Pay $ Charge to Discount Journal $25.00 Credit Inventory $100 Cost at Sale $125.00

45 Accounting For Cost Adjustments When the Cost of a Part at Purchase differs in any way from the Cost of the Part at Sale an Adjustment must be made to a Purchase Discount Journal.

46 A Caution! Regarding Commercial Physical Inventories

47 A Caution! Regarding Commercial Physical Inventories Minus Adjustment to the On-hand Quantity Plus Adjustments to the On-hand Quantity

48 A Caution! Regarding Commercial Physical Inventories Overages (plus adjustments to the On-hand Do not offset Shortages (minus adjustments to the On-hand)

49 Shortages 1. Too often considered theft 2. Shortages are not offset by overages 3. All the overages in the world do not give the dealer one dime to replace the parts if theft is involved 4. Most shortages and overages are paper flow issues.

50 Count Integrity To Ensure YOU Are Secure 1. Use the Monthly Parts Inventory Reconciliation Worksheet

51 Count Integrity To Ensure YOU Are Secure 1. Use the Monthly Parts Inventory Reconciliation Worksheet 2. Do a Perpetual Inventory of the 5% Fastest Moving Numbers Every Month.

52 Count Integrity To Ensure YOU Are Secure 2. Do a Perpetual Inventory of the 5% Fastest Moving Numbers Every Month. Using a Piece Sales Ranking Report modified to show the following: 1. Parts with YRSL > 9 2. Parts with > on hand of 2 on the shelf 3. Sort report by bin location 4. Double space report = Count sheets

53 Count Integrity To Ensure YOU Are Secure 1. Use the Monthly Parts Inventory Reconciliation Worksheet 2. Do a Perpetual Inventory of the 5% Fastest Moving Numbers Every Month. 3. The Count in the Bin Must Match the Count in the Computer