Keep Your Cash on Hand

Learning how to master parts stocking and inventory will help keep your business afloat.

by Robert Stuart

 

In the last issue we covered several aspects of building a strong service department, including a brief overview of what parts to stock and how to manage the parts department.

Parts always seem to be a bit of a struggle; you never know exactly what you will need and how often you will need it. Knowing where to get those parts expediently and how much time it usually takes for them to arrive is sometimes just as important as stocking the correct ones.

“The biggest mistake you can make is to try to stock everything,” says Don Chandler, owner of Spa Brokers in the Denver-metro area. “You’re going to find out that you have parts that you won’t ever sell for months or years and have thousands of dollars tied up in stuff that you can’t use.”

For many dealers there are parts distributors located relatively close to provide plumbing, motors and electrical components. There are also several nationwide distributors that are very adept at supplying spa retailers with parts and tools. Some of these are Horizon Spa & Pool Parts Inc., Spa Parts Plus, SCP, Optimus Spa Parts Supply, Spa Parts Depot, Discount Spa Parts and spapartsnet.com. Building a relationship with distributors can set you apart from the average service company and give you an edge with customers.

“You need to have diplomacy, you need to have good companies that you work with, a good relationship with those companies, [and] you’ve paid your bills so that when you call it gets shipped immediately,” says Mark Mesker, owner of Paint Connections Plus in Pagosa Springs, Colo.

It’s vital to know your pricing and to check it often. It’s been my experience that there are large discrepancies in price between suppliers and the price can fluctuate depending on how they buy that month or whom you’re talking to at the time.

Likewise, you need to be sensitive to pricing changes from your spa manufacturers. They won’t always tell you there’s a price increase unless it’s across the board. When a pump supplier or board manufacturer increases the cost on the supply end, you often won’t know until you get the bill. This can create a problem when bidding a job to the end customer.

So we have our list of parts and our contacts of where to procure them along with common wait times for shipping, now we need to get control over just what and how much we keep on hand. With today’s economy, parts inventory can kill our cash flow and for a small business cash flow is everything.

“Especially right now,” Mesker says. “Cash flow is king. You cannot tie up cash sitting in a van or in a bin. You can’t do it, it’s economic suicide.”

Typically, a board costs you over $200, most pumps cost close to $300 and equipment packs are between $300 and $400. If you stock six boards, five pumps and a few equipment packs, it won’t take long to have thousands of dollars tied up in parts. Add to that amount a few too many topsides and heaters and you would be shocked at what your inventory really costs you. 

One good idea is to have the prices and totals on your inventory sheet so that you can see right up front each month just how much money you have tied up in parts.

Another big cash flow issue is warranty parts. Often dealers don’t realize how much extra money they have in warranty parts lying around. Nowadays, not many manufacturers want to give credit to order parts farther out than 30 days, so you need to get the old parts returned ASAP or pay for the ones you’ve already replaced.

It’s essential to know what your warranty cash flow is and constantly manage it. This can be a monster that eats you alive before you know it. Make it a policy to include a list of warranty parts on order, in stock and awaiting replacement in your inventory so that you constantly stay on top of it.

Many dealers are cutting back on the number of full-time employees, but you can easily find a part-time person (family members that don’t want a full-time job are a great option) that can come in a couple times a month to do inventory and order and return stock parts.

Another key is to tag each part as it comes in (including warranty return parts) and put them in your POS along with shelf and bin number, so that when you pull it up in your system you can walk right back to its location.

Once you determine what to stock and how you’re going to itemize the parts room, implement a procedure that helps the parts flow in and out of the service department. Ultimately, it’s easier to have one person responsible for the parts room and ordering items, but often small companies can’t afford that much manpower.

Chris Kovacs, general manager of Aqua Rec’s Swimming Hole with five stores in the Seattle area says, “Our goal is to have one person as the parts manager and a counter person at the main store, but the investment of time, salary and training for that position usually causes us to default to the service manager handling it as employees have come and gone.” He told me, “With the economic situation we are running pretty lean and stock less parts but [we] also kind of all share in responsibilities rather than employ another body.”

Kovacs works his warranty return parts and inventory using the method I mentioned earlier – he has a family member who is a full-time teacher come in a few times a month and take care of this.

Mesker found it was too complicated to have everyone involved in the parts department and took that responsibility on himself to keep it organized and stocked. “It’s just too hard with all the techs involved in parts and no one cares as much as I do about the excess money tied up on unnecessary parts.”

Another sign of the times is that many distributors and manufacturers aren’t stocking slow-moving products, so you could find yourself in for a long wait on some parts. The only thing you can do in these situations is let your customers know the status and keep them informed. Don’t underestimate the amount of time it will take and don’t over promise when you think you can get their work done, just keep them informed. Chances are no one else can help them any sooner.

“Just explain to customers, ‘Look this is how it is, it’s going to be three days. If you want to pay extra money I can have it next day, but that cost is on you for that part,’” Mesker says.

Once you’ve got it all organized and running smoothly, you need to check inventory often to stay on top of it. The parts room is one of the easiest places in your business to slip by the wayside and lose money.

 

Robert Stuart has been in the spa industry for over 20 years as a technician, store manager, factory representative, salesman and business owner. He currently owns Spring Spas and Home Recreation, Inc. in Colorado Springs, Colo. with his wife Tammy.