Parts Inventory Reconciliation – When Things Go Bad

Part 1 : You completed a physical parts inventory count, and your numbers are still off. If this is the case, after you followed the advise and steps from our prior posts, you need to hone in on a few areas;

– Are there values missing from either side of the Parts Dept or Accounting Dept in the Reconciliation?
– Are there values entered on either side, which are listed as a positive value, when it should be a negative value (or visa versa)?
– Is there supporting documentation for every value entered on the Reconciliation for both sides?
– Have the Controller and Parts Manager meet and agree on every number listed to ensure accuracy.
– Confirm dates which values are listed are values from Month end, and not from the new month.
– Confirm timing of each value listed to ensure Accounting posted exactly to the timeline you expected.

Parts Inventory Reconciliation – Accounting Dept Values List

Part 2: After a physical inventory count, it’s imperative that you have listed out all the numbers possible, that effect both Parts Physical and Accounting Inventories.

Here is a list of the most common (but not limited to) “Accounting Dept Values” from the Accounting side;
Accounting Dept Inventory Value From The Month End Financial Statement

Value of OEM Parts Received, Not Posted In Accounting
Value of OEM Cores Received, Not Posted in Accounting
Value of OEM Parts Posted in Accounting, Not in Physical Inventory Yet (Prepaid)
Value of Aftermarket Parts Received, Not Posted in Accounting
Value of Aftermarket Cores Received, Not Posted in Accounting
Value of Aftermarket Parts Posted in Accounting, Not in Physical Inventory Yet
Value of Negative On-Hand Parts
Value of Company Credit Card Purchases Unposted In Accounting
Value of Company Credit Card Purchases Posted, Not in Physical Inventory Yet
Value of Any Other Prepaid Parts, Outstanding In-House Credits At Vendors

Parts Inventory Reconciliation – Parts Dept Values List

Part 1: After a physical inventory count, it’s imperative that you have listed out all the numbers possible that effect both Parts Physical and Accounting Inventories. Here is a list of the most common (but not limited to) “Parts Dept Values” from Parts side;

  • Value of Physical Inventory (From Parts Managers Report)
  • Value of Outstanding Parts Claims (OE/Aftermarket)
  • Value of Dirty Cores
  • On Hand Value of Clean Cores
  • Aftermarket Parts Pending Credit
  • Aftermarket Core Pending Credit
  • OEM Parts Returned Pending Credit
  • OEM Cores Returned,Pending Credit
  • Work In Process Parts Invoices
  • Work In Process Repair Orders
  • Work In Process Body Shop
  • Value of Parts In Stock, Not In System
  • Value Of OEM Dirty Cores In Transit
  • Value of Aftermarket Dirty Cores In Transit

Parts Inventory – When Things Don’t Line Up

It happens sometimes, where Physical Parts Inventory counts vs. Accounting (known as Inventory Reconciliation) doesn’t line up.

The first step is for the parts manager to go back, get all his documents together, review line by line, and re-total his numbers. If the problem exists still where Parts Physical and Accounting still don’t line up, the best way is to look for items missing. This is more common than you think.

In the next two posts, we’ll give you a list of the “most” common places to pull numbers from to do Inventory Reconciliation.

Parts Inventory – Recording Values On Your Reconciliation

The best way to record and submit an inventory reconciliation, after a physical parts inventory count, is to have each number you need to gather from a source (a report, a vendor, etc.) itemized on its own line, within the reconciliation. That way, if there is a problem, you can match the documentation to the value you entered on the Reconciliation, and give supporting documentation. It also ensures you don’t forget anything – and visibility adds credibility.

Parts Inventory – Supporting Documentation

When doing a physical parts inventory count, ensure to record and keep every single document, which you extracted a number, including screen prints where you can’t get a printed copy.

The best Parts Managers have their ducks in a row. They have documentation to support every number, and every line on an inventory reconciliation – whether it be monthly or annually. It’s recommended you also keep copies from accounting from which numbers were provided.

As a DP – it’s peace of mind.

Parts Inventory – How Often; Part 3

Taking it a step further…the most progressive dealers are doing parts inventory on a perpetual, and daily basis, where small bit size sections are counted daily by the entire parts staff.

A good back stop is not only to do it monthly, but to do it annually on top of that. It’s not a Parts Dept favorite (idea), but it is a huge chunk of real dollars that sees a lot of daily activity.

Parts Inventory – How Often; Part 2

More progressive dealers and Parts Managers not only count parts inventory annually, but also, they do Parts Inventory Reconciliation Monthly just after the month rolls over.

The Inventory Reconciliation is no different than an annual Physical Parts Inventory Reconciliation, except the parts are not physically counted just before hand.

Dealers who are this progressive are on top of inventory control, and have the Reconciliation submitted to the DP, GM, and Controller monthly

Parts Inventory – How Often

Parts Inventory needs to be counted annually…at a bare minimum.

Typically, you’d want to count it just before your year-end, after a physical inventory count. You’ll need to do Inventory Reconciliation, where Parts Inventory is itemized line by line (Dollars On-Hand, Work In Process, etc), and then matched next to Accounting Parts Inventory line by line (General Ledger Inventory Value, Negative On-hands, Unposted Parts Inventory, etc).

DMS Parts Inventory – Maybe Considered The 3rd Parts Inventory?

In the last post we talked about how there’s two parts inventories; Physical and Accounting. Another inventory that exists, and needs to match your physical counts, is the DMS parts inventory.

Yes, DMS parts inventory “showing” reflects the physical inventory, but still yet, you need to match DMS parts inventory AND physical inventory together, before you ever start inventory reconciliation with Accounting.