You have heard the expression, “time is money.” We all understand that. We get paid an hourly rate to work for customers or get paid by the hour at our job. We pay storage fees based on time, etc. We pay or are paid units of money in exchange for units of time and vice versa.
If you happen to be an astrophysicist, you have an understanding of the relationship between time, space, speed, and gravity. I am not an astrophysicist, and I have no understanding of these things, except for the obvious.
But, let’s not focus on the far reaches of the universe. Rather, let’s look at our business closer to home. When it comes to space, we all have a different amount available. Some recyclers have the advantage of enormous amounts of space in which they can allow hundreds, if not thousands, of cars to sit in inventory while they await the allotted time until they are crushed.
Others are operating out of a postage-stamp-sized lot in an urban area, where the space is so valuable that no cars sit there. As soon as the desired parts are removed, the car is shipped and becomes part of history. Most of us are somewhere in the middle.
The fact remains that space has a certain amount of value. When the shelves and racks are all empty – when the yard is empty – we have so much unused space that it has little value. But when the shelves are full and the parts keep getting dismantled, they need somewhere to go and we are left with few options.
If we have the acreage and the means, the temptation is to add on and make more storage space. That may be the right decision, but one of the things we must consider is the cost. Would we be better off just throwing some stuff away to make room? Should we spend money (and time) creating more space? It really is not that difficult to determine.
If the new building that you are dreaming up is going to be 30x60x12 feet, for example, you have 21,600 cubic feet of storage. Now all you have to do is figure out the cost of the building. Be sure to include storage devices like racking and any other expenses that are going to be involved – let’s just say $100,000. That is probably low, but we can use that number to make the point. If we spread that cost over 20 years (another arbitrary number), the cost of that new storage building comes to $5,000 per year.
That volume we calculated can’t be completely full of parts, so we need to deduct space for aisles and the displacement of the shelving, as well as the unusable space way up high, if we don’t use it. Let’s estimate that our useful volume of storage space is 20,000 cubic feet. If we divide that into the $5,000 per year cost, we no know that the storage space costs $.25 per cubic feet per year.
Sounds cheap, but we didn’t talk about the other expenses that should be added in. This includes energy for lighting and driving that forklift, snow removal (if applicable), labor for maintenance and cleaning, and even an increase in property taxes for the improvement. It all adds up. Sure, a wiper motor or an alternator may only use up about half of that cubic foot; but a door, fender, bumper cover, or engine all take up a lot more space. So, as the weeks stretch into months, and then years, that part sitting there all that time owes you. We don’t want tenants that only break us even, we want a return on our investment. And the sad reality is, we are going to have to evict a certain percentage of those parts. If they are not paying their way, they have to go.
This all sounds easy and looks good, right? Easy to say for some, but not so easy to do. I have a hard time seeing inventory thrown out. Sure, it has a little scrap value, but it is still hard for me. I’m not just talking about parts with core value either. I just don’t like it, because all I can see is the TIME we spent removing, cleaning, picturing, and storing the part. All I can see is the SPACE that is so valuable and could have been better used. All I really can see is the MONEY that all of that time and all of that space cost me. It does help to look at this with a formula, and it does help me make better choices when it comes to inventory management.
Grandpa said, “Don’t continue making a mistake, just because you spent a lot of time making it.” Wise words.
So what are we to do? That depends a lot on your goals and values. At our yard, we want to get a part in the customer’s hands as quickly as possible. eBay, our biggest online selling platform, demands it. Customers like getting parts fast. They also seem to really like getting a quality part. If we have taken the time to pull the part, clean it up, and take a dozen photos of it, we want it to be in that same quality condition as we had it listed. If we have a nice tail light – and while it was stored in the car, it was broken because some set a rim on it – that’s bad. If we don’t have a suitable replacement, we end up having an uncomfortable conversation with a customer who has already paid for the part. Or we can try and source one from another yard, but it is not easy to match the quality, or get the part in the customer’s hand in the same time frame.
This is the big reason why we want more parts on our shelves: quality and time control. That is a little more difficult to quantify in a formula. If you have not thought about this for a while, or ever, why not spend a little time reviewing your business practice in the area of parts storage and shelf life? Here is a hint: think pricing and grocery stores. How many dollars’ worth of perishable food stuffs are thrown out every day, yet the store continues to make a profit? Is the loss of the discarded food made up for by the profits from the food that was sold? Food for thought.
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