O.E.M. Stock Replenishment Programs: "The Good, The Bad & The Ugly"

Happy New Year "Smart Parts" Readers and Welcome to January 2014!

We are going to "kick off" the new year with a topic that is very much a part of many Parts Managers lives as more and more manufacturers are offering automated stock replenishment programs.

Basically, participating manufacturers are providing Dealers and their Parts Managers the option to have their stock orders generated by the manufacturer. This option allows the Dealer and Parts Manager to have a bigger overall picture on parts movement or demand in multiple dealerships rather than just their own.

In theory, the results would provide higher "First Time Off Shelf Fill Rates", fewer "stock out" situations, higher accruals and return reserves. Some manufacturers will even provide inventory protection over a period of time.

All this sounds great, but what about the "unknown" costs? What about acquisition and holding costs? What would the overall "cost of goods" be? Does this program replace the stock orders generated by the D.M.S. (Dealer Management System)?

In my opinion, the only way to "drill down" these O.E.M. Stock Replenishment Programs , we have to look at "The Good, The Bad & The Ugly" to get an overall view. Keep in mind that many of these manufacturer stock replenishment programs may differ in content and provision.

First..."THE GOOD" 

I believe there is a definite benefit to being able to take advantage of numerous dealer parts demand. Overall market trends and demand can provide Dealer Parts Managers the ability to stock more of the right parts in order to increase "First Time Off Shelf Fill Rates".

Some manufacturers may also offer "inventory protection" over a period of time. This simply means if "qualified" parts don't sell, they will accept returns on those parts with little or no impact to return accrual amounts. As long as the Parts Manager returns those slow or non-moving parts within stated guidelines.

Another benefit to O.E.M. Stock Replenishment Programs is that it can replace the Parts Manager's daily stock ordering responsibility. Reviewing the stock order becomes less time consuming and provides more time for the Parts Manager to perform other duties & responsibilities.

Lastly, these factory sponsored programs can be very attractive to Dealers and Parts Managers as they usually provide the biggest discounts and allowances available on total manufacturer parts purchases. As long as the Parts Manager maintains compliance levels, substantial added profits can be attained.

Now..."THE BAD"

With all that good news, what can possible be bad? Let's look at some of the ramifications....

One of the basic duties and responsibilities of the Parts Manager is to maintain one of the Dealers top two assets by managing the parts inventory. Once enrolled in one of these factory sponsored stock replenishment programs, Parts Managers may not review or adjust these stock orders as often as they would have previously.

Reviewing the stock order is one of the most important Parts Manager functions that requires consistent review, even if the manufacturer has done all the "leg work". In many factory programs, the Parts Manager doesn't even have the ability to choose his/her own Set Ups & Controls.

Items such as Phase-In/Phase/Out, Days Supply, Source Ranking and other Order Parameters are controlled by the manufacturer, not the Dealer Parts Manager.

This can lead to over stocking AND under stocking certain parts. What sells in one dealership may not sell in another, even though the overall market demand indicates that they should be stocking certain "qualified" parts in the program.

Another dilemma that I often hear from Parts Managers is how some "fast moving" parts in their inventory DO NOT even qualify while other parts that are slow or non-moving DO qualify for the factory sponsored program.

Meeting compliance levels can also be a challenge as many Parts Managers may tend to "over purchase" qualified parts in order to achieve or maintain these levels in order to maximize discounts and allowances. Even though some manufacturers "protect" these purchases by not charging the dealer for these returns, there is a cost.....

Lastly...THE UGLY

Many Dealers and Parts Managers tend to overlook some of the most common costs that can be heightened by not properly managing any O.E.M. Stock Order Replenishment Program. Even though there are benefits to these programs, there could be underlying costs that can outweigh these benefits.

Acquisition and Holding Costs as well as the overall Cost of Goods Sold can be impacted or increased through these O.E.M. Stock Replenishment Programs if not managed properly.

According to a very popular website (accountingcoach.com), the cost of carrying or holding inventory is the sum of the following costs:

• The total cost of the inventory
• Physical space occupied by the inventory including rent, depreciation, utility costs, insurance, taxes, etc.
• Cost of handling inventory items
• Cost of deterioration and/or obsolescence

Costs are usually calculated over the course of the year and then expressed as a percentage of the cost of the inventory items. The cost of carrying inventory can vary from dealer to dealer, but can be as high as 20% of the total inventory value each year.

A dealership with excess space for storage may incur a lower cost of carrying inventory than a dealership with less space for storage as deterioration and obsolescence are more probable.

Incremental holding costs should be calculated if additional items are purchased or for E.O.Q. (Economic Order Quantity) orders. In other words, calculations for additional holding costs should be considered in the additional or "promo" purchases.

Even though some of the manufacturers offer to "protect" the parts inventory on qualified purchases, we must consider the time and cost that these parts are kept on the shelf, not selling. Some manufacturers require that these qualified purchases to be held on the shelf for up to 18 months before they can be returned. 

These added costs of carrying inventory can outweigh the benefits of these programs if not managed properly.

The Solution?

Make the best of both worlds by not being fully dependent on O.E.M Stock Replenishment Programs. Utilize the information and the additional market demand information to "enhance" the "in-house" D.M.S.(Dealer Management System).

If properly managed, the Parts Manager can protect the Dealer's investment, maximize discounts and allowances while maintaining compliance levels within the O.E.M. Stock Replenishment Program.

 By combining the performance and demands of the individual dealership along with current market trends and demands, the Parts Manager can maximize on all opportunities, especially "First Time Off Shelf Fill Rates"

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com