Tuesday, August 9, 2016

August 2016: "Maximizing Order Efficiency"

Some of you "Smart Parts" Managers out there utilizing your Manufacturers Stock Replenishment Program may think you are already maximizing your order efficiency, but in my opinion, if you are not utilizing your own Inventory Management System, (I.M.S.) to compliment their programs, you just may be missing the boat.

I believe the question I asked in the introduction is a legitimate one because it appears that we, as "Smart Parts" Managers may have forgotten our roots. In the past, we relied solely on our own Inventory Management System, (I.M.S.) to generate and send our Stock Orders.

I believe there are great advantages and disadvantages to these programs that we all need to be aware of. Advantages such as order simplicity, added discounts, allowances, return reserves and inventory protection may sound great, but I would have to add...."at what cost?"

These advantages have kind of spoiled us to some degree because we just feel we "have to do it" because we won't be in compliance, miss added discounts and cash rewards for our dealer. In some cases, being compliant to these programs is directly tied into overall dealer programs from sales to service.

Dealer status and compliance to these programs that may tie in sales, service and parts can add up to a lot of "dealer cash" and in some dealerships, it may even be the difference of being "black or red" on the bottom line of the dealers' financial statement.

We have to be careful though when our overall "state of mind" is being controlled by the manufacturer because, before you know it, we aren't just being compliant...we are becoming "obedient" to the manufacturer.

Let's take a closer look at what I'm referring to...

After looking at some of these advantages, let's take a look at the possible disadvantages and risks that we could be encountering by being "obedient" to these programs. After all, the manufacturers only sell two things...vehicles and parts...and they have no problem with selling you more of each than you really need as far a days supply guidelines go.

More and more Parts Managers today in these programs are overstocking their inventories because they are being 100% "obedient" to their manufacturers' suggested stock orders. Many may think it's okay to utilize their suggested stock order as they are utilizing your own Inventory Management System, (I.M.S.) Set Ups & Controls to create these suggested orders in the first place. 

On the contrary, there's a lot that many "Smart Parts" Managers don't know about these programs, or how these systems even calculate individual and overall demand. How does the manufacturer know what your individual needs are to begin with?... 

Before we get into what you may know or may not know about how these programs work in the first place...I have another question to ask "Smart Parts" Managers out there...

"If it were your own money, coming out of your own back pocket...would you still just accept and place these suggested orders that they are recommending?"

Most of these programs offered by the manufacturer utilize a combination of basic Set Ups & Controls that ultimately determine what you see on these suggested stock orders. They combine individual dealer demands along with other dealer demands to generate these stock orders and determine overall days supply.

If you are a "Smart Parts" Manager in one of these programs, there is one very important thing to know and remember, especially if the program your are enrolled in is stocking your inventory based on your own Inventory Management System, (I.M.S.)

One of the main reasons, if the the biggest reason for Parts Managers ending up with "overstocked" and "over valued" inventories is because of a lack of control when it comes down to managing Days Supply and how parts are Phased In in conjunction with these manufacturer programs.

Source Ranking by Piece Sales has never been more important than it is today when you factor in these manufacturers' programs along with the Dealer Inventory Management System, (I,M.S.). Unfortunately, not all Inventory Management System Vendors offer Source Ranking by Piece Sales.

Source Ranking by Piece Sales for those out there who may not be familiar, is basically an I.M.S. function that allows parts to automatically move parts to different sources based on sales movement. Parts movement is what determines the proper Days Supply after initial Phase In.

We will get back to Source Ranking by Piece Sales in a moment, but first, let's look at how parts are "phased in" to your system from the point of view of the manufacturer. Keep in mind what I said earlier about the manufacturers utilizing your own Inventory Management Systems Set Ups & Controls along with other Dealers' Set Ups & Controls.

This combination of Set Ups & Controls with all these dealers is what ultimately determines what you see on your manufacturers suggested stock order. This is why I have Parts Managers asking me this common question when it comes to these manufacturers programs...

"Why are they sometimes suggesting parts on my stock order that I have never sold while other times NOT suggesting parts that I do sell on a regular basis and aren't even qualified?"

That's just one of the dilemmas I hear quite often as the biggest dilemma is yet to come. Having the proper Days Supply after "Phase-In" is far and above the biggest concern a "Smart Parts" Manager should have when utilizing these manufacturers programs. This is where having the option of Source Ranking by Piece Sales come back into play.

So!...Let's do the math!...

For example, if I have a part that sells only 6 times a year, my Low Days Supply, or Best Reorder Point, (BRP) would be 60 Days Supply as the part only sells every other month on average. My High Days Supply, or Best Stocking Level, (BSL) may be set 75-90 Days Supply.

Now, let's compare that to a part that sells 24 times annually where my Low Days Supply, or Best Reorder Point, (BRP) would be 15 as this part sells on average every 15 days. My High Days Supply,
Best Stocking Level, (BSL) may be set at 100% of my Low Days Supply, which would be 30 days.

A part that is fast moving and sells in excess of 100 times per year will actually have a Low Days Supply, or Best Reorder Point, (BRP) of maybe 5-7 days, based on lead times and a High Days Supply, (Best Stocking Level, (BSL) of 10-14 days.

As these parts move through their life cycle and movement changes, this Source Ranking by Piece Sales option automatically controls the source which has the proper Days Supply at all times. This helps the "Smart Parts" Manager to control "overstocked" and "over valued" inventory situations.

This is why I suggest that Parts Managers run their own Inventory Management Systems, (I.M.S.) stock orders at least twice a week right along side of their manufacturers recommended stock order. This is also why I referred to this as having the "best of both worlds". 

Having both stock orders in front of you helps to keep the manufacturer "in check" on suggested quantities as well as making sure that parts aren't missed or maybe not "qualified" by the manufacturer's suggested stock order.

I've actually had some Parts Managers say to me..."But, if I buy a part based on my own stock order and not theirs, it may not be qualified and won't be protected!"

Each time I hear that question I have to cringe because personally?...I could care less if it's protected because if these parts have met demand in my I.M.S., I plan to "sell" these parts and not "protecting them, or "returning" them once they are obsolete.

Here's the sad part, many "Smart Parts" Managers do not have this option of Source Ranking by Piece Sales which is the huge dilemma I was referring to earlier. Keeping in mind the Days Supply examples I gave earlier, without the option to rank parts in separate sources based on their movement, all parts are then "created equal".

In other words, no matter how many times different parts move whether 6 times a year or over 100 times a year, they will have the same Low Days Supply, or Best Reorder Point, (BRP) and High Days Supply, or Best Stocking Levek, (BSL) which is normally defaulted to 15 and 30 respectfully in most stores I run into that don't have the option to rank parts by piece sales in separate sources.

This means running out of parts that you need most and overstocking parts you don't need as much of, even though they have met "Phase-In" criteria. Thus, the dilemma I mentioned earlier and of course, one of the biggest disadvantages in utilizing these programs.

Maximizing Order Efficiency is more complicated today than ever before. It was much easier "back in the day" as it was as simple as ordering as much as you could on your stock order to gain the best discounts, allowances and return reserves. There were no "compliance" levels or program criteria just to get even half of the discounts we used to get years ago for just ordering efficiently.

Maximizing Order Efficiency now requires "Smart Parts" Managers to utilize all their resources to squeeze whatever they can to earn discounts, allowances, return reserves and overall dealer compliance for additional profits for the whole dealership.

Maximizing Order Efficiency doesn't mean you have to be "obedient" in order to be "compliant"...it just means that you have to know how to play the game and play it wisely...you have to be a "Smart Parts" Manager.....

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe 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