Effective Parts Inventory Management - Amazon S3s3.amazonaws.com/VWOA/WPCRM/toolbox/EffectiveParts...VWoA Wholesale Parts CRM Webinar VWoA and Carlisle & Company Confidential • Use

Effective Parts Inventory Management

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Agenda

• Why “Effective Parts Inventory Management”?

• The Basics

Depth vs. breadth

Stock vs. non-stock parts

Phase in/phase out

Days supply

Inventory turns

Returns & buy backs

Obsolescence

Inventory reconciliation

• Sourcing

• Stock Order Performance

• Using the Wholesale Parts Portal for Inventory Management

• Best Practices

VWoA Wholesale Parts CRM Webinar VWoA and Carlisle & Company Confidential

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Why Parts Inventory Management?

• Commit to inventory management—you have a fiduciary responsibility

An effectively managed parts inventory is key for a profitable parts operation, while a poorly managed inventory becomes a drag on profitability

As a parts manager, you manage your owner’s inventory investment—stocking parts your customers want to buy, and not tying up investment in parts that won’t sell, is the key to parts operations profitability

• Recognize that inventory quality is as important as quantity

• An effectively managed parts inventory leads to customer satisfaction and loyalty

• Inventory management is a constant responsibility and all parts department personnel play a role

• The most cost effective parts sales are made from inventory

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The Basics

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Depth vs. Breadth

5 VWoA Wholesale Parts CRM Webinar

VWoA and Carlisle & Company Confidential

• Inventory breadth refers to the number of unique parts stocked

• Inventory depth refers to the quantity of parts stocked

• Why is understanding the distinction important? In developing an inventory management strategy, consider both how many

parts you stock as well as the stocking levels—both are key The goal is to manage your inventory so that you have enough breadth and

depth to cover sales demand without creating excess stock or obsolescence

Stock vs. Non-Stock Parts



• Identifying the status of a part is critical Determine whether each part is one that is consistently kept on hand or

ordered as needed

• Which parts have stock status? Those that will be reordered when existing supplies fall below established

reorder point are stock parts Non-stock status parts will not be automatically reordered (manual status parts

must be added manually to an order)

Phase In & Phase Out



• Phase in and phase out happens when stock status changes When sales demand for a given part meets established stocking criteria, the

part will phase in, or move to stock status As sales demand drops below stocking criteria, the part will phase out, or

move to non-stock status

• Set phase in and phase out criteria in DMS There are multiple philosophies on phase in criteria: 2/10, 3/12, 2/12, etc. You have to determine what’s right for your operation

• Set phase out criteria in DMS

Consider various criteria: retain parts for 8 months with no sales, 10 months, etc.

• Other considerations

Seasonality may play a role in your decision making Criteria must be set up for each source

Days Supply



• What is days supply? Days supply is a function of the quantity, or depth, of given part on hand,

commonly stated in days or weeks of supply There are industry standards for days of supply, and most dealerships have their

own benchmarks, and when stated refer to the entire parts inventory

• Days supply is affected by various external factors Fast moving parts can have lower days of supply; conversely slow moving parts

will generally have greater days of supply Days of supply will vary dramatically from source to source Days supply is directly influenced by DMS source set up Account for lead time Account for safety stock (sales fluctuations, supply interruptions etc.)

• Reorder point is the stock level at which the system will order a part

• Best stock level, minus current available, is how many pieces the system will order

Inventory Turn



• Inventory turn is the number of times per year you sell through, or turn, your inventory Inventory turn is commonly stated as gross turn and true turn

• Gross turn vs. true turn

Gross turn is the overall total cost of parts sold as a ratio of total average inventory value, stated in dollars, over a given period of time

True turn is based on the cost of parts sold from your inventory and is a much more effective measure of inventory performance

Gross turns will always be higher, but a wide differential can indicate excessive emergency orders, excessive obsolescence, and poor stock order performance

• Inventory turn statistics are available, by source, in your month end inventory

reports

Returns & Buy Backs



• Handling returns Run the return report from your DMS, focusing on history with no sales Monitor all customer returns for over stock and obsolescence Code returned overstock and obsolete parts so that they’ll be reviewed as you

process your buyback and scrap reports Review returns, obsolescence and other reports to ensure all qualifying

obsolete parts are returned

• Utilizing buy backs The scheduled buy back is the most important tool you have at your disposal for

eliminating obsolete and over stock inventory Never skip a buy back—a clean inventory allows you to focus your inventory

investment stocking the right parts

Obsolescence



• Functional vs. true obsolescence Functional obsolescence is when demand for a part has dropped below a level

that would indicate stocking the part, at which point it would be returned True obsolescence is when there is not only no demand for a part, but also no

way to return it, necessitating that the part be scrapped

• Avoiding obsolescent parts is important Do not retain obsolete parts; get them out of inventory, they are a negative

asset Obsolete parts not only represent capital that could be better invested in good

inventory, but are also a source on ongoing expense associated with carrying cost, tying up physical space, time in terms of inventory management, etc.

• Use scrapping to improve your inventory when parts are obsolete

Establish a regular cycle for scrapping non-returnable obsolete parts Be sure to engage your controller when scrapping parts to ensure that proper

accounting procedures are followed

Inventory Reconciliation



• Establish a monthly process to reconcile your physical inventory to accounting

Use your monthly DMS inventory summary value

Account for all outstanding claims, returns etc.

Account for core value

Account for accumulated appreciation/depreciation

Investigate discrepancies

Sourcing

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Sourcing Strategies



• ABC sourcing (or sourcing by movement) This should be applied to the bulk of your parts inventory Set piece sales range criteria, using at least 3 sources: fast, medium, slow Establish ABC sources for sub-categories: for example, hyper-competitive parts;

maintenance parts; brake parts; keys; wiper blades; etc. Allows you to stock fewer fast moving parts (less depth), freeing up inventory

budget to stock more slower moving parts (more breadth)

• Test sourcing (or forced stock sourcing) Allows for controlled phase in of parts for which there is anticipated demand Monitor emergency purchases and lost sales for test source candidates Check the Top Parts Sold screen to see what other dealers are selling Use the New Model Suggested Parts lists to add parts to test sources Consider stocking new parts for which demand is certain Keep parts in stock in anticipation of demand

Sourcing Strategies, Cont.



• Manual sourcing Manual source parts will not be automatically reordered, but will be suggested

and must be manually added to a stock order Use a manual source for parts you want to watch but not necessarily stock Parts that are large and difficult to store, such as roof panels or uni-sides Parts that have unusual or seasonal demand spikes that you may want to stock

only to meet current demand

Using Other Sources



• There are many reasons to use additional sources: • Specific vendor • Specific commodity • For pricing purposes • For obsolete parts • For campaign parts • For inventory accounting

• Inventory accounts are usually broken out into OE Parts, Other Parts, Tires, GOG,

Supplies, etc.

• Ensuring that parts are in the correct sources will alleviate inventory accounting issues

• Check with your controller to ensure that sources are set up with the correct sale, cost of sale and inventory accounts

Source Updates, Maintenance, & Risk



• Sourcing best practices Always run the ABC source update before creating a stock order Maintaining sources is an ongoing activity; move parts from test to ABC sources

as sales demand indicates Be aware that as you set your days supply lower on your fast moving source(s)

you increase the risk of an out of stock situation due to referrals or back orders This can be mitigated by using the minimum stock feature of your DMS Pricing, phase in/phase out, days supply, economic ordering parameters,

accounting overrides etc. must be set up for each source

Stock Inventory Performance

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Stock Inventory Performance Basics



• Use your DMS to maximize stock order effectiveness Run multiple stock orders and experiment with your DMS settings until you

achieve desired results — ABC sales ranges — Days supply — Phase in/Phase out — Min/Max — Set minimum order quantity to ‘1’ (not blank or ‘0’)

Be sure to update ABC status after you’ve made changes

• Use the stock order process as an opportunity to review lost sales reports and emergency and daily order purchases, in order to identify any parts you may want to stock Reassign sourcing as required (for example, move parts which don’t qualify for

ABC stocking status to your test or forced stock source) Move test or forced stock parts that now qualify for ABC stock status to your

ABC sourcing

Best Practices



• Review phase in report, move parts to correct sources if necessary • Stock parts customers want to buy! • Be prepared to stock parts for vehicles 6-12 years old

Use the Top Parts Sold screen to see what other dealers are selling (see next section)

• Shop the competition—If NAPA and Car-Quest stock the part, chances are local shops are buying it

• Ensure that all lost sales are properly posted • Check for any associated parts you may not be currently stocking

Repair order sales history is a great resource • Encourage parts specialists to suggest parts that should be stocked

They’re in constant contact with both wholesale and internal (techs) customers and are in a great position to identify additional and associated parts that should be stocked

Using the Wholesale Parts Portal for

Inventory Management

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Top Parts Sold



Hub > Portal > Delivery Performance > Top Parts Sold

• Use the Top Parts Sold report to look for phase in candidates

Look for parts with sales but no dealer quantity on hand

• Use the Top Parts Sold to find parts that should be returned or scrapped Look for parts with dealer on hand and low or no sales

Parts Inventory



Hub > Portal > Delivery Performance > Parts Inventory

• Use the Top Parts Sold report to look for phase in candidates

Look for parts with sales but no dealer quantity on hand

• Use the Top Parts Sold to find parts that should be returned or scrapped Look for parts on hand with no sales history, excessive days supply, zero or low

inventory turns

Best Practices

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Best Practices



• Promote your parts inventory in your marketing!

• Use the Parts Inventory and Top Parts Sold screens on the portal

• Get trained and learn the parts inventory management tools of your DMS

• Post all lost sales

• Flag “unusual” or “non-recurring” sales

One off sales

Sales to other Volkswagen dealers

Best Practices, Cont.



• Properly post/receive all emergency purchases

Emergency purchases are any parts purchased to meet immediate demand—parts that were not in stock when requested

Review emergency purchases on a daily basis

Add parts to you test source as appropriate

• Use the economic ordering parameters feature of your DMS

• Use the ‘pack’ quantity feature of your DMS

• Order and stock parts in factors of their application quantities

• Use the minimum and maximum features of your DMS

Set the minimum order quantity to ‘1’

Red Flags

• Shop orders cannot be filled quickly

• Low off the shelf fill rate

• Excessive emergency purchases

• Emergency purchases are not tracked

• Demand for new parts doesn’t lead to phase in

• Lack of process for testing/phasing in new parts

• The dealership does not stock the highest demand parts

• The dealership runs out of fast moving parts

• There is excessive overstock

• There is excessive obsolescence

• Lost sales are not posted or tracked

• Dealer’s parts inventory management DMS settings have not been changed from default/install setup



SUMMARY


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So Let’s Review


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• Why “Effective Parts Inventory Management”?

• The Basics

Stock vs. non-stock parts

Depth vs. breadth

Phase in/phase out

Days supply

Inventory turns

Returns & buy backs

Scrap

Inventory reconciliation

• Sourcing

• Stock Order Performance

• Using the Wholesale Parts Portal for Inventory Management

• Best Practices

Additional Resources



• Use the portal to access delivery resources

A recording of this webinar will be posted on the portal—all previous webinars are posted as well—share these with your counter people!

Go to Help > Wholesale Toolbox > Training Webinars

• Contact Erich Wunderlich for help using the portal or developing inventory

management strategies

Thank you for your time today!

Contact Erich Wunderlich at [email protected]

Or Call (612) 331-3999


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mailto:[email protected]

Documents

Effective Parts Inventory Management - Amazon S3s3.amazonaws.com/VWOA/WPCRM/toolbox/EffectiveParts...VWoA Wholesale Parts CRM Webinar VWoA and Carlisle & Company Confidential • Use