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Availability
is the No. 1 criteria contractors use to determine where they'll
buy parts. Yet, according to AED's recently released Product
Support Opportunities Handbook, 65% are getting parts
through their dealers. That means dealerships are missing
out on 35% of the business.
What on
earth is going on here? Thanks to technological innovations,
the process of ordering stock has improved dramatically and
the cost of placing an order has dropped precipitously. So
why can't we get our act together to satisfy a basic customer
need that will add a lot of revenue to the dealership's bottom
line?
Maybe
it's because dealerships still don't understand how to order
parts efficiently.
In the
formula dealerships use to calculate the most economic order
quantity, the order cost is the cost of placing an order for
one part number. No more, no less. This is important because
order cost determines how much is ordered each time a part
hits the order point.
Leaving
the order quantity calculation at a higher-than-necessary
level inhibits a dealership's ability to carry a large enough
quantity of fast-moving parts to satisfy ongoing demand. When
the customer calls--or, God forbid, comes into the store--to
see if the dealership has a part he assumes it'd have because
it's so common, he learns that the part in on backorder and
has to try elsewhere.
Not only
has the dealership lost that piece of business, it's discouraged
that customer from calling in the future. In the meantime,
the dealership is carrying a disproportionately high ratio
of slow-moving parts to fast-moving parts.
Or, to
put it another way, the dealership might have 30% to 50% of
annual sales in slow-moving parts and less than 15% of annual
sales in fast-moving parts.
Therefore,
the lower value to place an order, the order cost, needs to
be put into the ordering formula in the computer system. Very
few dealers have done this, though. So each time they place
an order, the quantity is larger than necessary. This leads
to higher inventory levels and lower asset turnover.
To offset
this, dealers adjust their inventory system to reduce lead
times and other key criteria that expose fast-moving parts
to back orders. This is the revers of good inventory management.
To prove
my point, check out your system. Run a descending sales report
and see if any of your fast-moving parts are on backorder.
I'll bet they are. Dealerships never should have a back order
for any part that sells twice a month or more.
If dealerships
always have these fast-moving parts in stock, their customers
will be more satisfied with the level of service and, most
likely, bring more service business into the dealership. They've
said as much in survey after survey. But what have dealerships
done about it?
This is
a relatively simple inventory problem to correct. It will
also make a big difference in your investment in parts inventory,
to your customers and, ultimately, to your bottom line.
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