Setup Not So Bad After All

When Ford Motor Co. announced last year it was overhauling its aftermarket parts delivery system, certain dealers saw the new system as encroaching on their business.

The cause for concern: 19 high-volume parts distribution centers that Ford is building throughout the country.

The complainants were, for the most part, dealers with large wholesale parts businesses. They worried about potential loss of dealer-to-dealer business to Ford's new bigger and faster operation.

With Ford at the midpoint of rolling out the Daily Parts Advantage (DPA) network, some dealers report an initial loss of business. Megadealer Sonic Automotive blames the Ford parts depot in Texas for the decline of parts revenues for Sonic Ford dealers in Houston.

Sam Pack, owner of two Ford stores in the Dallas area, recalls that dealers were initially skeptical about the program.

“We were hearing a lot of rumors,” he says. “The new system certainly has impacted some dealers in certain areas. Larger wholesale dealers in those areas did lose some business at first. But they have regained much of that lately.”

Pack says the system also cost him some business, but it has hidden benefits. “We've been trying to increase our marketing efforts in going after new business, and business has actually increased for us, as a result,” he says.

“There was considerable fear from dealers who have wholesale businesses,” says Bill Naples, Ford's transportation manager-aftermarket business. “We've been educating the dealers on the inventory advantages. We knew going forward that some dealers would see declines in wholesale. But we also knew they would see gains in having to maintain smaller inventory levels and in increased service repair fill rates.”

DPA has yielded impressive results, dealers say. Order to delivery time has been slashed from 72 hours to 10-18 hours for dealers on DPA. And 80% of their orders are at the dealership by 10 a.m. the next day — and 100% by 4:30 p.m.

For emergency orders (problems that keep the vehicle off the road) orders can be placed as late as 9 p.m. EST for next day delivery.

While dealers were able to get daily deliveries under the old system, it was all air freight and special handling delivery, says Naples. Normal deliveries were at the most, three times a week. Most dealers received orders once a week.

Ed Fiorina, parts manager at Serramonte Ford in CA, likes the program despite early misgivings.

“We were concerned about the organization of the system and how it would work,” he says. “For the most part, it is working out for us. It certainly is more convenient to get daily orders instead of once a week.”

Pack likewise likes the program. “Ford has delivered, for the most part, on its promises of bringing just-in-time delivery and improving fill rates,” he says.

But rumors about the potential harm of DPA are still out there.

As part of the new system, Ford is tightening up its Parts Inventory Protection (PIP) program in which it buys back obsolete parts from Ford dealers. The program protects dealers from losing money on parts in stock when a vehicle line is discontinued.

Pack says Ford is canceling the program, but Elizabeth Dwyer, field operations specialist for Ford Customer Service Division (FCSD) says that's not happening.

Instead, she says, Ford is changing the buy-back percentage dealers receive from 5% to 2% for the typical obsolete part. “Dealers are going to have less inventory because of the just-in-time delivery,” says Dwyer. “As a result, there should less obsolete parts on the shelves.”

Ford also is instituting an inventory management allowance (IMA) to encourage dealers to monitor their inventory levels closely. Ford will pay dealers between 1% and 5% based on a formula of off-the-shelf sell rates and idle inventory levels.

FCSD begins training dealers 11 months before they are moved to DPA on how to maintain smaller inventory levels and reduce obsolescence. “We sit down with dealers and evaluate their parts departments under the two systems, and 9 times out of 10, they come out ahead under DPA,” says Dwyer.

Pack agrees that Ford dealers need to monitor their inventories more closely to protect themselves from having too much obsolescence. How successful dealers are in managing their inventory will determine how successful the new program is, he says.

Locations of Ford's high-speed distribution centers (when the entire network is in place):