How's Your Inventory Grow?

The parts supply chain has become very efficient. Higher order fill rate from manufacturers and (for many dealers) the ability to place daily stock orders have minimized the need for a lot of safety stock dealers must carry.

Safety stock is the extra buy of inventory in additional days' supply that helps protect the dealer against running out of particular parts between order replenishments.

In the dealer-management system, it's the difference between the best reorder point/reorder point (BRP/ROP), or inventory low level, and the best stocking level (BSL), or inventory high level.

As inventory is sold and drops from high to low levels, the DMS, according to user-defined settings, will suggest an appropriate reorder quantity to get the stocked quantity back to the BSL.

The problems associated with the extra buy if it's excessive or not monitored so that it more closely matches customer demand, will very likely manifest themselves as excess inventory or potential obsolescence.

In either case, this ties up inventory working capital that can otherwise be invested in better-selling parts generating more profits and the ability to purchase more of better sellers.

The key to a more efficient parts supply chain is taking advantage of that refinement and ratcheting back on the extra buy. That decreases inventory depth and lets you use the same dollars to invest in building inventory width.

Increased width allows the parts department to supply a greater range of parts from its stock, enhancing the ability to meet customer demands.

The width is reflected in the total of individual stocking part numbers in the inventory.

The depth is a reflection of the total number of pieces in the stocking inventory.

For example, an air filter, oil filter, and fuel filter carried in stock means a width of three parts, or a part-number population of three. If the BSL (high stock level) is 150 for the air filter, 350 for the oil filter and 100 for the fuel filter, then the combined depth in pieces is 600.

If 50% of this stocking depth is comprised of additional buys but is excessive in light of current demand or specific market circumstances, then reducing it frees up inventory dollars for building additional inventory width.

The result is the ability to increase width with little or no increase in inventory investment. The existing inventory dollars are simply used more profitably.

It is important to find logical approaches to decrease inventory depth and increase width to make a greater range of parts available from the stocking inventory.

How can you effectively and easily measure if you are succeeding? Believe it or not, the necessary information exists on virtually every DMS month-end report (ADP's MGR Monthly Analysis or Reynolds & Reynolds' 2213, for example).

Here is what to do. Create a spread sheet by month of the parts department stocking sources listing the number of individual parts carried (part number population), the piece count, and the associated inventory investment.

Record this information each month from the aforementioned appropriate month-end reports or other relevant reports from your particular DMS.

Then analyze the results. Here's what to watch for:

If the number of individual stocking part numbers or stocking part number population is increasing and the inventory investment is staying relatively constant, then you are decreasing the depth and increasing the width without much if any additional inventory investment. You can also monitor if pieces are actually decreasing.

But, if the number of individual stocking part numbers or stocking part number population is decreasing and the inventory investment is the same or increasing, then depth is increasing. If so, your DMS ordering guides and setups controlling days' supply and phase-in/phase-out need adjusting.

Gary Naples is a parts consultant to dealers and manufacturers. He's authored two books on parts management. He's at 570-824-1528/[email protected].