Inventory management evolves at dealerships: OEMS are taking a new approach to the service parts supply chain

Automotive manufacturers have spent the past two decades improving the way parts inventories move through their manufacturing supply chains, adopting just-in-time replenishment practices and lean supply chain methodologies. Now the OEMs, led by General Motors, are beginning to apply some of these principals to their dealership parts departments.

"From our perspective, this is really a win-win proposition," says Bryan Burkhardt, GM's director for global retail inventory management and distribution planning. "The dealer has more favorable terms, they see increased turnover and increased availability. What it allows us to do is level out the supply chain. When we can reduce those variations, we can be more efficient."

Although the program is technically voluntary, the majority of GM dealerships have signed on, driven in part by improved discounting and obsolescence protection. More than 5,200 dealerships in the U.S. are now using RIM (representing 85 percent of the network and 96 percent of total volume). More than 9,100 dealers worldwide are active on the system.

Other automotive companies are following GM's lead. Chrysler has developed a similar program called Automatic Replenishment Ordering (ARO), and Subaru of New England, an independent distributor, also has implemented an automated forecasting and replenishment system.

This centralized approach to inventory planning is being adopted, in part, to address supply chain fluctuations that in many cases were caused by the way the OEMs themselves managed service parts. Discounting and awards programs encouraged parts managers to load up on parts during certain parts of the year. This led to wildly fluctuating demand patterns and a high rate of obsolescence at some dealerships.

At GM, RIM tracks what parts are used at each dealership through an automated polling system. When a part falls below the recommended stocking levels, the system alerts the dealership and sends an order to the regional distribution center.

RIM-recommended parts have 100 percent obsolescence protection. The system generates a monthly material return form for parts that haven't moved after 12 months. GM dealers previously had protection on only 5 percent of unsold parts. If a parts manager orders beyond the RIM recommendation, those additional parts do not receive any protection.

The RIM and ARO programs, although widely adopted, have caused some concern among parts managers, who are worried an automated system could actually increase their inventories.

"This is really one of the biggest issues facing parts departments right now," says Ronnie Morton, a consultant with Bob Pearson Enterprises, a dealership consultancy based in Denver. "Where we may have recommended a 45-day supply, the manufacturer system is recommending a 60- or 70-day supply. That's a lot bigger investment than what the parts manager was making before. One of our main issues is obsolescence is being built up, even though the manufacturers are saying they will protect it."

But so far, GM says the program is working. According to Burkhardt, RIM-managed parts are experiencing availability levels of 95.6 percent, while parts that the dealer chooses to manage on their own running at approximately 67 percent availability. Inventory turns for dealers using RIM are averaging 5.7, while the non-RIM average is at 4.9.

A few glitches

Managing a parts department at a dealership is a high-pressure job that can have a big impact on a dealership's profitability, so it's understandable that a lot of parts managers have bristled at the notion of having a distant OEM telling them what their stocking levels should be. Online industry message boards provide plenty of examples of the types of complaints PMs have about the General Motors and Chrysler programs. Many of these issues center around obsolescence and how the system recognizes returns and special orders.

Dave Belknap, fixed operations manager at Gault Automotive Group in Endicott, N.Y., has been using RIM for a few years. He admits that there have been a few glitches, but by and large the program is achieving its goals.

"As far as providing availability, it has helped," Belknap says. "It's suggested some things more quickly than we might have, but we haven't done a terrible amount of overriding."

Some of these problems are to be expected, given how significant a change this is for many parts departments. Participating dealerships initially saw inventory spikes when they first signed on to the program, but according to GM the dealerships have since seen their inventories reduced by 15 percent to 50 percent in some cases, along with reductions in emergency and special parts orders.

"There are definite benefits as far as seeing national or regional availability on the parts, and that helps us drive what we have here to repair vehicles," says Belknap. "There are some logistics issues, and some issues that GM still has to work out. There have been back-end problems, such as creating some obsolescence issues."

GM is aware of these concerns, and has tried to address them through a variety of channels, including a RIM help desk, input from district parts managers, and face-to-face meetings with the dealership community.

The company has also established a Dealer Fixed Operations Advisory Board (DFOAB) and RIM Advisory Council. Among the issues the group has worked on so far are ways to address existing obsolescence and improving the way new model parts are introduced to the system.

"That's been very effective," Burkhardt says. "We're able to hear the concerns out in the dealer network, and have the dealers be part of the solution."

Overall, Burkhardt considers the program a success. "We've seen a dramatic increase in off-the-shelf parts availability, which was the primary purpose of the program," he continues. "If you look at parts inventory, it's the single largest asset in dealer fixed operations. The more efficiently we can manage that asset, the more profitable our dealers will be."