Parts fill rate has become the proverbial "hot potato" in this industry as virtually no one wants to be left holding excess inventory.
NEW-CAR DEALER PERSPECTIVE
First, let's look at the issue from a new-car dealer's perspective. They're concerned with fill rates from OEMs and their vendors. Accordingly, every manufacturer offers a program to get parts to the dealer as quickly as possible, particularly if it's a vehicle off road (VOR), meaning the vehicle cannot be driven. VOR days can add up and affect Lemon Law rules.
New-car dealers working with outside vendors for aftermarket parts, such as plus-sized wheels or side step rails, may stock certain fast-moving parts; but otherwise, they prefer to place an order when the customer comes in and plan for same-day or next-day delivery. This works just fine in most instances, since the parts must then be installed.
- Immediate-need buyers.
- Planned-purchase customers.
As Roger Goyette of Southern Performance Warehouse in Clearwater, Florida, says, "If someone comes in looking for a water pump, odds are they need that pump today to fix one that's broken. They didn't plan their purchase, and often, they don't care about the brand; they just want one that fits. And if you don't have it, they'll look elsewhere."
Johnny Freund at Hunters Warehouse in Nashville, Tennessee, adds, "If you're hungry for an In-and-Out Burger and they're out of burgers, you're not going to wait 'til tomorrow to eat."
Planned-purchase customers, on the other hand, have been thinking about the part for some time. Yes, they may need a water pump, but they want a specific type and, in most instances, they're willing to wait for it.
As Goyette adds, "We may have six or seven vendors for different types of 'special' water pumps—we could have a chromed one or polished aluminum—but if the retailer picks the wrong one and we ship it to them, then that customer is dissatisfied and we get the part returned. That's the challenge."
And that's parts fill rate in a nutshell.
CAUSE AND EFFECT
"There's three sides to every story...there's yours, there's mine, and there's the truth."
— Don Henley
Why is fill rate so important? Why does J.D. Power and Associates track customer satisfaction from every different angle? Because it's human nature. If you have a positive experience with a retailer, odds are good you will return to that retailer the next time you need to purchase parts. More importantly, you'll also tell your family and friends they should patronize that retailer, too, which has a positive impact on the retailer's long-term success.
Again, here's the flip side: While a satisfied customer, on average, tells five friends about their positive experience, a dissatisfied customer tells 25! So, one "bad" experience can create a lot of negative word of mouth and wipe out all of the goodwill created by the satisfied customer.
Let's step back to get a better understanding of fill rate and how to make the system more functional for the future.
Tim Odom of AAM Group in Johnson City, Tennessee, can see the big picture, as AAM is owned by a group of 20 warehouse distributors throughout the U.S. and Canada that specialize in high-performance parts and truck accessories. AAM's WDs have selected more than 500 independently owned performance and accessory retailers to operate as Parts Pro Performance Centers and provide accessories either directly from their inventories or next day from their distribution center. AAM established this distribution process to ensure it could deliver the proper parts more quickly. The technical name for this type of organization is "programmed distribution," and is similar to a cooperative, owned by warehouse distributors. AAM's goal is to enhance the purchasing power of each member warehouse and share certain operating expenses to better its competitive position in its marketing area.
Odom's observation is that there are many factors affecting the entire industry. "More and more products are coming from off-shore manufacturers, which has an impact on the supply chain. In addition, some domestic manufacturers are operating at peak capacity, so for them to expand their product line, they have to stop producing one of their existing products to make the new products, and that can limit how many items are available for inventory," he says.
"I see today's warehouse distributor as the 'surge protector' that filters the supply and demand from the manufacturer to the retailer. But the challenge is not so much in the A, B, and C parts, it's the D or W special-order parts that can create the most headaches," Odom continues.
In other words, those are the parts that planned-purchase customers want to buy. "We've seen it in other industries; we're an eco-system and if we can't keep customers satisfied, then they are going to side-step the retailer and order from the Internet. Our goal is to market more to consumers so they come in and see what our retailers have to offer," Odom says.
This trend is already occurring in the motorcycle industry as many Harley-Davidson dealers stock fewer parts and sell them at full retail. When Harley owner/retail customers get frustrated, they go to the Internet and find Harley-Davidson dealerships that will sell for 20-percent less and ship overnight.
"Retailers have come to count on us because we can usually deliver to them overnight, but it would be better if they could plan ahead. For example, our busiest season is in the spring. That's the time when retailers need to be ready to meet their customer needs," says Ralph Accino at Racers Equipment Warehouse—an AAM WD based in East Providence, Rhode Island. "I know we try to plan ahead to make sure we're ready, particularly with manufacturers that like to build to order and do not maintain a large stock of their own products."
According to Van Woodell, owner of Weathers Auto Supply in Dinwiddle, Virginia, "We are the problem. Over the years, wholesalers have convinced retailers 'why stock the inventory... we'll get it to you the next day.' But retailers that do not stock the basics are really doing a disservice to their customers. In a lot of cases, they are selling from a picture or a catalogue, and that 'picture customer' can create problems when the retailer orders the part, we ship the part, and then the customer comes back to the retailer only to proclaim, 'that's the wrong part, I don't want it!' It's like selling from an empty wagon."
A solution? Woodell says, "It would be great if a retailer would order three parts—one for go, one for show, and one for another model. Here's what I mean—the first part is for the customer who wants it now, the second one is for inventory so the retailer can 'show' it to the next customer. And while the first two parts may have been for a Chevy, the third is for a Ford. That way, that retailer is investing in their business. And you know, we're here to help the retailer grow their business, so if they pick a loser and it sits on the shelf, then we'll try to help. Our overall goal is we need to help build everyone's business."
Johnny Freund at Hunters Warehouse adds, "UPS killed it. They provide too good of a service. If I'm a retailer, why should I stock a part when I can get it tomorrow? At Hunters Warehouse, we're lucky because we work with some great manufacturers that understand this process. Case in point, one of our best is Billet Specialties—their fill rate to us is probably 90-percent overnight and the balance usually comes within 48 to 72 hours. That makes it easier for us to maintain our stock and meet the needs of our retailers."
Another factor is how companies perceive a "lost sale." When someone comes in to a new-car dealership's parts department and asks for a part that's not on the shelf, it is counted as a lost sale. Typically, when you have three lost sales over a certain period of time, the part is usually added to the stock-order list.
Things operate differently at an auto-parts store. Some retailers do not track lost sales at all. Others do not look at it as a "lost sale," but rather a "future sale," particularly if the retailer can get the part overnight.
The reality is everyone in the supply chain has to walk a taunt tightrope between having adequate stock, being understocked, or being overstocked. The overall goal is customer satisfaction, and ultimately, it's up to retailers to understand the needs of their customers to ensure they do what's best for their customers.
FILL RATE SOLUTIONS
