- How do we prevent dealer E&O accumulation?
- If and when E&O accumulates, what can we do to reduce it?
The first step toward preventing E&O inventory build-up is to identify the underlying causes. Dealership behavior plays a big role here (though parts managers would tend to disagree). At this year’s NASPC one OEM shared a surprising statistic: of the 5-6% return allowance available to dealers, ½ -1 percentage point gets left on the table. As you can see in the chart below, returns are a big thing with dealers (chart is from 2010 NASPC Recessionary Dealer Survey.) Why are dealers forgoing part of their allowance, yet complaining about cash flow related issues in the surveys?
Staff shortages and turnover at the dealership have played a big role here. When parts departments are understaffed, less attention is paid to inventory and critical deadlines for returns may be overlooked. One of the HE OEMs pointed out that in some cases dealers are afraid to return parts for fear that they might need them down the road. How common this hoarding behavior might be is unknown, but there may be some interesting correlations here. For example, do OEMs with availability problems see a greater incidence of hoarding behavior among dealers?
To combat dealership neglect of inventory-related issues, some OEMs have implemented creative approaches to training. One of the Asian OEMs uses grassroots-type training, where dealers can attend a free off-site class specific to inventory management and reporting. Recognizing that the field may not be sufficiently educated in inventory management, other OEMs are sending expert inventory consultants, often third-party, to visit dealerships in conjunction with the field. These consultants have more credibility in dealerships and are better equipped to field questions and concerns from dealers.
Accountability was the most predominant theme at this year’s roundtable discussion. Metrics play a key role here; dealers cannot be held accountable if they are not being measured. While most OEMs have inventory-related metrics and reports for parts managers, several OEMs saw a need to escalate these reports to dealer principals. One OEM sends a simple report to the dealer principal every week that illustrates inventory health with red, yellow, and green indicators. This brief, visual report captures the dealer principal’s attention and allows him to start an informed conversation with his parts manager.
Acknowledging that prevention of dealer E&O is not the responsibility of the dealer alone, a couple of OEMs shared stories about mistakes they had made in the past. One OEM at the session used to suggest extensive new model kits to dealers, but found that this practice created excess inventory. Another OEM that currently offers incentives on parts purchases rather than parts sales plans to change its terms to align with inventory objectives.
While working to prevent the accumulation of E&O at dealerships is important, OEMs are also seeking channels to reduce this inventory. D2D is the first line of defense here. OEMs exhibit different levels of involvement in D2D transactions; one OEM facilitates every aspect of the transactions and makes a margin on the sales, while others do not get involved at all.
Bottom Line: Going forward, OEMs are looking at outside channels for E&O. One of the German OEMs has had success selling parts through enthusiast websites – so much success that some dealers have been calling corporate to order more E&O parts. Another OEM believes that there are markets for many low volume parts, and has been piloting different approaches to get there. As many OEMs focus on new initiatives, there should be insights abounding at next year’s conference.