Friday, February 24, 2012

Retail Inventory Management Continues to Evolve - by Gene Metheny

Earlier this month, we conducted our 3rd annual focus day dedicated to retail inventory management (RIM). After 3 years of spending a full day drilling down into the details of RIM, the participants continued to learn from each other and evolve their systems. At the end of the session, there was unanimous agreement to do another event on RIM next year, potentially extending it to two days and including some live RIM demonstrations.

We have been following RIM development since the early 1990s and it has been astonishing to watch the progression of sophistication and effectiveness in the various solutions. Back in 2006, we identified a progression of system functionality that was providing increasing levels of OEM control over dealer stocking decisions.

Back then, companies were fairly evenly distributed along the continuum of functionality. We made the clear case for the advantages of policy recommendation and automatic order generation and predicted that companies would continue to move in this direction. This year, almost all of the participating companies were clustered toward the right side of the chart. Those that were not, were considering moving in that direction.
The reason for the trend is simple; automatic order generation provides some great advantages over other RIM approaches:
  • Much higher dealer compliance with stocking recommendations – also easier to measure compliance
  • Much faster restocking of dealers, since there is no delay for dealers to review and process orders
  • Higher dealer purchase loyalty because dealers are not making as many buy decisions; the parts just show up
  • The ability to control when these stock orders are picked and shipped, enabling potential improvements in OEM warehouse and transportation efficiency
In 2011, we delved deeply into the stocking algorithms and methodologies that determine the dealer stocking recommendations. The wide variety of stocking methods used can be detected just by looking at the variation of forecasting methodologies being used.

In an attempt to determine the relative merits of various stocking logic approaches, we are working to benchmark fill and inventory performance (similar to the way we measure warehouse inventory performance at NAPB). The biggest obstacle to effective benchmarking has been the diversity of methods used to measure off-the-shelf fill rates at dealers. This year, we categorized the various methods being used and discussed the relative merits of each approach. We agreed to work together to harmonize these metrics and will work to influence DMS providers to generate a standard data feed that all OEMs can use to calculate fill going forward.

Various Dealer “Off-the-Shelf” Fill Metrics

Companies are continuing to examine how RIM and D2D can be leveraged to both improve availability and increase purchase loyalty. These methods are getting increasingly sophisticated as companies learn to leverage a combination of technology, commercial terms, and promotions to achieve results. One example is the use of D2D to administer a dealer exchange program that is tied in with OEM repurchase terms for the selling dealer.

Bottom Line: Manufacturers are leveraging increasingly sophisticated technology to manage the dealers as an extension of their own supply chains. As companies gain experience, they are learning how to push the boundaries and expand the use of RIM to improve supply chain efficiencies and enhance their commercial relationship with their dealers.

I continue to be excited and encouraged by the creativity and progress in Retail Inventory Management. Even after almost 20 years, RIM is continuing to evolve, generating more value for customers, dealers, and manufacturers. As we share our experiences with each other, companies are using these tools to truly change the industry.

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