Auto Service World
Feature   April 1, 2003   by Andrew Ross, Editor and Publisher

Shaking Up the Inventory Zone

There are certainly many changes afoot in the automotive aftermarket; perhaps the most important is the way it deals with inventory.

Recent studies have confirmed what we have all been talking about for several years: there is too much inventory in the system to support the kind of margins that the aftermarket is forced to operate on. It is not just that there is too much inventory, it is that you can’t afford it.

I have seen various estimates over the years that there are “X” billion dollars worth of unnecessarily duplicated inventory in the system; as much as 30% of the inventory in the overall aftermarket is going to and fro between customers and suppliers, in warranty or wrong-part limbo.

We all know that there is a problem, but we can’t all agree on its scope, its size, or who is to blame. Manufacturers say WDs want too much just-in-time and drop shipping. WDs say minimum orders are too high and the parts are too many. Jobbers say that WDs and their trade customers want them to shoulder too great a portion of the financial load on inventory.

Recently, number of strategies for being more effective have come to the fore.

Vendor-managed inventory and enhanced line review both put the responsibility for inventory in the hands of the manufacturer or appointed representative. It’s not a bad idea, but it hasn’t really taken off that well. You don’t find many companies willing or able to manage an entire category of products that includes their competitors’ brands.

Somewhere in the midst of this hodgepodge of strategies comes the topic of terms. If you’re a savvy jobber, you know that “terms” is a fancy way of referring to the practice of eating your cake today, and paying for it tomorrow. And, if you’ve been following Jerry Loney’s strategies over the years, you will also know that astute inventory management means that you can do this a lot and, through the magic of Proactive Gross Margin Return on Inventory, make sure you almost never have to pay for the stuff on your shelf until it has already left your shelf.

It’s a great strategy, but it is not the same as consignment, which is a lousy strategy for both parties. Consignment is, of course, a pay-as-you-sell strategy. A number of jobbers have told me of service providers wanting them to institute this practice for their in-shop inventories.

It can be a good short-term, introductory strategy, but in the long term it breeds sloppiness. Unlike the sell-today-pay-tomorrow strategy that requires you to pay tomorrow even if you don’t sell it, consignment is a pay-whenever-you-sell-it, never-pay-if-you-don’t non-strategy.

You’d think that, in the face of current inventory pressures, it would be something considered wacko by leaders in the aftermarket. Enter U.S. chain AutoZone. It has recently instituted a policy that it will not pay for parts until it sells them.

This is a tremendous step in the wrong direction, and one that is going to cost everyone in the aftermarket real dollars. If you thought that we saw excess inventory before, just you wait till some regional district of AutoZone stores over-orders, then later wants a stock lift of, oh, a couple of million dollars’ worth of alternators. With nothing at stake, what is to stop them or any other player with such a policy from abusing the situation? They have nothing to lose. And that is the problem. Today’s aftermarket suffers from low margins, high costs, and, frankly, some pretty sloppy practices. Taking away any semblance of responsibility for inventory levels will add costs to every level of the aftermarket and remove a key motivator to improve on the status quo.

There is nothing like the threat of an impending deadline to motivate staff and salespeople. That end-of-the-month report is a helluva inspiration. Ask yourself this: If you didn’t have your inventory on your books, how motivated would you be to make sure you got it right? I thought so.

Either somebody south of the border needs to give his head a shake, or somebody needs to shake it for him.

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