Back to Basics: The Fundamentals of Retail Inventory Management, Part One

Welcome back to our Back to Basics series. If you’re just joining us, be sure to check out the first three posts for more tips on how to succeed in light of market and industry changes resulting from the global pandemic: Back to Basics: The Fundamentals of Price Optimization, and Back to Basics: The Fundamentals of Inventory Optimization, Part One and Part Two.) Today we’re talking about Retail Inventory Management. Let’s dive right in and start with, well, the basics.

What is Retail Inventory Management?

Retail Inventory Management, or RIM, as it’s commonly known in the industry, is a group of processes that ensure retailers always have the right service parts inventory in stock. It’s a manufacturer’s way of simplifying inventory planning and ordering for dealers and distributors. RIM streamlines decision-making and saves dealers from spending time re-ordering supplies when they’re running low by refilling stock based on pre-determined specifications or recommendations.

Implementing a RIM program typically involves tracking customer sales and demand at the store level, making recommendations for which SKUs should be stocked and at what quantity, and then tracking inventory to determine when that stock needs to be replenished. A high-performing RIM program is essential for manufacturers using a dealer distributor network, and allows them to manage retailer stock. Plus, it improves service for the end customer.

Automating as much of the process as possible takes the burden of decision-making off the dealer or distributor while still providing complete visibility into what’s happening. This not only adds value for dealers, it also ensures user adoption, which benefits the manufacturer.

What is the business case for dealers or distributors?

Increased purchase loyalty

RIM helps boost customer satisfaction, driving financial benefit for both dealers and manufacturers. When your car needs a repair, you want it done as quickly as possible—and when you take it to a dealer, you expect them to have the parts in stock. Having to wait for a part to be sent from the manufacturer can add days to the process, which may negatively impact the customer’s brand perception and loyalty. When customers feel good about the service they’re getting, they’re more likely to continue using the dealer network for repairs. They’re also more likely to repurchase within the brand.

Better off-the-shelf fill rates

Another advantage is increased dealer loyalty. When a part isn’t available off the shelf, dealers may turn to the aftermarket to get their hands on the parts they need to get repairs done faster. And when they need to restock inventory, they sometimes shop around for better prices. Automated replenishment of parts, as seen in some RIM systems, helps keep dealers loyal to the manufacturer by removing that opportunity for them purchase elsewhere—because by the time they’re running low on a part, the next order’s already on its way. Depending on the RIM model, we’ve seen dealer and distributor loyalty improve by several points following implementation.

What’s good for the dealer is good for the manufacturer

By keeping inventory on the shelf, a good RIM program helps reduce lost sales due to customers shopping around for service. It also lowers return rates from the dealer to the manufacturer. And then there are benefits to the overall supply chain. Once you have visibility into customer inventory and the ability to control the size and timing of a replenishment order, it opens up a lot of opportunities to reduce peak warehouse requirements and level load transportation lines. Improving inventory health across the dealer network and driving value by reducing inventory investment, inventory obsolescence, emergency orders, and transportation span makes a very strong business case at both the dealer and manufacturer level.

What are common challenges?

Control and adoption

One of the biggest challenges to implementing RIM for the first time is reluctance on the part of dealers or parts managers to give up control. Manufacturers need to exercise some change management to help their distribution network understand how they will benefit, too. Communication and transparency are vital to this process. Different RIM programs offer different levels of collaboration, with recommended stocking lists, orders, and policies shifting the burden of decision-making away from the dealer or parts manager without taking them out of the equation entirely. In most cases, the inventory manager is still involved in the process, just not at the day-to-day level. Reassuring them that they’re not completely giving up control of the inventory will help drive adoption and make the transition smoother.

Trading depth for breadth

Dealers tend to overstock fast moving parts, even though manufacturers have invested a lot in being able to deliver those parts quickly. But overstocking the most used parts often comes at the expense of having the right breadth of SKUs on the shelf. Using RIM to split the difference helps ensure dealers have both the quantity and variety of parts they need to serve their customers. Plus, this frees up the dealer’s inventory manager to focus less on tedious tasks and more on driving overall business growth.

As a manufacturer, you can also change your internal processes and systems to get the most value out of RIM, including setting up terms and conditions that encourage participation and acceptance of stock recommendations. For example, you can offer guaranteed returns—so you can tell your dealers, if we ask you to stock something through RIM and it doesn’t sell, we’ll take it back with no charge.

The nuts and bolts of running RIM

Getting the data that you need to run RIM well can also be challenging. The first step is integrating manufacturer and dealer systems to ensure consistent delivery of the point of sale and inventory data that drives the RIM system. While some manufacturers are already collecting a lot of the data for different sales and marketing purposes, when it’s being used to actually drive inventory decisions on the dealer’s shelf, it has to be timely, accurate, and consistent. Once you’ve established that data integration and accuracy, you also need to develop the pipelines to notify the dealer’s system of incoming RIM orders—which might entail considerable technical development, depending on the various systems being used.

Keep an eye out for part two of this post next week, where we’ll cover one more technical challenge and discuss ways to support collaboration with your dealers and retailers.

Are you ready to implement a RIM program or interested in learning more? We’ve teamed up with Carlisle & Co. to provide a complimentary 90-minute workshop covering best practices for launching a successful program. To take advantage of this offer, contact your Syncron Account Executive or visit our RIM Workshop page.