How Does Spare Parts Inventory Management and Retail Inventory Management Connect?

What is Retail Inventory Management in Dealer Oriented Industries?

This is a question I often get, as the word “retail” is so tightly connected fast moving consumable goods (FMCG). However, some manufactures rely on dealers to sell and support their products. Dealers are retailers. Retail Inventory Management is therefore a key enabler for growth in dealer oriented industries.

Dealer Oriented Industries

Dealer oriented industries are those whose primary channel of sales is the dealership network. The dealers terminology is most common in the distribution of machinery and mechanical goods—thus in automobiles, trucks, farm and construction equipment, yard and garden goods, etc. The price point on these type of products are usually high and the uptime of the product is critical Hence a network of qualified and skilled dealers are key enablers for the aftermarket business of these companies. A successful spare parts business is key due to two primary reasons:

  1. The profit margin associated with aftermarket parts is high
  2. The customers requires that these mission-critical products are serviced in a timely manner

In fact, spare and replacement parts availability plays a very important role in the customer satisfaction metrics and has a direct impact on the sale of new equipment.

How Does Retail Inventory Management Fit Into This? 

Retail Inventory Management (RIM) is the core process to a successful storefront. The correct in-stock inventory, necessary for completing repairs, is critical for keeping customers satisfied. In dealer oriented industries the dealerships are the storefronts. It is at the dealer the end-customer interacts with the OEM brand and this is the place where they expect a high service level to ensure the uptime of their product.

Collaboration and Visibility are Key Enablers

With the RIM model the manufacturer takes more responsibility and ownership to support dealers to improve the management of their spare parts inventory. The manufacturer shift from pushing stock to dealers to a pull model where inventory stocking is based on point-of-sales demand forecasting. The manufacturer usually provides tools and expertise, including the responsibility of taking back excess stock from the dealer. This is a win-win model for both parties, as it drives sales and increase the customer satisfaction.

As we know that the information visibility of the entire supply chain is the very foundation to supply chain planning collaboration. As the OEMs have implemented an ERP system, warehouse management system and sometimes a master data management system, the visibility of basic product data throughout the entire supply chain is relatively high. However, the information visibility for stock, supersessions, critical parts, in-transit, point-of-sales, etc. is quite lower. Many OEMs still lack effective system tools to achieve supply chain collaboration.