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

Welcome back to the fifth and final installation in our Back to Basics series. Today we’re wrapping up our discussion of Retail Inventory Management (RIM), picking up where we left off last week. If you need to catch up, here’s everything we’ve covered so far:

Dealer management systems (DMS) – pros and cons

One thing to keep in mind when implementing a RIM program is that some dealers use their own management systems. While these usually include some inventory planning functions, it is not their core focus and in-depth optimization capabilities might be missing. Another challenge is the proliferation of DMS and other customer systems across networks, with some using literally dozens. This makes it harder for OEMs to help dealers plan inventory and adds complexity to customer-side integration. However, connecting to DMS’s unlocks additional benefits and helps you understand the dealer’s business and performance as a whole.

Higher-level insights

When planning is done through the DMS, an individual retailer’s data tends to be the only input into how parts are planned and stocked. But when programs are run at the manufacturer level, you can use centralized data to drive stocking decisions—for example, you can implement faster stocking for parts with high sales volume nationally. More advanced manufacturers use algorithms to segment retailers by demand profile and use their aggregated data to inform stocking logic. Having transaction-level point of sale demand also provides better insight into how end customers are buying parts and informs more advanced systems about strategic replenishment. For example, you can see what parts are frequently used in the same repairs and make sure those parts are available together.

Stop comparing apples and oranges

Another advantage of planning at the manufacturer level is that you don’t have to rely on customer systems for reporting and metrics. Off-the-shelf fill, for example, can be calculated many different ways, making it difficult to compare retailer performance across the network. When you have that transaction-level data, you can standardize calculations at the unit level across your network, and use more advanced service metrics like line fill or order fill to gain a better understanding of the customer service experience. Looking forward, manufacturers can start to leverage advanced optimization capabilities and forecasting—things like connected inventory, IoT data, and sensor information from connected vehicles or equipment. This helps drive forecasting all the way through to connected causal or even predictive part failures. Then, we can start to think in terms of pre-positioning inventory in advance of a part failure and tying that with the service visit.

Supporting dealer/retailer collaboration

Dealer participation is absolutely critical to the success of any RIM program. Many of our customers enjoy the flexibility of supporting multiple dealer collaboration models along with multiple possible RIM models. While total manufacturer control over dealer inventory is more common in Europe, in the U.S., we usually see a lesser degree of control where dealers ultimately decide what inventory they’ll keep on hand. The difference between models is the point at which dealers make those decisions.

Order line approval—more dealer control

With the most basic models, manufacturers give dealers recommended parameter settings to put into their inventory management system—things like number of hits to start stocking a part or days of supply to keep on hand. The next step towards manufacturer control is using on-hand inventory data to recommend replenishment orders. For example, when the data feed shows you’re running low on part X, the RIM system recommends an order line which the dealer can accept or reject.

Recommended policies—less work

Best-in-class programs use recommended policies, which let dealers approve criteria for stocking and replenishing parts instead of accepting individual orders. This approach sets things like reorder points and order quantities, and then parts are automatically reordered according to those parameters. So, for example, if you agree to reorder part X when it hits a quantity of two, as soon the RIM system sees it hit two, the next order will be sent out.

This reduces the amount of time and effort required for inventory planning on the dealer side and improves lead times by eliminating the day or so it would have taken to approve the order and send it back to the manufacturer. It also helps boosts dealer purchase loyalty by taking away the chance to review individual orders beforehand. Finally, it enables some operational benefits by giving the manufacturer control of when the order is actually processed. After you decide how dealers will engage with inventory decisions, you can use things like terms and conditions to encourage them to adopt RIM programs and accept stocking recommendations.

Incentives, rewards, and value

In Part One, we talked about the guaranteed returns of RIM system managed parts—for example, many manufacturers provide full credit or reduced fees for returns if a part was recommended by the RIM system but doesn’t sell within a certain time period (usually around 12- 15 months for automotive companies and a little longer for heavy equipment manufacturers). When first rolling out a RIM program, many companies also offer their dealers a one-time cleanup return to help make room for the additional breadth of parts that the RIM system will recommend. And some OEMs offer reduced emergency order fees for parts that weren’t recommended. These types of benefits can be tied to dealer compliance by incentivizing them to stock the recommended inventory in order to get the maximum benefits. Many manufacturers also use RIM compliance as a target that dealers must achieve to earn benefits like discounts or overall incentive programs.

Many companies provide at least some stocking recommendations to their dealers, but oftentimes it’s only on new product rollouts, where critical parts are needed in the field to support introduction of the new model. For the most part, it’s usually either one-time or very periodic—recommendations don’t adapt or change with the business. Typically, it falls to the dealer or distributor parts manager to make those decisions. And more often than not, inventory stocking comes down to the parts manager’s understanding of the business. The downside is that if that individual leaves the dealership, they take that experience and knowledge with them.

The real value in RIM lies in tying all these transactions together and automating the process. If you can optimize the stocking strategy and minimize the dealer’s interaction and engagement, they can focus on more strategic initiatives at their locations. Automating inventory replenishment and tying those compliance metrics to terms and conditions or incentives helps to ensure dealer participation. And being able to systemically drive and monitor that is absolutely critical to the success of any RIM program.

Interested in learning more or ready to roll out a RIM program of your own? We’ve teamed up with Carlisle & Co. to provide a complimentary 90-minute workshop covering best practices for a successful launch. Contact your Syncron Account Executive or visit to get started today.