People in the industry have been bantering about how bad the aftermarket is at managing the hundreds of thousands of different items being made available to the distribution channels.   

Numerous stories abound of the inefficiencies prevalent: archaic computer systems, clipboard inventory checks, excessive obsolete product, misplaced inventory...the list goes on.

But we aren’t here to air the industry’s dirty laundry. In fact, quite the opposite. We rounded up executives from some of the leading aftermarket companies and have asked them to share how they maximize inventory costs and turn product without getting weighed down in dead and bloated stock.

We’re told that managing an inventory efficiently is a balance of art and science, requiring time, ample resources and even a little fortune telling. And, it doesn’t matter whether you are a large WD with $25 million invested in inventory, like Parts Warehouse, or a jobber store, like Hedahls Parts Plus, whose average location carries about $250,000 in inventory; if you are an automotive parts distributor, what matters is that your inventory is managed appropriately so that you can meet customer demand — getting the correct products to the right locations in a timely manner — while making a profit.

“If you’ve got your inventory catered to the needs of the marketplace, you’ll certainly be in an advantageous position,” declares Fletcher Lord, the Automotive Warehouse Distributor’s Association chairman and president and CEO of Arkansas-based Parts Warehouse. He warns others, however, that you must constantly hone your skills to stay on top of your inventory as bloated balance sheets will quickly result from poor management and inventory explosion. “Like everything else, it’s a double-edged sword,” he says.

Bob Barstow, on the other hand, is a firm believer that “all you’ve done is spend money [on your inventory] until you sell it.” Barstow is director of marketing for the Automotive Distribution Network. He advises parts distributors to find a balance between how much inventory they must carry to keep their customers happy while at the same time, “carrying as little as possible” so that inventory can be turned. Without turns, “you can’t make money,” he says.

Pete Kornafel, vice chairman of CARQUEST, believes that inventory is a valuable asset, because having the right products available to a technician when he or she needs them is “what can differentiate us from a competitor.”

Lord thinks that inventory serves as both an asset and a liability — if you’re properly managing and turning it, then inventory is an asset, but if it’s sitting on your shelves collecting dust, it quickly becomes a liability, he says.

Regardless of your personal belief, there is truth in this notion. Unsaleable items are certainly a problem according to your accounting records, declares Barstow. Good management and forecasting is the only key to maximizing your inventory.

So, what is the first of many steps toward accomplishing this goal? Dick Hedahl, of Bismarck, N.D.-based Hedahls Parts Plus, says you need to “find something you are known for and focus on it...to fill that need in the industry.”

He explains that this will help you develop your niche in the community.

“We are a very hard parts-oriented business. We sell parts that wear out. That is how our customers know us.”

Barstow agrees that you can’t be everything to everyone. “It’s just not smart to try and carry everything,” he says. “Even if it was possible, it wouldn’t be smart. You would never get your money back.”

A force to be reckoned with

Once you establish your niche as a distributor or jobber, you’ll have to work like crazy to meet customer demand. But the only way this can be done successfully is by employing the right people to deal with the inventory madness. This team will play a critical role in your company’s overall success, so be sure you are picking the right people for the job.

In a much larger warehouse, an in-ventory task force is a crucial component, suggests Hedahl, who owns more than 20 locations in four states — the Dakotas and Montana as well as Minnesota.

Larry Bosch serves as Hedahls part number specialist and determines which stores in a given area should receive specific product. Bosch has been with the company since 1968 and has served in a number of roles, including delivery driver and counterperson. “With all that background, he is the perfect person for the job,” says Hedahl, who adds that any part number specialist needs to be extremely conscientious of what’s happening in the industry to ensure the right product is on the shelf. This is no job for an amateur, we’re told.

The second team member, a replenishment buyer, ensures that the product recommended by the part number specialist is in stock when the customer needs it. The third person is a pricing specialist. They are responsible for deciding what price to sell a product in each particular market, which “is done in close consultation with each store’s sales manager,” adds Hedahl. “We have a pricing matrix we use for various customers we service.”

Having a team like this in place helps avoid over-ordering — which can happen quickly if you aren’t paying attention. Every parts distributor is regularly bombarded by an entourage of vendors offering huge discounts on larger order quantities. These executives warn that if you take the bait before doing your homework, your shelves might suddenly be overflowing with a product that isn’t selling.

You shouldn’t order product just because you are getting a bigger discount, says Kornafel, author of “Inventory Management and Purchasing,” though he adds that everyone has been guilty of it at some point. You need to be sure that what you bought is going to be a mover.

But Kornafel points out that in a single parts store, one guy is likely wearing all three hats, which means that person needs to be extremely savvy about understanding products, knowing the customers, analyzing the marketplace and forecasting the demand.

Weighing your data

Data, such as past sales figures, can be extremely helpful when forecasting future purchases, but bad data will weigh heavily on your success. You need to ensure that your past numbers and any underlying data are correct and in good order.

“Suppose that you have some sales history data that gives you a bad forecast” by suggesting that you buy the wrong amount of a given product, explains Kornafel. “If you don’t fix the history, your system will tell you that you should buy the wrong amount every single time.”

Every jobber should do some sort of weekly or monthly line count to compare inventory to what the computer says, suggests Barstow. “Computers don’t make mistakes, but people do.” Categories that should be checked more frequently than others include friction (since, in most cases, it accounts for about 30 percent of a jobber’s inventory) and electronics, due to the numerous part numbers in this category.

If you overstock any product, you risk turning your inventory too little and losing your profit.

“We are in a business where past history is the only indication we’ve got for future demand, so using that past history to rank what you should stock by potential sales is the key,” points out Kornafel.

But be careful not to base future

inventory purchases using only past history. Many changes can impact future sales figures.

For instance, according to “Inventory Manage-ment and Purchas-ing,” the addition or loss of major customers, a shift of customers between distribution centers and store closings “all can cause a significant shift in the overall demand level for almost all items in the inventory.” Kornafel suggests that you scale all the item forecasts and demand history to reflect a “best estimate of the impact of these changes.”

Utilizing vehicle population data, like that offered by R. L. Polk & Co., can also serve useful for parts distributors, but it should not be the only tool used to make an informed decision, suggests those we spoke with. Kornafel says that registration data is a good guideline and is currently underused, but that it can’t be utilized in a vacuum.

“It tells you how many cars are out there but not what parts are failing,” says Hedahl. “Some items just never fail” and therefore never need to be stocked, he continues.

Plus, some cars that are registered in a given state are actually being used elsewhere, like when parents send their kids off to an out-of-state college with the old family sedan.

As an industry, we haven’t yet determined how to collect data on re-placement and wearout rates, so the person responsible for purchasing must really be savvy about vehicle models and their components. Fletcher Lord says Parts Warehouse relies not only on their internal sources, but on their vendors as well to provide national sales trends and vehicle data. By looking at everything combined, Lord’s team has a broader understanding of what needs to be ordered when.

If you aren’t already working with manufacturers that provide national sales trends and predictions, start doing so. Many have highly developed programs.

For instance, Robert Bosch Corp. instituted a wide-ranging supply chain assessment program with software that helps forecast demand and coordinate a myriad of related supply chain activities, says Tim Williams, director of supply chain management for Bosch. “Our software’s sophisticated forecasting algorithms generate statistical forecasts based on demand history for each of these units.”

Once you have a vendor’s data in hand, you’ll need to analyze whether the national trends line up with local sales data, which will require some extensive fact checking and research. You may not want to put that much time into it, but it’ll help you lower inventory costs in the long run.

For example, a ceramic pad for a Cadillac Escalade may be an A item nationwide, explains Barstow. “But in a small town in Nebraska, there might not even be a Cadillac Escalade registered for 50 miles.” It is key that you determine your own popularity codes, regardless of what they are on a national level, he advises.

Remember, too, that manufacturers and vendors aren’t just parts producers, they are a link in the supply chain. The more closely you work together, the better off you’ll be, says Williams. “Information such as promotions, new store openings and changing demographics are valuable pieces of information critical to supply chain success. We eagerly encourage customers to be an extension of our supply chain and to share in our success.”

Finally, don’t overlook the value of polling your customers. If you lose a sale, figure out why and do something about it. Hedahls has 20 salespeople in the field, in addition to their delivery drivers, who have weekly contact with customers and are able to ask them questions regarding their inventory needs.

In the nick of time

One way to reduce your inventory without reducing your ability to service your customers with the right

parts is by utilizing a just-in-time process.

Several WDs and jobbers have tapped into this method of purchasing parts. Basically, when a part sells, it is automatically reordered and replaced within a day or two.

“We have become religious in using economic order points,” says Lord, who used to order once a week or once a month on certain lines, but now uses an automatic replenishment system. “Rather than ordering, you set the parameters in the system so it does it for you.” He says that it’s not an easy task, but in the end, it can help create tremendous efficiencies.

“Parameters are different for every part...it’s an evolution,” continues Lord, and will take some time to figure out for a company that is just delving into it.

Parts Warehouse has also been able to negotiate down the lead times that they expect from their vendors. “In some cases, they shorten the length of time it takes for orders to get out their doors,” he explains. “We’ve also taken a little bit better than a day off the receiving time.”

Hedahls Parts Plus has a daily replenishment process as well. “It allows us to have a thin inventory in a particular part number,” says Hedahl. “It helps us only stock necessary parts.” You can get a better discount by buying in bigger quantities, but that can be a “false economy,” explains Hedahl. “Having a constant overnight supply is a real value.”

Kornafel agrees wholeheartedly. In his book, he says frequency beats forecasting. “If your supply chain can replenish forward inventories almost immediately, you might not need strong forecasting techniques for those inventories, even if items exhibit erratic demand.”

Making fast on slow movers

Everyone knows that 20 percent of today’s aftermarket products account for about 80 percent of the sales, which leaves an awful lot of slow moving parts inhabiting shelf space.

And, there are products being launched daily that promise to be the next big mover. “You can get sold on a product and be very enthralled by, it but the market may not want it,” warns Hedahl. “Don’t buy on a whim.”

Fletcher Lord tells us that historically, when a new part number was released, they would buy stock for all four warehouses as well as their key stores, as long as it looked like the item was going to be a mover. Now, they are a little more cautious, sampling items first.

“We’ve been pretty judicious about not ordering larger quantities of new numbers,” he says.

They have also cut down on their slow moving inventory by stocking only two of their warehouses, instead of all four, with these items — decreasing specific inventory counts by 50 percent.

They have even negotiated more frequent stock adjustments. “We used to do it annually...now, we’ll do it at least twice and sometimes four times a year to make it more timely.”

According to Barstow, every manufacturer in the traditional aftermarket allows WDs to return a certain percent of product. “If you are a relatively smart buyer, that should take care of those items that were B and C and have now moved to D.”

But don’t forget that if you don’t push a product, it may never sell. Utilize promotions and marketing material intended to keep sales and inventory moving, suggests Williams at Bosch. “Comprehensive product catalogs, colorful sales literature and attractive point of sale items all function as silent salesmen and create awareness among potential customers.”

An open opportunity

If you are a distributor with several jobbing locations, how do you know what products to stock unless you have an open system? A store manager in a Dallas suburb should be able to see what products the local warehouse has in stock, and the warehouse should be able to see what products the Dallas jobber has in stock.

An open computer system that allows personnel to view stock at all of a company’s locations can help avoid redundancy at the store level, explains Lord, who adds that their computer system automatically orders product from itself before ordering it from a vendor.

“Every time an order is written, it brings excess inventory from the other three distribution centers before sending a need to a vendor.”

Hedahls has a similar set-up. Their inventory executive “has five screens in front of him on one keyboard and can be studying one part number across all stores. Access to that information is vital,” Hedahl says.

Not making any enhancements to your inventory management, no matter how great your system, would fare poorly for your business. “It’s getting worse, not better,” claims Kornafel. “This is a situation where if you keep doing what you’re doing, it’s not going to work as well tomorrow.”