Article > Operations

Inventory Management: The Quickest Wins the Race

By Brian Cruickshank

In the fast-moving world of retail sales, having the right part on the shelf is more often than not the difference between making the sale — or losing it.

At the recent APA/Professional’s Choice group annual convention in Miami, APA President Dan Freeman commented about the importance of inventory management.

“The automotive marketplace will continue to fragment, as no nameplate becomes dominant,” Freeman told APA members and suppliers. “Parts mixes will change. If you’re not stocking maintenance items for South Korean nameplates, you’re already behind the curve. If you can’t deliver the part in a reasonable amount of time, you will lose the sale.”

Certainly, inventory management is king, especially in the quickly changing world of the aftermarket distributor. Products change, new models are introduced and manufacturers create new technologies that replace existing SKUs. That all creates a moving target when determining the right inventory mix for a given marketplace.

No where is this more apparent than in the fast-moving world of retail sales, where having the right part on the shelf is more often than not the difference between making the sale — or losing it. The stakes get even higher among impulse purchases, which include automotive products such as chemicals, visibility and appearance products. Those distributors that are able to keep the right products in stock are the ones that make the sale. It’s that simple.

But knowing which products are the right ones is far from simple. Data from companies such as R.L. Polk help distributors and manufacturers determine which products should be manufactured or stocked in a particular location, based on spreadsheets of vehicle populations. Vendor managed inventories are used by both program groups and distributors to refine product mixes. It is far from an exact science, however, and the costs for making the wrong inventory decisions can spell trouble. Too much inventory is a financial strain. Too little restricts sales.

According to a study conducted at the University of Pennsylvania’s Wharton School of Business, researchers found that running a lean inventory operation is not necessarily associated with a better bottom line. The study, which looked at more than 722 companies across many industries, found that inventory levels alone do not have a significant and negative relation to current or future profitability.

The study concluded that what really impacts a company’s profitability is what researchers termed “Elasticity of Inventory” — in other words, how quickly a company can adjust inventory to meet changes in the marketplace and demands from customers.

“Superior earnings are associated with the speed of change/responsiveness in inventory management,” researchers concluded. Companies that increase inventory levels swiftly to meet greater demand or decrease levels when demand slackens are more profitable.

And so, knowing your inventory and marketplace is just as important as being able to refine and retool your inventories to match it in a quick and timely manner.

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