Daily Stock Orders / Decreasing DEPTH increasing BREADTH /

Daily Stock Orders / Decreasing DEPTH increasing BREADTH /

Postby johnnyo » Wed Nov 20, 2002 1:15 pm

Daily Stock Orders / Decreasing DEPTH increasing BREADTH / The King with no clothes
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Funny, how thinking of inventory, (which is something we dont consider much about as children), could revitalize ones memories and with out intent cause one to recall things learned as a child.

Ahhh Memories .. Grade three was a wonderful year, our class was on the other side of the school where the grades eights where located and the play equipment was so much better than what we had the year before. It was also the first year I recall that I could read on my own. I remember going into the library to take out my first three books. One of these was a book of fables and I recall reading with innocent eyes the story of the Emperors NEW Clothes In case you have not read this story I will tell the quick of it.

In the fable of the Emperor's New Clothes, a couple of con men convinced the king that they had magical cloth, which only the wise people could see. The king hires these men to make him the most magnificent suit of clothes, declaring that anyone who cannot see this material was a fool.

As the fable goes, when the con men went to display this magnificent suit made of this magical cloth no one wanted to admit that all they could see was a half-naked king clad only in his boxer shorts, lest they be branded a fool. It took the honesty of a youth who exclaimed; "The king has no clothes!" before the rest of the kingdom was able to see and admit the reality of the king's nakedness.

As with most fables it seeks to impart a valuable lesson.

Well, of course it was only a story, right? Yet is it possible that a fable and the lessons it imbues can take place in reality?

Time passes and we grow up .

So now I take you to our Daily Stock order and that basic premise that it would help dealerships to increase the BREADTH of thier current inventories.

Like most I sat in the various meetings that brought this wonderful new sales tool to our door. Amazed at the simplicity and the excellent way this was to be implemented. With innocent eyes I took it all in. The fire and desire to make this happen stoked by the knowledge that our analysts had done their homework. There seemed no doubt that this new procedure would improve our job and the quality of our inventory. Yet during these meetings something tickled the back of my mind, some distant recollection that at the time eluded me. It was that little nagging feeling you get that tells you something just does not quite add up, but you cannot quite put your finger on. So it was that I set this aside until such time as it might manifest itself.

Sad, how small lessons we learn as children can seemingly be forgotten as we turn into adults. It is the old adage that we seem destined to repeat the mistakes of the past.
For with all the people who heard this very few saw through the transparency to say the King is Naked or in fact that what we where being lead to believe was better off in a book of fables.

Thought .

Several years ago our industry worked hard to bring the average knowledge of parts managers up to snuff. Various groups produced excellent training sessions that dramatically improved inventory knowledge. So it was that many across N. America where on the same page. ... That is, if you are to phase in a new item it should at least have 3 individual sales minimum in a year before stocking. This improvement and training lead the way for most parts inventories increasing their BREADTH.

So now we have the Daily Stock Order coming down the pipe with seminars that tell us this will help us in increasing our Breadth. (Ok now I have that feeling I am missing something again) . MMmmmm lets see ..
How does the daily stockorder increase breadth?
It seems it should be such a simple question.
Answer: It doesn't !
In fact it will never happen as a result of daily orders. For the simple fact that phase in guidelines and when a stock order is placed are two separate entities. They are like mixing oil and water. Separately both have a purpose; it is simply that they dont mix.
How can this be?
Well consider; Inventory managers, who already ran parts departments CORRECTLY before daily stock orders, would have already saturated their phase in point with most parts already residing on the shelf. Unless you drop your phase in value and criteria you cannot increase your breadth.

Here in is again a mystery; why would proponents of this system need to rely on a planned sales marketing spin to sell this incredible system? Perhaps they did not realize there is a difference between a Fable and the telling of fairy tales. More importantly how did so many of us get swept away into believing this propaganda?

May we never loose the lessons learned in our youth. Those ones that taught us to look beyond what others are saying, to what really is. For even as adults we will still find that occasionally the king is naked.

If this is so, and time will tell, more than a few will be caught with their pants down.

Daily stock orders are a fact of life. Yes they do offer some benifits. Personally I am neither for or against this process. However, it does pay dividends to understand all the possible reasons why industries are choosing this supply method.

So why do you think main inventory supply warehouses are moving to daily orders ?

Your thoughts are appreciated.

[This message has been edited by johnnyo (edited 11-20-2002).]

johnnyo
 

Daily Stock Orders / Decreasing DEPTH increasing BREADTH /

Postby MNI » Thu Nov 21, 2002 2:27 pm

Most computer systems will change the part status at the time of the Stock Order calculation. So, it goes to reason that parts will phase-in quicker if you are running a daily order. If you calculated the total number of days that parts were Stock Status parts considering Your existing Phase-In and Phase-Out rules, and compared this to the average number when calculating a daily order, you would see an increase. So, the manufacturer's statement would be correct!

It appears that we attended different grade schools, mine not only taught reading, but also math.
MNI
 

Daily Stock Orders / Decreasing DEPTH increasing BREADTH /

Postby johnnyo » Thu Nov 21, 2002 2:32 pm

Same school ...different aspects being discussed.... Width of inventory remains reasonably constant, one simply brings the item in a few days earlier.
johnnyo
 

Daily Stock Orders / Decreasing DEPTH increasing BREADTH /

Postby dangreer » Thu Nov 21, 2002 3:57 pm

Johnny

I really enjoyed your story. I see several parts to the daily stock order scenario.

Supplier -> Dealer -> Customer

The supplier in trying to cut their cost (carrying cost) and service you the dealer who services the customer, needs to stock less in a given period. So to reduce their cost they need to move the product on to the dealers at a quicker pace reducing the time and costs related to them. At the same time they are offering you a related discount for purchasing on a daily basis. By receiving daily stock replenishments you can also reduce the time product sits idle in you inventory, thus reducing your carrying cost (a hidden savings to you). With the end benefit being the customer of the wise parts manager/inventory control person who reduce depth and increase the breadth to satisfy the customers needs more often, resulting in better service.

It is like the king was dressed in only a wool robe before. Very thick (depth) but didnt cover everything. Now he is wearing a full cotton suit. A thinner material and covering most everything (breadth)!

A King is only naked when he chooses to be.
dangreer
 

Daily Stock Orders / Decreasing DEPTH increasing BREADTH /

Postby scotstrong » Thu Nov 21, 2002 4:53 pm

dangreer:

I am having a difficult time with some of the logic in your response. How does daily replenishment reduce obsolescence? Just because you can put parts on your shelf more quickly does not make them sell more quickly or not become obsolescence if they don't sell. Increasing the breadth of your inventory is a double-edged sword. Yes, you will have more parts in stock to satisfy customers; but you will also have more parts in stock that don't truly sell enough to stay qualified for stock status. You have to make the decision if the increased breadth is worth the increased obsolescence that cannot help but go along with it,

As far as the manufacturer giving a "related" discount for daily orders, GM and Daimler-Chrysler have shown a trend of REDUCING discounts and return reserves.
scotstrong
 

Daily Stock Orders / Decreasing DEPTH increasing BREADTH /

Postby dangreer » Thu Nov 21, 2002 8:46 pm

Scott,

Obsolescence is parts of the carrying cost calculation or in other words, Its part of doing business! It is the parts managers or inventory control persons responsibility to control obsolescence as much as possible. I would never expect a person in control of inventory to just recklessly put parts on the shelf to increase the inventories breadth. As far as that goes, the same could be said for going too deep. Obsolescence has always been part of the equation and will always be there. A manager that has control of his department and has clearly laid out the stocking condition to his staff will have a much greater chance of controlling obsolescence. Im sure we have all had employees that ordered something just because. Well, thats not acceptable anymore. Accountability has come to the dealership and managers can no longer let these things control them. They must control their departments. As far as "related" discounts . I see these discounts as a greater value than paying emergence and freight charges for the same service!

dangreer
 

Daily Stock Orders / Decreasing DEPTH increasing BREADTH /

Postby RBickley » Fri Nov 22, 2002 12:41 pm

Try not to look at daily stockorders alone. To look at the true benefit of daily orders also consider the use of source by movement. Toyota has added quite a few new part numbers in the past 18 months. There is no way we can hold the stocking levels we had in the past. As showrooms grow larger, parts departments shrink. Even parts bins have changed. Not to mention CFO reports that point out ways to free up frozen capitol. We need to hold more numbers, but the dealers do not want to increase investment. Add in the emergence of the "super dealers" with stockholders money and the fleet of trucks that will travel hundreds of miles for a 10 percent margin. I can't see how anything but a daily order to help us survive.

On a lighter note, real managers didn't need computer systems card systems were better. And who needed micro fieche, they could find it quicker in the books.
RBickley
 

Daily Stock Orders / Decreasing DEPTH increasing BREADTH /

Postby tom_davis » Tue Nov 26, 2002 10:34 am

RBickley brings the main point into view. Do not look at daily orders only. As he advised, look at your system setups. If you go to sourcing based on movement, you will be able to vary your days of supply and your phase in and phase out criteria. Over the last several years, I have put a total package together for several stores that has produce positive results is several areas:

1. Increased the number of part numbers on the shelf.

2. Either reduced or maintained the inventory value.

3. Reduced idle capital because you can tighten your phase out critera on slower moving items.

4. Increased stock order performance.

5. Reduced outside purchases.

6. Raised the off the shelf performance of the inventory.

Also, if you are posting lost sales, that will only add to your success in utilizing the daily order.

[This message has been edited by tom_davis (edited 11-26-2002).]

tom_davis
 

Daily Stock Orders / Decreasing DEPTH increasing BREADTH /

Postby johnnyo » Tue Nov 26, 2002 10:44 am

Dear Tom
... your right daily orders do have some benifits.
The point made was that your phase in criteria of 3 in 9 months or 3 in a year has not changed only the fact that one brings stock in a few days sooner. These are the same items you would have placed on the shelf in 5 days which are now placed on the shelf in one or two days ... your width of inventory remains the same only you increase the number of days the part sits on your shelf.
Please be assured and rest easy that every one can benifit using daily stock orders. IT is just that inventories are not going to magically have 50 or 60 or hundreds of new items increasing the width of inventory due to moving to a daily stock order system.

Question: If we went to a 4-hour stockorder (twice a day) would the width of inventory increase still again?

[This message has been edited by johnnyo (edited 11-26-2002).]

johnnyo
 

Daily Stock Orders / Decreasing DEPTH increasing BREADTH /

Postby Chuck Hartle » Tue Nov 26, 2002 12:16 pm

WOW! What a great thread with a lot of good information, all pointing out the pros and cons of daily stock orders.

One thing that has emerged out of the move by just about every manufacturer to daily stock orders is the fact that they didn't hide it for once by increasing parts prices. They just cut our discounts and return allowance to cover the cost of distribution.

I personally think it is a combination of good marketing and good math. Being intimately involved in both inventory management and delivery logistics, I cannot do anything but agree with all the statements above.

Daily Stock orders will do NOTHING to increase breath, indeed! Our DMS vendors need to make one significant change to help the parts department "adjust" to the growing trend of part number proliferation and daily deliveries to increase customer satisfaction, and that is what UCS already has done. Our inventory needs to be changed to "WEEKS" instead of "MONTHS" supply when measuring demand and developing phase-in criteria.

RBickley hit the nail on the head with what parts operations are all faced with. A growing number of part numbers and the ability to intelligently increase breath so as to not increase obsolescence. The phase-in criteria for ADP is so outdated that you can only "con" the system to overcome it. ERA does have the ability to calculate a piece count for phase-in in addition to the "canned" X months sales in X amount of months time formula.

We have quite a few customers who have daily stock order capabilities, but have chosen to do stock orders two or three times per week because of differing issues such as labor to get it separated and put away and facilitation.

I still am under the strong contention that we are not comparing apples to apples here. Why? Because phase-in criterias, day supply, and width and depth are going to be influenced by three main considerations:

1) The Manufacturer fill rate
2) The Personality of the dealership (big in shop, very little in wholesale, or any combination more or less of the two.
3) The facilitation (room to stock) of a given parts department.

Our experience has shown that just by having daily stock orders doesn't make the parts department any more efficient in controlling inventory and it certainly doesn't make the parts department any bigger or any smaller. This has to change from within the dealership itself and the management style has to change.

Mike Nichols said it best in an article I read about the word Insanity. "Doing the same thing the same way and expecting a different result." The manufacturers choose not to "con" anyone this time. Well, maybe GM did a bit, but we need to rethink the way we look out our process and adapt to it in order to be successful and take advantage of what the mfg is offering and moving to.

johnnyo made a great comment about looking beyond what others are saying to what it really is. That, in effect, will help us to take advantage of what is being offered here and make the best of it!

Great information, what else does anyone have to offer along these lines! Thanks...

Chuck Hartle'
Chuck Hartle
 

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