Introduction To Processes

1. Introduction To Processes

2. The Objective Of Inventory Management Is "Buy What You Sell/Sell What You Buy" As You Know, It Has Two Components

3. (1) Purchases For Stock (2) Purchases Not-For-Stock

4. The "Stock Order" Process Uses A "Forecasting" Tool

5. The Forecasting Tool Has Six Components (1) Prior Sales History: Usually 12 Months (2) Phase-In Rule: When To Convert From "Non-Stock" To "Stock" Status (“X“ Unit Sales / “Y" Time Period) - And Commence Automatic Ordering - For Stock - Determines Inventory "Breadth"

6. (3) Re-Order Point: A Calculation Depending On Sales Volume For Each Part (Minimum Piece Count: OH+OO+BO – “The Pipeline”) (4) Best Stocking Level: A Calculation Depending On Sales Volume For Each Part (Maximum Piece Count: OH+OO+BO) - Determines Inventory "Depth"

7. (5) Phase-Out Rule: When To Convert From "Stock" To "Non-Stock" Status (“X“ Unit Sales / “Y" Time Period) - And Suspend Automatic Ordering - For Stock (6)Stock Status vs Non-Stock Status: Computer Identifies And Segregates "Stock Status" vs "Non-Stock Status" Parts

8. All DMS’ Incorporate These Six Basic Components

9. Assume This DMS Separates Non-Stock Status From Stock Status - And That The "Phase-In" Is 3 Sales In 12 Months

10. Assume a part has a 10 year lifespan… New No Longer Serviced Annual Sales 10 Years

11. …and That The Sample DMS System Has All The Basic Forecasting Components Annual Sales 10 Years

12. At The Start Of A Parts' Life Cycle There Are No Sales - Nothing Stocked In Dealership 7 5 Annual Sales 3 1 0 10 Years

13. As Time Goes On - The First Dealership Sale Occurs - 7 5 3 Annual Sales 1 0 10 Years

14. "1" Sale In 12 Months - And So The Current Status Is "Non-Stock" - It Has Not Yet Achieved "Phase-In" It Does Not Qualify For Stocking Status And The Computer Will Not Re-Order 7 5 3 Non-Stock Status Annual Sales 1 0 10 Years

15. As Sales Increase to 3 Sales In 12 Months - The Part "Phases-In" And Converts To "Stock Status" Stock Status Non-Stock Status 7 5 Another SKU Is Added - Inventory "Breadth" Increases Annual Sales 3 1 0 10 Years

16. The Computer Will Suggest Ordering 1 Unit For Stock Stock Status Non-Stock Status 7 5 3 Annual Sales 1 0 10 Years

17. As Sales Increase The Computer Will Suggest Keeping Additional Units In Stock Stock Status Non-Stock Status 7 5 Inventory "Depth" Will Increase 3 Annual Sales 1 0 10 Years

18. As Annual Sales Decline The Computer Will Suggest Keeping Only 1 Unit In Stock Stock Status Non-Stock Status 7 5 Inventory "Depth" Will Decrease 3 Annual Sales 1 0 10 Years

19. As Sales Decline/Cease - To The Point Where The Parts "Phases-Out" - And Further Ordering Is Suppressed Stock Status Non-Stock Status 7 5 3 Annual Sales 1 0 10 Years

20. When The Last Piece is Sold - The Computer Does Not Reorder And The Life Cycle Concludes Stock Status Non-Stock Status 7 5 3 Annual Sales 1 0 10 Years

21. For Many DMS's - The Part Number Will Be Deleted 12 Months After The Last Sale Stock Status Non-Stock Status 7 5 3 Annual Sales 1 0 10 Years

22. The Point Of The Demonstration Is To Illustrate The "Necessary" Complexity Of Inventory Management - Even For One Piece… …And Also To Illustrate That The Parts Manager Is Charged With A Task Much More Significant Than Mere "Inventory Management"

23. Lowest Acquisition Cost Parts Profits Are Made at Point of Purchase as well as Point of Sale • FCSD facilitates point of purchase profit through discount programs that are directed at the purchase of Stock parts • By not taking advantage of parts return programs, Dealers carry inventory that does not sell and accumulate Idle Capital • Not stocking a Stock part causes Dealers to pay higher acquisition costs – thus lowering profit PG: 14

24. Lowest Acquisition Cost Costs to NOT Stock a Part: • Parts Counter Time • Local Pickup Time • Reduced Technician Production • Diminished Customer Satisfaction

25. Are Inventory Records Accurate? Is The Physical On-Hand Count Identical To The Computer On-Hand Count - For Each Part Are Sales, Receipts, Credits, Returns, Claims, (e.g. “Transactions”) Accurately Recorded

26. Two Inventories Computer On Hand Physical On Hand

27. Database Accuracy A Quick Method For Assessing Database Accuracy Is To Randomly Select 50 SKUs For A Physical Inventory Compare The Inventory Record Count With The Actual Physical Count

28. Non-Stock Status Inventory Control (Also Known As Special Order Control)

29. Non Stock Processes Manage Parts At Both Ends Of The Bell Curve 7 5 3 Non-Stock Status Annual Sales 1 0 10 Years

30. Special Order Control Processes Are Applied To Parts Not Intended For Stock They Represent High Risk - Because They Have Little Or No Sales History - And If Not Sold To The Ordering Customer - They Will "Never" Sell

31. They Also Represent High Risk Because Of All The People Involved And Because Of The Many Steps (In The Process) Involved

32. This Symbol Represents The Chaos Of Parts Management If Effective Processes Are Not Applied You Probably Will Also Agree That Special Order “Processes” Represent The Area Of Greatest Chaos

33. Let’s Review The Steps In The Special Order Process To Get A Better Understanding Of The Complexity Of This Subject

34. New Used Service Body Parts Special Order Cycle • The Special Order Process Is Like The Gears In A Machine: • Each Gear Has A Function • Each Gear Is Dependant Upon the Others

35. New Used Service Body Parts The Special Order Process Begins With The Parts Selection Function Performed By One Of The Dealership Departments

36. New Used Service Order Body Parts The “Demand” For Parts Generated Through One Of The Sales Functions Leads To The Generation Of An “Order” The Ordering Function Is Then Performed - Either By The Originating Department Or Passed Through The Parts Department

37. New Used Recv Service Order Body Parts The Receiving Function Is Performed By The Parts Dept Documentation Is Reconciled And Special Order Parts Are Identified

38. New Used Recv Service Order Body Parts The Bin Location Is Determined And Recorded On The Computer The StockkeepingFunction Is Performed By The Parts Department And Special Order Parts Are Posted To Computer Stock Keep

39. New Used Stock Keep Recv Service Order Notify Dept Body Parts The Notification Function Is Initiated And The Originating Department Is Informed Of Special Order Parts Receipt

40. New Used Stock Keep Recv Service Order Notify Dept Notify Cust Body Parts The “Originating Department” Completes The Notification Process By Contacting The Customer

41. New Used Dist Parts Stock Keep Recv Service Order Notify Dept Notify Cust Body Parts And Parts Are Distributed To The “Originating Department” To Complete The Sale

42. New Used Service Body Parts If The Originating Department "Selects" The Wrong Part - Financial Loss Will OccurHow Frequently Do Incorrect Parts Get “Selected”

43. New Used Recv Service Order Body Parts If "Receiving" Fails To Recognize The Receipt Of A Special Order - Financial Loss Will Occur Does This Ever Happen?

44. New Used Recv Service Order Body Parts If The Stock Keeping Function Fails To Put The Part Where It Can Be Found - Financial Loss Will OccurThis Probably HAS Happened Stock Keep

45. New Used Stock Keep Recv Service Order Notify Dept Body Parts If The Initiating Department Is Not Notified Of The Receipt Of The Part - Financial Loss Will OccurThis May Have Happened Too

46. New Used Stock Keep Recv Service Order Notify Dept Notify Cust Body Parts If The Customer Isn't Notified - Financial Loss Will Occur How Many Customers Have Not Been Contacted?

47. Unless Each Step In The Process Is (1) Recognized, (2) Implemented In The Correct Sequence By The Correct Function, And (3) Measured To Identify Success Or Failure

48. Chaos Will Continue To Mis-Administer This Financial Investment Activity

49. The Opportunity To "Buy What You Sell / Sell What Buy" . . . Will Always Be Dependent Upon The Effective Application Of Two (And Only Two) Processes: Stock Order Process Special Order Process

50. Buy What You Sell / Sell What You Buy