The auto parts distribution is more challenged than distributors realize and there is a performance indicator that is critical: ROI (return on investment).
ROI has been an endemic problem to the auto parts distributors for years and it is a major reason for the many bankruptcies and liquidations among distributors.
With costs and competition rising faster than ever, only businesses that find ways to increase value for their customers, can avoid falling behind competitors.
What are main reasons for idle capital creation on inventory which have direct impact on ROI?
Excess inventory that is greater than optimal level.
Obsoletes which are products by over eight months of no sales.
Forced stock from special orders not picked up by customers.
Speculative products stocking.
Excess inventory can be easily solved by an automated inventory management software which is based on historical sales, but how can we correctly perform the following crucial actions to improve ROI?
Avoid speculative purchases of products that do not have potential demand and, instead, introduce high demand products that are currently missing from our inventory.
Identify and replace obsolete products for products with sales potential.
The answer is: using a product assortment planning software guided by market demand.
As a practical example, we will consider an inventory with 60% of high demanded products, 30% of low demand products and 10% of obsoletes and we will optimize it with the product assortment planning software:
If we assume that products of high demand turn on average 5 times a year and products of low demand 1.5 times, with the product assortment optimization applied, we achieve an improvement of +5% ROI and +5% in sales, which is a lot of money!
All these corrective actions in our inventory can be carried out gradually but periodically over the months, to achieve and maintain the inventory perfectly aligned with market demand.
The market demand analysis guiding the assortment planning software can be key to decide where to invest with maximum reliability and thus optimizing the inventory.
Market Expert: Demand-driven platform for product analysis & assortment planning.