General Motors has launched a new parts initiative that will increase inventories of select parts at dealer service departments, and will incentivize parts managers to purchase more parts directly from GM, rather than using sourcing from other dealers and wholesale distributors.
The voluntary program, which went into effect April 1, provides bonus incentives to parts departments that increase their purchases of the targeted parts, and increase the use of GM and AC Delco parts during repairs. The OEM hopes to increase same-day repairs through its Service Lane Parts (SLP) system, which will require dealers to boost inventories of a sub-set of parts that have been flagged as those most commonly needed for those repairs. GM has revamped its warehouses to make sure the parts can get to the dealerships faster, and will cover the cost for overnight delivery for orders that can't be filled the same day.
"When we take a look at the data, parts availability is one of the key reasons why customer vehicles don't get fixed on the same day or next day," says Tim Turvey, executive director of sales and marketing for GM North America customer care and aftersales. "Parts are a key issue."
Which parts will be needed at which dealer location will be determined via GM's Retail Inventory Management (RIM) system, which has been in place since 2005.
"We look at individual dealers and what parts have been used historically, and RIM lets them know what parts they should have in their inventory," Turvey says. "It's specific to every one of our dealers. We've carved out a group of parts that can be used in repairs that can be done same-day, and then designated them as service lane parts. It's less than 2 percent of the parts we hold a retail dealer accountable for."
GM also wants the dealers to purchase more parts direct from the factory. Currently, if a needed part isn't in stock, dealers may order parts from neighboring dealerships or from AC Delco wholesale distributors. GM has revamped its incentives to provide larger bonuses for those that order the bulk of parts direct.
In order to receive the bonuses, dealerships need to use GM or AC Delco parts on 70 percent of repairs, and purchase at least 70 percent of the dollar volume of service-lane parts from GM. Meeting the minimum requirements will pay a bonus of 0.25 percent of the total parts purchases. Dealers that reach 90 percent on those metrics can receive the maximum 4.25 percent bonus. Dealers also have to maintain 85 percent RIM compliance on stocking polices.
"So far, the increase has been less than $10,000 for a dealership," Turvey says. "Overall inventory at those locations has gone up less than 3 percent, so the impact has been relatively minor. The only parts we're asking the dealers to have are fast-moving parts that turn five or six times a year."
For distributors, that means dealerships may shift more orders to GM. According to some early reports, some distributors claimed that the reduction could cause them to roll back their discounts for dealerships.
Turvey says that GM also has improved its parts supply chain so that dealers can get the parts they need for same-day repairs as quickly as possible.
"We've done a lot of things in the supply chain to match this as well," Turvey says. "The dealers agree to stock this small group of fast-moving parts, and in turn we agree to do other things like performing a second sweep through the warehouses, and having cut-off times for all orders depending on the dealer location. If you place an order after that cut-off time, and it's a critical order, we make a second sweep, merge it with the dedicated route and it will show up overnight. If the parts distribution center does not have that part, we will overnight it at our expense."
GM also has put additional SKUs in the facing distribution centers in order to better meet demand for the SLP parts. "We took what used to be fragmented orders to dealers from ship-direct suppliers, and brought those in house to give the dealers reliable and predictable response times," Turvey says.
Forecasting nuances
Although RIM will be used to manage same-day parts inventories, that program has not been without its problems. Over the years, parts managers have complained of quirks in RIM's stocking recommendations that can produce what they feel are illogical or inconsistent inventory levels, given the sales data feeding the program.
Dealers can be penalized (via their bonuses and discounts) for ordering parts from outside sources because RIM's replenishment recommendations have left the parts department without a part in stock. Parts managers have come up with a number of ways to work around stocking levels that they feel are either too high or too low. According to Turvey, the new direct purchasing levels were meant, in part, to curtail these workarounds.
"There were ways people could game the system," Turvey says. "Our intent was to get parts on the shelf to take care of the customer, and to match the incentives so they tie to specific ordering behaviors, including accepting RIM stocking policies at a certain level, and purchasing certain levels of parts from CCA [Customer Care and Aftersales]."
GM also protects RIM-recommended parts in the SLP program from obsolescence. "They are protected for the dealer. They can return them to GM, and there is zero risk for them from an overall obsolescence perspective," Turvey says.
The math for some dealers may be complicated. In order for the bonuses system to pay off, they would have to offset the cost of stocking more parts, and from buying more parts directly from GM. Wholesales often provide discounts of 10 to 20 percent of the factory cost.
"Overall, this is a richer program for the dealers," Turvey says. "The pay out at the top level is more than double what the payout was for the previous incentive program."
GM has adjusted the program in response to dealer feedback. Notably, several thousand parts were removed from the SLP list earlier this year.
What affect the direct-purchase initiative will have on AC Delco wholesalers remains to be seen, but any movement to increase factory direct purchases will likely impact their revenues. It's also not clear that the direct-purchase initiative will actually help meet GM's stated goal of increasing same-day repairs, since parts managers can actually be penalized for purchasing parts from other dealerships or wholesale distributors when they don't have the OE part in stock themselves – even when doing so would get the part there faster.
"We are continue to work with the dealer council and make changes," Turvey says. "The program is doing extremely well so far. Inventory levels at the dealers are actually lower than our initial estimates, and compliance has been beyond our expectations."
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