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Understanding Supply Parameters

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Before you use the resupply feature, you must set default parameters that determine which resupply method you want to use to generate the resupply list. You can choose to use the built-in Pearson’s algorithm or the user-defined Micro-management criteria. You can also use the Ford ADMI criteria. Once you select a resupply method, you enter the parameters that will be used to determine which parts are pulled to the resupply list. As you enter the parameters, the Resupply Parameters menu displays the resupply method selected for each inventory source.

To access the Resupply Parameters menu, follow these steps:

Step 1. From the Parts Inventory menu, select Resupply & Returns. The Resupply and Returns menu opens. 

Step 2. Under the Resupply column, click Set Supply Parameters. The Source Resupply Setup menu opens. 

Source_Resupply_Setup.jpg

Pearson’s Versus Micro-Management

The decision to use Pearson’s algorithm or to use the user-defined micro-management criteria when reordering is based on your dealership’s needs. Both are very effective reordering strategies. You will need to decide which will work best for your dealership. 

Pearson’s Algorithm

The built-in Pearson’s algorithm for resupply, phase in, and phase out was designed by parts management consultant Bob Pearson. This algorithm works to the dealer’s advantages rather than the manufacturer. Pearson’s technique does not promote the idea that the dealer should become a parts warehouse for the manufacturer. Instead, his philosophy is that the dealership should have a part when it is needed, which equals good fill ratio and good CSI. At the same time, the inventory should be managed properly, which equals good turns ratio and good department profitability. The emphasis is on the ideal fill ratio of 99% rather than 100%. This ratio contributes to the best profit and maintains an excellent turns ratio.

Autosoft uses the Pearson’s algorithm but gives it more flexibility and makes it easier to use. You do not have to be concerned with the numbers and statistics. The basic algorithm is built into the system, and you can use it to best suit your dealership’s needs. This technique allows you to switch instantly from heavy demand to light demand as your needs shift.

Pearson’s algorithm, like all formulas, is based on numbers. The formula puts each part into one of eight classes (A through H), depending on its movement. Each part in the inventory is treated as a single entity that moves dynamically among these eight classes based on current movement and the reorder factor used.  

The reorder factor is a two-character code used to manipulate the basic formula, consisting of a number (1 through 4) and an alpha character (A or B). The number is used to adjust the low and high days' supply horizontally, while the letter is used to adjust the movement classes vertically. This factor is entered when you generate the order list.

The following diagram provides a simplistic illustration of how the algorithm works. While the actual algorithm is more complicated than the diagram, the diagram should provide an understanding of how the built-in formula works and how the reorder factor is used to adjust it.

Class

Movement
Level

Low
Days

High
Days

Lead
Time

A 40 7 22 1
B 12 14 36 1
C 3 21 43 2
D 1 28 60 3

 

Micro-Management

Along with the ability to regulate parts resupply by sales level with user-defined days' supply criteria, many dealers want to “micro-manage” their inventory. Autosoft worked with Jim Jackson (a name familiar to most Chrysler parts managers) to help clarify how this process is implemented with our parts inventory control system.

First, we looked at all of the possible criteria that a parts manager would need to consider when “micro-managing” the inventory. We then asked Jim to help identify the most important factors. Our parts resupply system already takes into consideration many factors such as order code, sale level, sale history, eligibility for return, and minimum sale or package quantity. “Micro-Management” specifications were added to expand our scope to include promotion codes, price symbols, and application codes.

Important:  If you do not have experience working with a resupply system based on days supply, use the Pearson algorithm until you understand the days' supply concept. You should consult your parts supplier representative for assistance in determining the correct values to enter in the setup.

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