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The Art of Purchasing: Knowing What to Stock

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To stock, or not to stock? In the case of independent tire dealers, that often is the question.

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With a host of factors to consider – finances, storage space, SKU proliferation, instantaneous customer service and more – inventory strategy is not something to be taken lightly.

When it comes to finding the right balance between stocking tire inventory in-house and relying on timely deliveries from distributors, several industry veterans weighed in, both from the dealer and the distributor side, to offer helpful insights.

Inventory Pros and Cons

The main benefit of having a tire inventory on-site is obvious: ideally, a shop would have every tire that every customer needs at the exact moment they are needed. Of course, this can take up quite a bit of space – and tie up money that could be used elsewhere.

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“Society has become more and more about people getting what they want right now,” says Joe Flynn, co-owner and president of Flynn’s Tire & Auto Service, which operates both a wholesale division and a retail unit. “An on-site inventory allows a dealer to have that tire right when the customer wants it. They have an advantage over a competitor in their market who doesn’t have that tire in stock.”

He takes that scenario a step further when discussing commercial road service calls. “You either have the tire or you don’t; you’re able to make that repair or you aren’t,” Flynn notes.

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Coming from a different, but equally important angle, Ron Sinclair, senior vice president of marketing for American Tire Distributors, says tire dealers have an opportunity to enhance their cash flow by relying on a tire distributor for the majority of their tires.

“Specifically, the dealer can allocate less cash to on-hand inventory when he partners with a distributor like ATD that offers frequent delivery and a broad array of tires,” he explains, adding that ideally, a dealer should stock only a baseline inventory of “A” movers that he knows he will turn quickly. Beyond that, a dealer should rely on a distributor.

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“By reducing the cash tied up in slow-turning inventory, the dealer can invest in other areas of his business, like advertising or showroom enhancements or other initiatives that will improve the retail customer experience,” Sinclair says.

Flynn agrees, adding that using valuable space for other things – opening another service bay, for example – may be more beneficial than holding a large inventory.

“You could use that space for vehicle service, which is where most dealers make a larger profit versus tire sales,” he says. “Dealers who have limited space need to weigh the best use of that space, whether that’s stocking an inventory or relying on a distributor and using the space to bring in more profit.”

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Working with Distributors

The good news is that in today’s ultra-competitive market, the service and pricing offered by distributors is top-notch – a benefit to dealers who elect to go this route for a portion of their inventories.

“It’s very competitive – just as the market sets the price, the market also sets the service level,” Flynn says. “In most of our service areas, we deliver at least once a day. For metro areas, it’s generally twice a day; the further you get out from those areas, it’s once a day or, in some cases, three times a week.

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“When I was working retail, the distributor delivered one day a week,” he adds. “You ordered based on how soon you needed a certain tire. For example, if a customer didn’t have a brand preference and you were getting a delivery the next day, you’d order that customer a tire from that distributor. Now, deliveries come daily so planning ahead and building an inventory doesn’t matter as much.”

ATD delivers to most customers once a day, and in some areas is able to make deliveries two or three times daily, Sinclair notes.

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As part of their service offerings, most distributors offer valuable market insight into sales trends to assist dealers with inventory and order planning. Many also offer customers the ability to track their orders in an online account to keep tabs on progress in various tire manufacturer incentive programs.

With similar pricing and often identical products, what sets distributors apart from one another?

“Tire dealers should certainly consider the breadth and depth of a distributor’s inventory, as well as delivery frequency, as key elements in choosing a distributor,” Sinclair advises. “However, it’s important to also evaluate the other benefits the distributor can deliver. Said another way, what other ‘value’ does a distri-butor bring to the table?

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“ATD offers a broad array of marketing programs, exclusive dealer programs such as Tire Pros and ATD ServiceBay, and a host of other benefits that can help a dealer become a more successful retailer,” he adds.

Flynn cautions dealers to look into stocking or delivery fees, which can bump up the cost of dealing with some distributors. “Some distributors charge a fee every time they make a delivery, so while product pricing may be equal across the board, added fees are something dealers should compare when looking at distributors,” he says.

“What differentiates a family-owned distributor is if a dealer has a question or concern, they just need to pick up the phone and call me. There’s a more personal level of service,” Flynn adds. “Family-owned dealers and family-owned distributors are both competing against the big guys in their respective markets. As a business owner, would you rather be a small fish in a big pond, or a big fish – a larger customer – in a smaller pond?”

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Dealer Perspectives

While each market, store and customer base are unique, taking a look at how two successful dealers plan their inventory strategies may offer some helpful insight when considering your own operations.

Jim Melvin Jr., president of Melvin’s Tire Pros in North Kingstown, R.I., estimates he stocks 66% of inventory on-site – meaning roughly 34 out of every 100 tires sold at retail are bought outside of the shop’s inventory.

“This number has increased substantially over the past several years, with the proliferation of sizes and the multitude of different brands,” Melvin says, adding the dealership tracks inventory through its point-of-sale system by running daily reorder reports to replenish inventory.

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Similarly, Mountain View Tire, with 30 locations in Southern California, keeps 60% of the tires it sells in stock, according to Chris Mitsos, vice president.

“Most customers do not want to wait; if we ask them to leave their car for too long, they may elect to go somewhere else,” he says. “I know 60% may sound like a lot, but think of it this way: almost every other tire we sell is not out of our back room. To me, that number is the more alarming number – I’d like to sell 100% of the tires out of my back room.”

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Regarding that inventory, Mitsos says Mountain View Tire does not use a specific warehouse system, relying instead on standard retail store tire shelving to hold about 500 tires in the back room of each location. “The tire shelving cannot be higher than 12 feet per California Fire Code without an enormous upgrade in the fire sprinkler system,” he adds. “The only special equipment we use is a fancy step ladder on wheels to reach the top shelves.”

Melvin receives deliveries from his main distributor three times daily during the week and once on Saturdays. Mitsos says the majority of Mountain View Tire locations receive two deliveries daily from most distributors, while a few outlying stores get one delivery per day.

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Regarding negotiating with distributors to make sure Mountain View Tire’s needs are met, Mitsos says it’s never really been an issue.

“There is not much negotiating needed when you are a 30-store chain in a market laced with so many distributors. It is actually a nice position to be in,” he says. “Pricing structures are kept in check by all the competition, so it is not something we really ever have to be concerned about. We were recently informed by one of our distributors that our prices were actually being decreased even though we had not asked for it.”

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Melvin stresses the importance of working closely with distributors, saying, “Every tire dealer needs to generate a positive relationship with a wholesale distributor to access timely deliveries and gain the opportunity to access associate dealer programs to utilize marketing funds/programs, as well as behind the lines discounts.”

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