GM turns to IT to fix parts supply chain

It wants the new system rolled out to all 8,000 U.S. and Canadian dealers by late 2007

March 22, 2006 (Computerworld)

General Motors Corp. is turning to automation to improve its auto parts distribution system to dealers, ending practices that had made for a bumpy ride for its auto parts supply chain.

By the end of 2007, GM expects to have its approximately 8,000 U.S. and Canadian dealers using its Retail Inventory Management (RIM) system, which relies on intelligence gleaned from nationwide parts sales to recommend parts-restocking policies at dealerships.

Today, GM parts distribution relies heavily on the judgment and practices of individual dealer parts managers, who typically wait until the end of the week to submit a batch of parts orders. This has meant that a large percentage of parts orders have arrived at GM distribution centers at the same time, driving up labor costs because workers earn overtime pay as they rush to fill orders.

“Our order variation from Monday through Friday was 21% -- Monday and Tuesday we’re working overtime and toward the end of the week we’re looking for volume,” said Bryan L. Burkhardt, global director for retail inventory management at GM Service and Parts Operations.

A pilot program at a regional distribution center in Jacksonville, Fla., that involved 350 dealers earlier this year proved the technology for GM. Instead of a lopsided approach with weekly batch orders, the RIM system responded to actual daily demand -- and the daily order variance was cut to 2% at that center, said Burkhardt.

More important for GM is ending the customer dissatisfaction resulting from the automaker’s legacy ordering system. GM was concerned that customers who were unhappy because they had to wait for parts would be more likely to buy their next car somewhere else, said Burkhardt.

Since its nationwide launch of RIM in August, about 1,000 GM dealers are active on the new system, and another 3,500 are enrolled and will soon be active.

According to Donna Colorito, process information officer at GM Service and Parts Operations, GM uses BEA Systems Inc.'s WebLogic Server to distribute parts information from its legacy systems and has adopted Electronic Business XML (ebXML) as its communications protocol. The RIM system also requires interfaces built into the dealer management systems.

There are some 28 vendors of dealer management systems. But the six largest, whose customers include about 85% of the North American dealerships, have completed the RIM integration, said GM officials. They include The Reynolds and Reynolds Co. in Kettering, Ohio, and Automatic Data Processing Inc. in Roseland, N.J.

A key aspect of the system is recommending what part to stock, and that’s not a trivial thing. GM has some 1.3 million parts that can be ordered, and dealerships typically have between 5,000 and 12,000 parts on the shelf at any given time, said Mike Nicholes, a parts management consultant and head of Nicholes Capital Management LLC in Portland, Ore.

Ordering misjudgments can leave a dealer without a needed part or carrying a part that isn’t used often. RIM recommends restocking policies for particular parts, and once the dealer agrees to that recommendation, the system automates the process of filling the orders on a daily basis.

“The dealership maintains 100% control of what RIM does or doesn’t do,” said Burkhardt. If a part isn’t sold in 12 months by a dealer and that part was recommended by RIM, the system will take that part back.

Although GM's Saturn unit has used a similar distribution system with its 450 dealers for many years, GM officials said there were “significant integration challenges” to taking that system, built for a homogenous dealer group, and spreading it across all of its systems and dealers. Since the late 1990s, consolidation efforts coupled with Web-based technology have made it possible for GM to adopt new distribution systems more broadly, said Burkhardt.

GM has been struggling in recent months, and reported a $10.6 billion loss for last year. Nicholes sees the distribution effort as part of an overall attempt to improve the company’s bottom line.

RIM is also changing GM’s role with dealers, Nicholes said, making it less of a parts salesmen and more of a partner. “GM is really making some broad steps to bring themselves up to the real state-of-the-art of efficiency in distribution,” he said.