Automotive Blog

The opacity of retained margins and stocking costs are barriers to better product range management

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It is a Monday afternoon. A customer is talking to the salesperson. They have found a car in stock at another dealer that matches the customer requirements, after a bit of compromise from the customer on choice of interior trim. The salesperson is trying to work out the margins on a new car deal. In addition to the margin and bonus scheme, the salesperson is trying to understand additional campaign and other support payments available from the National Sales Company for the particular car that is under discussion. The salesperson speaks to the sales manager who in turn speaks to the zone manager to confirm support on a particular car. The zone manager then speaks to someone at the National Sales Company to get clarification on a particular point, or extend an offer to a particular derivative.

Is this the best way to run a pricing system? Add the complexity of product variety to a complex pricing and incentives system, and it becomes clear why manufacturers find it impossible to analyse sales data properly from granular transactions as is typical in many other retail sectors.

Mainstream retailers dynamically manage ranging and pricing, through an integrated process examining retained margins alongside pricing, demand patterns and stocking costs. Ordering is based on empirical data on the appropriate products to sell from shelf and online channels. The lack of dynamic centralised range management and pricing raises further questions for carmakers.

  • How well understood is stock turn within the sales variety mix, which sets the working capital costs for that individual vehicle? And how well understood are the reasons for faster turning derivatives and end items?
  • There tends to be an understandable focus on the wholesale margin but how well is retained margin for the supply chain understood by the manufacturer? What is the retained mix profitability for the whole supply chain after discounting, Dealer margins, campaigns and support?

Part of the answer lies in better stock mix analysis and planning, which we will be addressing in a workshop in Frankfurt on November 19th, “Defining best practice in Inventory Management for New Vehicle Supply”.   Is the current inventory planning process currently operating at OEM, market and dealer levels actually capable of creating an optimal stock mix?

  • Do we use best practice processes, tools, capabilities?
  • Do those ordering have the skills and understanding of the variety offer?
  • Is pricing and support on the mix clear to salespeople?  

This workshop will explore the path towards a more sophisticated approach to inventory mix ordering and management, through exploring best practices observed at every tier and a model to integrate these into a single process design. 

More details are available here

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Written by Ben Waller

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