Auto – retail and Efficient Lot Location Problem
Most people have rather straightforward experience buying or servicing a car, but the backend of auto-retail is far from trivial. Behind the scenes, cars are being shipped and handled through distribution centers, sold and serviced through the network of franchised car dealerships.
There are five main participants in inventory management for car retail and service:
- Distribution centers. Cars from the factory do not normally go directly to car dealers. They are often shipped to car distribution centers that consist of very large lots, where the cars are stored and handled
- Car dealerships. On average, American car dealers are much larger than their European equivalents both in terms of sales numbers and the service facilities they operate. Most importantly they carry large inventories averaging hundreds sometimes thousands of cars.
- Financial companies. The car dealers are selling the cars, usually based on so-called revolving lines of credit, and the financial companies/banks providing that financing have the first lien on the cars they financed. Car inventory may be worth tens of millions of dollars. The inventory owned/processed by the dealers and financial companies is called a floor-plan inventory.
- Technology Vendors. These companies provide various technologies to Car Dealers and financial vendors that allow inventory physical monitoring and control. Those include DMS Vendors, that provide car dealers with main operating technology tools as well as companies that specifically provide technologies for inventory physical monitoring.
- Service vendors. These companies provide labor intensive physical inventory monitoring and control services. Such companies are hired by car dealers and financing companies to check physical presence of cars on the lot.
Distribution centers and car dealers go to great strides in order to effectively maintain their inventories. Often it happens that cars are moved around and their real-time location is hard to determine among hundreds of other cars. This leads to lost-sales opportunities by sales people unable to find cars for customer test-drives and increased costs of labor associated with managing the inventory and physical audits. Presently, car dealers mostly rely on physical walk through their facilities to check the inventory.
Financial companies strive for a safe and stable lending process. They rely on the network of employees/contractors who are going around car storage lots and physically count cars. Such inventory monitoring process is called “floorplan audit”. Cars sold by the car dealership have to be paid off in a certain amount of time. But theft, damage, and unscrupulous dealers may all contribute to significant losses to the lenders. Without much alternative, labor-intensive floorplan audits incur significant expenses for financial companies.
Some technology vendors (mydealerlot.com, keyregister.com, cphandheld.com) offer solutions that allow certain automation for some of their labor-intensive operations. Some service vendors furnish technologies and labor to provide physical inventory management and reconciliation to car dealers and financial companies.
Attempts have been made, mostly with limited success to utilize RFID and GPS to allow real time physical inventory presence and location monitoring.
Most RFID-based systems are very installation-heavy and involve proprietary hardware and RF protocols. Active RFID tags are expensive and Passive RFID tags do not provide sufficient read range to allow location tracking. RFID is also not very accurate technology. GPS systems provide high accuracy, but require GPS positioning data to be transmitted somewhere for interpretation. OBDII GPS devices are available to track fleets, but require subscription to cellular carriers, making them cost inefficient for car dealership scale, where large fleets are stored and maintained over large territories.
Reynolds and Reynolds, the largest global supplier of technologies to automotive retail industry, has developed and introduced the first effective aftermarket solution for car dealers to track the location of their in-stock inventories. The system was based on bespoke design of OBDII adapter and combined GPS sensor for accurate location tracking and long-range Zig-Bee RFID, allowing data transfer to one base station, capable of supporting hundreds of cars.
That was the first truly successful system of such kind and we are proud that our close friend Sergey Naumovsky was a major contributor to that effort.
Further development in that field will allow automatically monitor in Real Time presence and location of large car fleet for car dealers. Such systems may eventually use a combination of both RFID/GPS/OBDII communication with video-feed machine learning based processing. Video-feeds will be collected from various sources, including drones.
With real-time presence and location systems, technology vendors will be able to supply entirely new range of technologies and services, and generate revenue from systems sale and API access, while distribution centers, franchised car dealers and financial companies deploying them will get strategic competitive advantage by maximizing their automation of physical inventory monitoring and control.