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In-house software helps dealer control inventory

Wes Rydell
Age: 60

Title:
Co-owner and chairman of Rydell Co., a holding company; also owner and president of Rydell Chevrolet-Oldsmobile-Cadillac in Grand Forks, N.D.,and Saturn of St. Paul (Minn.)

Headquarters:
Sioux Falls, S.D.
Annual revenues:
$1.6 billion for group sales of 70,000 new and used vehicles
Dealerships owned: 36 new-car dealerships in 9 states and 3 used-car dealerships

In good times, inventory costs can hurt you. In troubled times, they can break you.

The Rydell Co. dealership group of Grand Forks, N.D., has a secret weapon in its campaign to reduce inventory costs, particularly for used vehicles: the Cartiva Inventory Management system.

This is no off-the-shelf title you can buy from a software store. Rydell’s PC- and Internet-based software program was written by Greg Sorum, president and co-owner of Cartiva, a used-car dealership chain that dealer Wes Rydell established in 1995.

Rydell is co-owner and chairman of Rydell Co., which has 38 new-vehicle dealerships in nine states in the West and Midwest.

Sorum said the Cartiva software has enabled the company to reduce its inventory costs by 25 percent to 50 percent depending on the dealership.

Pulling, not pushing

“Wes had the initial idea and hired me back in 1996 to help develop the idea. And I actually wrote the software,” said Sorum, who has an undergraduate degree in computer science and a master’s in business administration.

“The whole system is based on what customers are pulling through sales. That tells the managers what they should be putting on the lot and how many vehicles they should be putting on the lot. The system tries to give our managers the tools to leverage their car-guy intuition to get the best inventory possible.”

With a traditional approach to inventory, “if you want to sell 100 used cars in a month, you’re probably going to need about 150 cars on the lot,” he says. “We would get by on less than half of that; we’d need about 75 or less (at any given time) to get those 100 sales.”

The system, which cost more than $1 million to develop, has allowed the Rydell companies that use the system to:

  • Reduce days supply by between 28 percent and 51 percent.

  • Increase per-unit grosses by 15 percent to 25 percent.

    The Rydell Group, including the Cartiva used-car stores, sold approximately 40,000 used and 30,000 new vehicles in 2000.

    Without this inventory system, “our sales would not be as high,” says Sorum, who spent 16 years in banking before joining forces with Rydell. “We’ve saved money on investment in inventory, by selling more cars with less inventory. We’ve saved because we’re not aging our cars, trading old cars just by past inventory practices.”

    Most dealers, Sorum says, have “essentially a schedule of inventory that shows what cars the dealership owns and how long they’ve had those cars, and the date they purchased them.” Their inventory programs are a list that gives age.

    b>Creating the right mix

    The Cartiva system is focused on turning inventory quickly. Based on previous sales, it tells dealers what types of vehicles to stock — car, pickup, sport-utility or van — and by price range. It also helps them determine the proper mix of model year, make and equipment.

    “Our goal is to have the right inventory: the right number of cars, the right mix of cars, the right quality and the right price,” Sorum said.

    Rydell is known as one of the players in General Motors’ so-called San Fernando experiment. In 1998, GM bought nine dealerships in the San Fernando Valley, where its market share had dropped to 13 percent, and consolidated them to four. It then brought in Rydell as a minority partner to run the dealerships and eventually buy out GM’s share of the dealerships.

    The right stuff

    Rydell, 60, acts like a teacher to the managers in the company. “This business requires quite a long learning curve,” he says. “Anything you can do to help shorten that up is beneficial. There’s a lot to learn.

    “We can always do better at most things, and inventory is a critical one,” he adds. “It’s an area where many dealers can get in trouble pretty easily by having bad inventory.”

    The Cartiva inventory system is invaluable because “the sooner you know it, the sooner you can react to it, and the better off you are.”

    Sorum and Rydell say the system is not complete, but it seems to be working fine.

    There are no plans to market the software, but neither man rules it out.

    Says Sorum: “I believe we will go outside our own group, but we want to make sure we have a good solid product that works inside our own stores first.”

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