Accurate forecasting plays a critical role in the success of any aftermarket retailer or distributor. The value of the data that feeds those forecasting systems is growing, and distributors are increasingly competing on the accuracy of their forecast as much as the quality of their goods and services.
Performance Warehouse, a Portland, Ore.-based distributor, has leveraged its inventory optimization tool (IOT) to cut inventory and boost sales, while helping jobbers increase sales by double-digit percent points in some cases. The company was honored for its achievements earlier this year when it received the R.L. Polk & Co. Inventory Efficiency Award in the retailer/distributor category.
The company is a member of the Aftermarket Auto Parts Alliance, which won the same category in the Polk awards last year. In fact, the IOT was developed by the Alliance to improve forecasting for members. The software models sales data, inventory data, vehicles in operation, and replacement rate data to help guide inventory and stocking decisions.
"We were part of the design team on the development of the IOT," says Joe Moore, director of purchasing at Performance Warehouse. "We realized if we could track all of this sales and inventory data cross all 50-plus members of the Alliance, we could do a lot of interesting things down the road with that."
Better forecasting boosts sales
With the addition of catalog look-up data, the IOT has allowed Performance Warehouse to identify high failure products and get them into inventory faster. Data is evaluated by sales region, and each data input is weighted based on its value in a given area, and by make and model.
"If you take catalog look-ups, VIO by zip code, and sales, and you put intelligence behind that, you can model inventories that best fit the demand from the customers," Moore says. "It gives you a much better picture of what the coverage should be. You can see that in certain categories where before you thought you needed to carry 100 different types, but in reality only 25 of those are selling. Previously, we relied on suppliers for that data, but that didn't include the sales or install data. Now we know what goes off the store shelf and into the installers' hands."
Using that data, the company and its customers can make better decisions. "You can look at the numbers ands say, '98 percent coverage is as far as I want to go,'" Moore says. "Because 99 percent coverage results in a certain amount of inventory that is not justified based on sales."
By letting the sales team use the data to work with independent jobbers, the company has been able to decrease inventory by nearly 9 percent, while increasing sales 6 percent (and diversifying parts availability). More impressively, independent jobbers increased their sales a whopping 44 percent in product lines updated using the tool.
"That's an incredible number," Moore says. "Running IOT updates with independent jobbers has made a huge impact. They see parts with dust on them disappear, and the new parts they need are in stock. We provide a spreadsheet that shows what the part is, what it fits, how many we've sold in their region, and the VIO count in his trading area. He has all the data he needs to trust the salesman."
The company also gives suppliers access to its data warehouse. "They can see what's really selling in our supply chain and base their forecasting at the manufacturing level on that," Moore says. "They can see what overstock we have. The next step would be for a manufacturer who gets a call for an item to potentially look at our membership and buy those items back, rather than doing another manufacturing run."
Moore says the biggest challenge in using the system has been operational. "Especially the first time you apply this to different inventories, you find inventory that just didn't need to be there," Moore says. "It becomes a challenge in that you have to store it and then negotiate with the vendor to help move the excess."
Getting customers to trust the data is also difficult at times. Many jobbers are used to having a certain amount of stock on the shelves. "They think they will lose sales if they reduce the inventory, but they haven't sold it, and they're probably not going to sell it," Moore says. "It takes time to get used to, and to get them to believe the data."
The data is especially helpful for later model vehicles. "That's typically where we always sold short," Moore says. "You don't want to pull the trigger too quickly, but you want to have the inventory when the time comes. With IOT, we tackle that better than we ever have."
The next improvement the company expects to make with the tool will involve related-parts sales. "We're working toward modeling functionality that will let us make sure we have all the other parts you might use on the same job," Moore says.
For more information on this year's Polk Inventory Efficiency Awards, click on Mevotech.
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