Auto aftermarket is embracing inventory management technology innovations

Inventory management has become increasingly challenging for the automotive aftermarket. SKU proliferation continues to expand, combined with new sales channels and order configurations, and expectations for faster delivery and better accuracy. Customers are ordering in smaller quantities, and expecting faster order turns. Auto parts retailers must compete with a growing number of e-commerce providers.

Manufacturers, distributors, jobbers and retailers have responded by investing in advanced forecasting tools, as well as new ways to improve the visibility and management of inventory in their respective supply chains.

“The inventory position in the market is high because there are so many active SKUs,” says Jake Dombrowski, IT director at Tenneco. “Customers place orders and expect a 48-hour turnaround so something has to give somewhere. The answer is you build up inventory, and the best way to improve on inventory is to improve on the forecasts.”

Companies need better data so they can decide the depth of lines they need to cover, and have the logistics in place to get the right part to the right location. “Managing those lines, the depth of the lines, and how quickly you can do a line changeover are becoming more critical,” says Suellyn Sprague, director of product development at Epicor. “Managing obsolescence is also more difficult, because vendors are putting tighter conditions on when you can return obsolete inventory.”

The old 80/20 rule of inventory (that 20 percent of SKUs will account for 80 percent of sales) is also getting diluted as companies find themselves handling a larger number of SKUs on a more frequent basis.  “If the warehouses don’t find a way to optimize their operations, then their productivity drops,” says Al Neal, vice president of sales at MAM Software. “In this industry, margins are not favorable enough to keep those businesses profitable for long.”

To address these challenges, aftermarket companies are investing in updated technology. That includes retail locations that have added bar code scanning to their receiving operations and tapped into automated solutions that allow them to quickly locate and transfer inventory; warehouses that are shifting to new picking technologies and modern warehouse management solutions; and suppliers that are using advanced forecasting tools to help better place inventory and plan production.

“Reliance on automated, complex inventory planning systems forces us to better understand the underlying drivers, rather than using work-around methods to get the inventory levels we want,” says Ryan Carlton, manager of logistics engineering and warehouse management at Robert Bosch. “Though this will result in a stronger system in the long term, the short-term costs are higher than expected.”

For example, One Stop Parts Source, a California-based two-step distributor, has upgraded to Epicor Vision to accurately and more easily track inventory at its 16 locations.

Manufacturer Federal-Mogul has been strategically investing in its IT systems and distribution infrastructure to increase connectivity with customers. Those investments have included new multi-product line distribution centers on the East and West Coasts and robotics-based automation at several distribution centers.

“We are automating our distribution to increase accuracy and speed in the shipping of customer orders, large and small,” says Eric Duvall, vice president of supply chain management, Americas, for Federal-Mogul. “While achieving operational efficiencies, our ultimate aim is to improve customer service and delivery to meet the increasingly high service levels our industry requires.”

IT investments at Federal-Mogul have included a new North American IT platform (which will be followed by a similar initiative in Europe), real-time inventory and order management, a new eCatalog, and online technical training and support. The new systems enable data analytics, category management, targeted marketing, and more effective customer relationship management, Duvall says.

Embracing technology

The aftermarket has been slow to adopt inventory technology, compared to other markets (like consumer packaged goods), but new technologies are steadily working their way into even fairly small operations because cost and complexity hurdles are not as high anymore.

Mobile computers and bar code scanners are more reliable and robust, and there are mobile workstations available that make it possible to manage inventory labeling and scanning closer to the point of activity in the warehouse. “Improvements in battery technology, combined with lower power use by computers, scanners, and equipment, have freed workers to go to the product using a mobile workstation without losing functions and without having to switch to another computer during the day,” Bosch’s Carlton says. “We primarily use these for receiving and QA applications, which require label printers and large displays.”

However, Sprague says that even some larger distributors still don’t see the value of scanning at the box level when it comes to inventory management. “As soon as they implement it, they absolutely see a gain in accuracy both in and out of the warehouse,” Sprague says.  “They need to understand, though, that you’re not just reducing errors, you are also reducing the time to shelf.

For companies that can successfully rely on advance shipping notices and other EDI documentation, there may not be much of an obvious ROI in bar codes at receiving, but there are other improvement opportunities.

For instance, bar codes could be used to track part locations, which makes it possible to store parts in different combinations or in different locations. “A very common practice in this industry is to store parts in numerical order, but outside of automotive you never see that,” Neal says. “Now you can place parts based on their movement, so the fastest moving parts can be in the most convenient places, or you can put things on shelves based on their dimensions.”

“Increased use of bar code scanning to track and verify at each move not only decreases errors, but also reduces search time due to more internal precise tracking,” Carlton at Bosch adds. “We are increasing the number of scans to get more precision on part location for each warehouse move, as well as to confirm the part identity at key steps, both inbound and outbound. Through the use of directed work and ring and hip scanners, we can add scans without a loss of productivity.”

Bosch is also experimenting with hands-free voice picking (which uses wearable headsets to direct the picks), and Carlton describes those tests as “promising.”

Robotics is another emerging area of innovation. Federal-Mogul is currently outfitting its first North American distribution center with a robotics-based picking system. “The automated system, which went live in early February, provides better floor space utilization and enhances speed and accuracy in the processing of customer orders,” Duvall says.

In the new facilities, robots will take over the bulk of order picking by retrieving plastic bins of parts from towering grids of steel shelves. The bins are then placed on a conveyer and taken to a sorting area, where employees pull the parts before sending the containers back to be shelved by the robots. That system eliminates hours (and miles) of walking the warehouse floor to retrieve parts, and has cut the required floor space by nearly three-quarters because of the increased use of vertical space.

Big Data and forecasting

At a much higher level, Big Data, analytics, and improved forecasting solutions are improving inventory positions up and down the supply chain.

This requires lots of good data, with point of sale information at the retail/e-tail level forming the foundation. “The value proposition for our customers is that if we have this data and understand it, we can provide some insight and input in terms of inventory levels, and make them more efficient in terms of stocking,” Tenneco’s Dombrowski says.

In a February 2016 earnings call, Federal-Mogul Motorparts CEO Dan Ninivaggi outlined his company’s use of analytics: “Using new market intelligence and customer relationship management tools, we are able to more effectively communicate with Motorparts customers and identify and respond more quickly to market, product and other industry trends. Among the most exciting features of our new system are its enhanced category management capabilities. The associated analytics are a significant aid to decision making by our product, sales and marketing teams – as well as our ability to suggest adjustments to customers’ product inventories to reflect the latest demand signals at the street-level.”

Bosch is using Tableau business intelligence software to help local management identify and respond to demand and bottlenecks, as well as generate data for KPI reporting.

Epicor is rolling out an inventory planner tool in its Eagle product, which provides an intuitive forecasting utility. There is also a BuyerAssist tool that can help users anticipate stocking needs and improve speed to market.

“We are seeing a big push for our inventory modeling tools,” Epicor’s Sprague says. “You can identify the line depth that you want based on the vehicles in operation in your service area. You can make stocking decisions on individual pats that are pulled out of those analytics tools.”

These solutions require large amounts of data to be effective, and increasingly incorporate seasonality, geographic pattern, and other information to provide store-level forecasting and inventory management data.

E-commerce trends are complicating forecasting and inventory management, however, because it upends traditional channels while making it easier for very small companies to offer access to a wide variety of parts without actually holding much inventory. The Auto Care Association has predicted that e-tailing in the aftermarket will double in size by 2018.

E-commerce has made it possible for small jobbers to pull inventory from distributors to fulfill large volume orders and generate high turns. “Businesses that virtually have no or little inventory have found success in that regard,” says Tom Wood, Epicor’s senior product marketing manager.

Managing inventory you don’t control requires close integration with supplier inventory solutions, and access to accurate application, pricing, and availability data. “The system has to have the ability to look at real time into distributor inventory and provide that to the buyer in real time,” Sprague says.

Business-to-consumer (B2C) sales are also growing for distributors (and even suppliers). Orders are arriving in a variety of ways, and companies have to be prepared to fulfill those orders in a must faster timeframe. “Companies are wrestling with their own traditional processes now that they have to satisfy a non-traditional market,” MAM Software’s Neal says. “Distributors see B2C as a great opportunity, but don’t understand the level of investment required. You can’t just put up a website.”

Aftermarket companies are continuing to explore and expand on inventory technology. At Bosch, Carlton says that the company is exploring the use of tablets in the warehouse to provide real-time data to managers and supervisors while untethering from their desktop systems.

There are also some innovative approaches that combine changes to the distribution infrastructure with technological capabilities. Federal-Mogul recently launched its Tech First initiative, which provides training and support to repairers via technical support centers (TSCs). The company is also forward deploying inventory in some metro markets via the TSCs so that parts can be shipped quickly to technicians on behalf of Federal-Mogul’s customers.

As inventory becomes more complex and customer expectations for speed and accuracy increase, the aftermarket will need to increasingly adopt new technologies to replace the aging solutions (some in place since the 1980s) companies have historically used to manage stock. Without technology that improves inventory forecasting and supply chain efficiency, already slim margins will be impossible to maintain.

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