Inventory Optimisation for Automotive Aftermarket

Driving the Automotive Aftermarket

People are so reliant on their cars these days that even one day without it can cause personal logistical nightmares. If their car cannot be fixed same day or next day, this will inevitably see customers switching dealers, garages and ultimately makes. This level of customer control means that the automotive aftermarket industry demands high service levels and product availability; and the inability to meet customer requirements will undoubtedly result in a vehicle standing still with no work taking place.

Barloworld Supply Chain Software understands that the customer in today's automotive market is much more educated than previously and that the total cost of ownership is a major consideration when buying a new vehicle. We are therefore at the cutting edge of industry knowledge regarding the necessity of available inventory at dealer level from Parts Distribution Centres (PDC), in what is a very competitive and complex market, with tight margins.

Gearing up for a Challenge in Inventory Optimisation

In Europe, a huge challenge for both manufacturers and dealers alike has been the introduction of the block exemption regulation (BER), which controls the sale and servicing of cars. The regulation is intended to "put consumers in the driving seat" - by giving dealers greater independence from carmakers, promoting inter-brand competition, and introducing competition to the aftermarket. If a customer needs their car servicing the next day and the dealer cannot meet that deadline due to a delay in a part, then they will simply go elsewhere. The dealer similarly can approach any manufacturer they like who will be able to deliver the part when they need it, putting pressure on manufacturers to have the correct parts at the correct place within the correct timeframe.

Inventory Management with a Complex Product Range

Another factor that makes the automotive aftermarket sector very complex is the vast ranges of parts required to be stocked in order to service the cars within the required time frames. PDCs and their dealer networks have to stock hundreds of thousands of parts in multiple locations in order to achieve the required service levels. This problem is then compounded by the fact that many parts fall into the category of slow moving on the one end, which can be from older car models, to new product introduction at the other end of the scale - with many variations in the middle.

And when it comes to replenishing this immense product range, parts managers at the PDCs have to deal with long lead times from manufactures, large minimum order quantities and frequently make 'last time buy' decisions. However, on the dealer network side order lead times normally range from 1 to 3 days and storage capacity constrains mean that the parts need to be replenished very frequency, sometimes up to 2 times a day. This has lead to the creation of geographical positioned super dealers that act as stocking hubs for the smaller dealers which again adds a lot of complexity to the supply chain.

Optimiza Inventory Planning Software: The Right Tool for the Job

To make such a complex supply chain work it is imperative that the right tools be deployed at a central location where the correct skills and decision makers are available.

The Optimiza software, from Barloworld Supply Chain Software has been introduced to many Automotive Aftermarket companies because it allows such visibility for their purchasing and logistics departments. All ordering, deployment of product to PDCs and then from PDCs to dealers is done from this central location with inventory managers managing the process and taking responsibility for the decisions.

This ensures that the right stock is being ordered in the right quantity and there is no stock sat on shelves gathering dust.

In addition to this, the growth experienced in recent years has meant that backward looking, simple forecasting algorithms have not kept pace with the actual growing demand. Barloworld Supply Chain Software's Demand Planning module and integrated advanced forecasting engine uses a mixture of algorithms to identify the best fit algorithm on which to base future projections.

The inventory profile rules for different segments of the data mean that:

• The large number of Stock Keeping Units are categorised dynamically
• Safety stocks are set uniquely for different target service levels and risk profiles
• Visibility of the overall supply chain is heightened

The Business Intelligence layer categorises items on a daily basis into various hotspot areas, clearly illustrating to the Planner what action is required. It alerts the user to:

• Stockout and potential stockout
• Surplus and expedite orders
• Excesses

In addition, the inventory planning methodology introduces a formal process to the planning team with clear roles and responsibilities and Key Performance Indicators to ensure the right and constant focus.

Optimiza has given us the increased visibility and ability to manage the inventory that we needed in order to control our inventory in line with the requirements of the business and its sales drives. We can forecast and order very accurately from a centralized location, hence reducing inventory investment and stockouts, whilst increasing service levels.

Carl Croot, Automotive Materials Manager, DHL Exel Supply Chain

Optimiza has given us the increased visibility we needed to order and control our inventory in line with the company KPI's and budgets. We can forecast and order from one system.

Optimiza has already changed our thought processes and brought us confidence in our future planning. We look forward to the benefits that we are sure Optimiza will bring us through reduced inventory, whilst increasing our availability

Tracey Leggett, Supply Chain Supervisor Automotive Distribution Ltd

Customer Satisfaction

BMW (SA)

A long and healthy partnership has seen inventories reduce by 26% while at the same time increasing availability.

In the spirit of continuous improvement the latest initiative has rolled out a Centre of Excellence operation to the Dealers to increase visibility throughout the supply chain.

General Motors (SA)

A rewarding partnership has meant that the latest initiative was to roll out the functionality to the East African operation. The results achieved have been a 14% inventory reduction with an 18% reduction of excess inventory and much improved fill rates.