By April Terreri
Prestolite Electric faced an overwhelming number of odds threatening to affect the growth of its business. First of all, the company's top planning forecasters were retiring. As the team retired over a two-year period, newcomers without extensive institutional knowledge were making some costly inventory miscalculations. Confronted with an abundance of inventory, the negative effect on cash flow was making it difficult for Prestolite to qualify for refinancing. Careful and thoughtful planning, coupled with providential timing, helped keep Prestolite thriving, particularly despite the dramatic global economic downturn that was last year's legacy.
Let's peek inside the company. In addition to its corporate headquarters, Prestolite operates its North American manufacturing facility in Arcade, N.Y., from which it ships OEM products, primarily starters and alternators for the military, heavy truck, agricultural and construction industries. Its Florence, Ky., distribution center ships parts to aftermarket customers like Caterpillar, John Deere, New Holland and Freightliner dealerships. Prestolite Global operates manufacturing plants in Argentina, China and the UK. About 80 percent of parts sold out of the Florence facility are manufactured at the Arcade plant, and the remainder is sourced from one of the overseas plants. Sales are split evenly between the OEM market and the aftermarket. Annual revenues for Prestolite are about $130 million.
Losing Critical Institutional Knowledge
The story begins in 2005, when the company's chief planning forecasters were anticipating retirement. "There were about four extremely adept people with over 100 years' of combined experience with Prestolite who were responsible for all of the inventory planning," reports Joe Pattacciato, director of supply chain for the Plymouth, Mich.-headquartered company. "Their deep institutional knowledge drove our planning process for years. They knew all of our customers, they knew what those customers typically bought, and they knew when they bought. They made sure all the right inventory was in stock when it was going to be needed. Although they might have been a bit excessive in what they stocked, they did a pretty good job."
As the retirements progressed through 2007, new people came aboard. "But they didn't have that high degree of intimate company business knowledge and, consequently, Prestolite began to make a few big and costly mistakes," explains Pattacciato. "We were buying some product we didn't need, and we were not properly stocked with products we did need. So we had a very bad mix of inventory beginning in late 2006 into early 2007."
This meant the company's cash was tied up in inventory it wasn't selling, limiting its ability to stock products it was selling. "When you are selling to the aftermarket, you have to have products on the shelf, or your customers will go somewhere else to buy what they need," Pattacciato says. "Our sales took a hit."
So in late 2006, Russ Ford, Prestolite's CEO, charged the IT director to search for forecasting software tools that would help the company forecast more effectively. Three companies were given the same set of old company data to use to predict what sales would be. "We compared their conclusions to what our sales actually were, which allowed us to determine which of the software companies reported the best forecast accuracy," explains Pattacciato. "This was a productive way to analyze the companies because we were using our actual data, which took into account the volatility in our mix of part numbers."
The best performer among the various software packages was the SmartForecasts solution from Belmont, Mass.-based Smart Software. "SmartForecasts came out on top and provided the best forecast accuracy," Pattacciato says. By mid-2007, Prestolite deployed SmartForecasts, which was operational well before the recession of 2009 hit the world economy.