Controlling Unruly Inventory
Taking the helm as director of supply chain in January of 2007, Pattacciato was charged with leading the transition to SmartForecasts for the company's formal sales and operations planning process. As expected, there was some pushback against the new technology, but Pattacciato held regular meetings to help employees buy into the system and to acquaint them with the benefits, particularly its ability to help reduce unnecessary inventory while assuring popular parts were stocked in sufficient quantities. About 95 percent of the company's sales are attributed to approximately 300 "A" and "B" parts, so Prestolite wanted to focus its planning process on these items, which are inventoried at the Florence distribution center for the aftermarket.
"Our inventory was going in the wrong direction, and we could have faced severe financial setbacks had we continued on the road we were on," Pattacciato says. "We were spending too much money on product we didn't need. We also made some mistakes buying from our sister divisions overseas, and we are just now beginning to sell those products. Once you fill the overseas pipeline, it is hard to turn it off quickly, and if you are ordering the wrong products, you wind up with a whole lot of it before you realize it is the wrong product."
A major SmartForecasts feature is its statistical forecast and estimated safety stock level that corresponds to the company's desired service level. "We chose a service level of 93 percent because we felt this was a good compromise between the cost of carrying too much inventory and the cost of assuring we have sufficient quantities of A and B products available on the shelf for our aftermarket customers," reports Pattacciato.
The top metric used to measure the success of the software is availability, which is critical because the number of available A and B parts relates directly to sales potential. "We have taken availability from the mid-60-percent range up to the high-80-percent level while reducing overall inventory by 25 percent," Pattacciato says. "So we have achieved the 'magic formula' of increasing availability of what our customers want and decreasing inventory of what they don't want, which is the goal for any supply chain group."
Pattacciato adds that the software has had a significant impact on Prestolite's sales and customer service departments. "The sales guys are happy because they are not getting complaints anymore about our not having this or that in stock — and management is happy because we reduced our inventory significantly," he says. Fill rates increased from 80 percent to 95 percent in the aftermarket business.
In addition, planning for promotions in the aftermarket has become a lot simpler, predictable and effective. "We learned that we can't just decide in the first week of a month to run a promotion sometime during that month," continues Pattacciato. "We learned that if we don't plan far enough in advance, we won't have the parts on the shelf, which was something that always got us in trouble. Customers would get mad at us for not having enough stock to support the promotion we were running." SmartForecasts has a function that allows Pattacciato and his team to examine prior promotions run on a particular part number. "This tells us how much we sold on that part number when we had a promotion so that when we plan future promotions we can assure we have enough parts available on the shelf. This improved our customer service significantly."
Achieving Healthy Growth