How to Leapfrog Average Annual Inventory Turns by 38 Percent in Six Months

The McPherson Companies needed a planning tool to help move its sales forecasting and inventory planning process beyond financial data spreadsheets


By Editorial Staff

The McPherson Companies, founded in 1971, is a large independent lubricant products supplier serving the southeastern U.S. The Trussville, Ala.-based company offers businesses and retail customers a full line of petroleum products and services including oil, lubricants, fuel and gasoline, used oil, equipment, engineering and environmental services.

McPherson is multi-branded and distributes 80 million gallons of gasoline and diesel fuel annually, along with 15 million gallons of lubricants each year. It also serves as a distributor for Exxon Mobil, BP Castrol and Conoco Phillips products.

As the company and its service level demands grew, McPherson grappled with sales forecasting and inventory planning decisions by using financial spreadsheet data more suitable for use by a petroleum product manufacturer than a distributor. In fact, forecasts were based on batch invoicing and completed largely by the manual examination of historically collated customer demand models. Order fill rates suffered because of the outdated and inappropriate system McPherson used.

"Some might believe a look at demand historically is helpful," says David Bright, McPherson's director of logistics. "But history could not account for different scenarios, like a Gulf Coast hurricane creating a spike or drop-off in demand. Until 2008, our purchasing process was to simply buy more or build more to meet needs reactively."

On the personnel side, a sole inventory planner was tasked daily with examining spreadsheets covering all 20,000 to 30,000 products contained within several thousand SKUs. Only then could a determination be made whether an order should be placed. The arduous process and the reactive time lags meant appropriate decisions weren't always possible.

As an example, McPherson would find itself "long" on selected products because it couldn't see a slowdown trend fast enough. Customers would want to move to 5W20 grade oil from 10W30, yet the company experienced lost sales opportunities and added expenses because it was over-stocked on the latter grade yet short-stocked on the first formulation.

Additionally, because it lacked state-of-the-art sales forecasting software, McPherson started suffering from an inability to better manage products soon to be rendered obsolete.

"Customer needs could change and we weren't always ready," Bright explains. "Some motorists in outlying areas of Georgia were servicing their older model cars with 10W30 oil, but in the city of Atlanta there'd be lube shops with customers who drove newer models and needed a different grade oil. We couldn't always do the faster turnaround or quick formulation change."

He adds that McPherson could not always take advantage of "low-hanging fruit" or ready sales opportunities. Geography was starting to play a larger role too. "We simply needed better decisions on exactly where to carry what products."

After finding research studies about the top software companies capable of supporting its needs, McPherson concluded that improving a warehouse management system (WMS) also required successful inventory and demand planning. Bright says the answer would be a system "providing us with visibility into the future and a dashboard-based reporting services module that offered interpretations of sales histories and suggestions on stocking and distribution."

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