2005 Supply & Demand Chain 100 Case Study  Major Auto Industry Supplier / Smart Software, Inc.

Profiles in Supply Chain Enablement: North American division improves forecasting and reduces inventory with new demand planning solution

Profiles in Supply Chain Enablement: North American division improves forecasting and reduces inventory with new demand planning solution

Company: North American division of a $6.3 billion European auto industry supplier (U.S.)
Company Size: Large
Company Sector: Automotive
Area(s) of Enablement: Order/Demand Capture, Fulfillment/Logistics
Enabler: Smart Software, Inc. (Belmont, MA)

SDCE 100 2005Case Study: This company is the aftermarket arm for North America of a $6.3 billion, publicly traded, multinational company headquartered in Europe. This division packages and distributes seals, bearings, U-joints and other related parts for the automotive, industrial and truck aftermarket. The facility receives parts from manufacturing facilities located around the world, where supplier lead times can be as long as twenty-six weeks for certain product lines.

The division maintains several remote distribution centers in North America and stocks approximately 60,000 unique parts that it sells through distributors and retailers. About 70 percent of the items exhibit intermittent or "slow-moving" demand.

The Challenge

This manufacturer needed a more robust planning solution to do its forecasting. Its old system was incapable of generating useful forecasts of product demand and safety stock requirements that could accurately reflect seasonal demand variations and the irregular nature of intermittent demand. Demand planners at the company spent a lot of time manually adjusting results. And yet it was impossible to do this for all 60,000 SKUs on a monthly basis, leaving the majority of items incorrectly forecasted.

The company historically experienced demand spikes in spring, with slower periods during the winter months. The old process was unable to adapt to these fluctuations, which led to cyclical swings in manufacturing and distribution. Packaging operations that were idle during the slow winter months had to scramble through the summer to meet the demand and fill the backorders. As a result, the company was confronted with unbalanced inventory, unsatisfactory customer service levels, backorders and excessive shipping costs.

To solve its problems, the company went looking for a demand planning and forecasting system that was more robust and faster, could handle seasonality and was capable of producing accurate safety stock estimates.

The Solution

After reviewing a number of options, the company purchased SmartForecasts Enterprise from Smart Software in 2003. SmartForecasts met virtually all the company's most important requirements, including the ability to accurately forecast items with intermittent demand.

"One of the nice things about SmartForecasts was that it was installed and up and running in just two weeks," said the manager of aftermarket planning at the manufacturer.

Now, in less than one hour each month, the company can accurately forecast the demand for all 60,000 parts at each of its six distribution centers, including its main distribution center, where packaging operations are housed. In addition, forecasts with large expected errors are automatically flagged by SmartForecasts' exception reporting facility. Then, utilizing the system's judgmental adjustment tools, planners can adjust these "exception" forecasts based on input from sales representatives and customers. The results drive the company's distribution requirements planning (DRP) system and are used to keep all warehouses properly stocked.

The Results

During the first six months, the company started to see some improvements from its use of SmartForecasts. Based on the experience with the previous forecasting system, the planning group was skeptical at first. However, according to the planning manager, after several months of accurate results, "They became believers."

In the first six months, the manufacturer was also able to reduce its inventory significantly. The division reduced the net value of its inventory by at least $1million even while adding 600 new part numbers, many of which were quite expensive.

"There's been a big change in warehouse operations too," said the planning manager. "We're not playing catch-up anymore." At the company's main distribution center, which receives parts and packages them, improvements in the forecasts have streamlined the workflow and led to more efficient deployment of warehousing assets. The cycle swings that the company used to experience have disappeared, and the manufacturer now consistently achieves targeted 95 percent service levels, even as sales have grown.

"In the past, we were never ready for the spring rush," said the company's warehouse director. "This year has been the easiest year since I've been with the company. Last year we were 200,000 units behind sales in our packaging operations. This year, at the same time, we're 200,000 units ahead."

SmartForecasts also helped the planning group predict a recent upturn in business activity, enabling the company to quickly respond by increasing parts orders and minimizing lost sales. The manufacturer has made more parts available at the local level and improved response times to customers. In addition, the division has been able to reduce its shipping costs.

Recently the planning department at the company surveyed its sales force regarding its new forecasting capabilities and received nothing but positive comments. "SmartForecasts drives our relationship with suppliers," said the planning manager. "We have a much better understanding of what our future demand will be, and that reduces a lot of the costly expediting that we had to do in the past."

For more stories of successful supply chain implementations, read the "2005 Supply & Demand Chain Executive 100" article in the June/July 2005 issue of the magazine. Also watch the Today's Headlines section of SDCExec.com every Tuesday and Thursday for more in depth best practices drawn from this year's Supply & Demand Chain Executive 100.