Keys to help prevent inventory disorganization

By Lynn Buck, MacKay & Company

I chose to write about this topic this month because of my firsthand experience in dealing with and attempting to address inventory issues that cost time and money and contributes to staff and customer aggravation.

In the perfect truck parts inventory world, a distributor wouldn’t have a need for a warehouse. Parts would be ordered and drop-shipped directly to the customer. While this works for some components and some businesses, they are likely in the minority.

A disorganized inventory should be a thing of the distant past with today’s technology, but with acquisitions and personnel changes, what you have under your roof can get off track. I’m not an inventory expert but will point out some basic areas that I feel are important.

The first key to having an organized inventory is a good ERP system. This system should integrate purchasing, accounting, shipping, and receiving. This sounds expensive, but most small business accounting software can be used for small shops and distributors while more expensive systems are needed for multi-location distributors.

For multi-location distributors, the system needs to be set up to place demand in the correct warehouses — those closest to the customer. If a customer in California orders 25 starters and my closest distribution center doesn’t have them but my distribution center in Chicago does, the system needs to place demand in the distribution center closest to California, not Chicago. Otherwise, if the replenishment order is placed for Chicago, you will have product that could sit on the shelf taking up valuable space and inventory dollars in Chicago and a future customer in California will have to wait longer for the part.

Make sure the cross references are readily available to offer customers an option if their first selection is out of stock. Ensure information is entered correctly into the system. The old adage of ‘garbage in, garbage out’ holds true. If someone in receiving fat-fingers an order and enters 100 starters instead of 10, that’s a big problem. Those types of issues should be short-lived given the next point.

The second key to an organized inventory is reconciliation between invoices and quantity added to inventory, which should catch receiving issues. Technology like bar-code scanning does help but because receiving errors happen, and likely will happen, reconciliation is key even if it is a pain! Reconciliation between invoice, packing sheet, and product received should happen as soon as possible to avoid any upset customers.

If quantity on hand shows 100 and a customer wants and expects 25 today, but you actually have only 10, I wouldn’t want to make that telephone call telling him 15 of his trucks won’t be rolling tomorrow.

The third key of good inventory is good, old fashioned eyes on counting of inventory. If you can physically count it, it should be counted. The more complete the count, the better. Cycle counting is used in many operations, but in my experience has never seemed adequate to catch many of our inventory issues.

There are variations on cycle counting with which to experiment to see what works for your organizations, but just because you’ve always done it that way doesn’t mean it’s the optimal way for it to be done now. Measure each option and find out what works best for you and your customers.

There are many books and resources on the best practices in inventory management. For many of you who read this, you already know this information. But does your team in sales or other departments understand why you don’t have product?

Again, in my experience, inventory can become like a living being that grows out of control — costing you money or shrinking and frustrating customers. Organization and knowing what you have is key to avoiding these issues.

Lynn Buck, information technology analyst, joined MacKay & Company in November 2012. His background includes more than 15 years of data analysis and reporting in a variety of settings. Most recently, he has performed the roles of pricing manager and inventory manager for two aftermarket parts distributors. Prior to that, he analyzed markets for new parts and service locations for Navistar.

Going to the Mattresses

By John Blodgett, MacKay & Company

That headline, “Going to the Mattresses,” is a great line from a great book and movie (“The Godfather”), which basically means: To enter into or prepare for a lengthy war, battle or conflict; to adopt a combative or warlike position. Like when the Germans bombed Pearl Harbor — another line from a very different movie (“Animal House”).

So, thankfully, we are not in an actual combat war, but we are in what likely will be a long, painful journey until we defeat this virus. Not if — when!

Last month I was on vacation (so glad I went last month) with friends and we got into a discussion about previous generations and, by comparison, we have had it easy (on average). Sure, we had 9/11, related wars, the recession of 2009, but in totality (at least through February 2020), it has been a pretty easy ride.

If I look at my grandfather’s life, the country was in WWI when he was a child, went into a market crash and deep depression soon after he got married then entered WWII. When his kids were young, there were wars in Korea, Vietnam, the oil crises, double digit interest rates … just to name a few things he and his generation had to endure through their lives. It certainly helps explain their drinking and smoking habits.

So, we don’t have a lot of training for this and, as hard as it might be, it’s our turn to “go to the mattresses” and help our country, employees and families survive this temporary huge bump in the road.

The good news is trucking is getting a spotlight like never before and trucking is shining. People are starting to understand the importance of the trucking industry, the truckers, the fleets, the companies that manufacture trucks and support and service to keep the trucks on the road. I have seen several commenters on TV in the last week praise what the trucking industry does and how it is helping mitigate some of the impacts from this pandemic.

During this time, industry associations like the Motor & Equipment Manufacturers Association, American Trucking Associations, Auto Care Association and others are getting the message out to local, state and federal government officials concerning the impacts of implementing rules and regulations on the trucking industry, like keeping rest areas open.

In the coming weeks and months, we at MacKay & Company will be assisting our clients to better understand the actual impacts and forecasted changes for the trucking industry — including new truck sales, aftermarket parts and service demand and issues we probably haven’t even thought about yet.

We know most school buses aren’t running and obviously a lot of trucking activity such as delivery to restaurants and bars and many other industries are near a halt, but demand for trucking to grocery stores, warehouses, hospitals and support of home deliveries appears to be up. Not likely enough to make up for the areas that have dropped off, but it is not all negative.

Refuse will see a drop at most commercial businesses, but I would assume residential pickups might increase (if what is packed in my refrigerator is any indication). The farming market also looks very positive for this year.

It is unfortunate that an event like this is needed to highlight the importance of the trucking industry. As a result of this pandemic, I do think it will be interesting to see what changes, new ideas and processes come from and for the trucking industry. I look forward to writing about that in the future.

A More Competitive Year Ahead

Most vehicle truck and component manufacturers, as well as those in the forecasting business, anticipate U.S. retail sales of Class 8 trucks will be down 30 percent or so in 2020 compared with 2019. Declines also are expected for medium-duty trucks and trailers. That is a significant drop.

The aftermarket for the current year is not impacted much by the vehicles sold in the current year. These vehicles are under warranty and they are a small portion of the operating population. They will, however, impact the aftermarket in future years as fewer trucks sold today means fewer opportunities for parts and service in the future.

Reading this publication and others over the last few weeks makes it apparent this expected downturn in retail sales likely will have an impact on the aftermarket in the form of more attention and competition.

The CEO of one of the major Class 8 truck manufacturers recently stated they are going to expect help with more parts sales profits to offset the decline in new vehicle sales. In another article, a truck dealer stated that his focus this year will be towards parts and service in reaction to the anticipated decline in new vehicle sales.

I do not think most truck dealer parts departments believe they have been slacking off the last several years. Most new truck dealer service departments have had an increase in make ready and warranty work related to the increase in retail sales, so they don’t likely feel they have been slacking off, either. Any good dealer organization strives to have its absorption rate at least above 100 percent where the parts and service departments cover all expenses.

In a recent survey, we ask parts distributors by channel who is their primary competitor. This includes truck dealers, independent parts distributors, engine distributors, automotive WDs and independent garages. They all say truck dealers are the primary competitor (except engine distributors — but truck dealers are second). This makes sense; we estimate truck dealers control 49 percent of parts sales in the parts aftermarket.

The challenge for those who compete against truck dealers (everybody) is there is now going to be more focus on the parts aftermarket by truck manufacturers and dealers. So, while dealer parts departments have not been slacking, it is likely they will have more programs and/or resources to address the aftermarket, which they may have wanted for years and now the market conditions justify the focus. Service sales, in particular, also will get more attention as more service sales equal more parts sales.

In addition, everybody who has ever worked for a truck dealership knows that no one at a dealership is immune to cutbacks or layoffs caused by new truck sales declines. The hits don’t just stay in the truck sales department so there is extra motivation to go the extra mile.

The flipside to this discussion would be that the independent aftermarket has had it easy for the last several years as truck dealers have not focused on the aftermarket.

I don’t think anyone on the independent side would agree with that statement.

What I have learned over the past 25-plus years is that all channels of the aftermarket have some very dedicated, hardworking and creative people and companies. The aftermarket offers opportunities for those on the OE side and the independent side.

The aftermarket is not a right, it’s an opportunity for those who want to fight the battles every day and come up with customer service and solutions that beat the competition. This year, the battles might just be a little more competitive.

John Blodgett has worked for MacKay & Company for more than 20 years and is currently vice president of sales and marketing, responsible for client contact for single- and multi-client projects. He can be reached at john.blodgett@mackayco.com.