Riding the data wave

News Lucas Deal August 15, 2013

Hollywood has made a fortune thrilling viewers with the idea of Artificial Intelligence.

From HAL 9000 to Skynet and The Matrix, “smart” computer technology has been a mainstay of science fiction for decades.

While none of those films featured the sentient, all-knowing truck parts distribution interface, the idea is not as far-fetched as you think. And unlike those technological advancements, a smart inventory system works to benefit, not minimize, its users.

Heavy-duty truck OEMs and suppliers are currently offering all-encompassing parts distribution ordering and inventory management systems in the aftermarket. Relying on data collection from sales and inventory turns, customer trends and user input, this technology — called electronic vendor-managed inventory (VMI) — works by analyzing as much information possible about a parts distributor’s operation then supplies the most accurate and effective inventory possible.

Available from vendors for the entire aftermarket and through truck OEMs for dealers, VMI can improve parts ordering and acquisition strategies, reduce parts obsolescence and maximize inventory turn rate.

For aftermarket facilities looking for another edge to help service customers, electronic VMI is an excellent tool.

“In the aftermarket it’s all about how quickly you can get a part to your customer and get him up and running,” says David Gerrard, senior vice president of distribution at Navistar. “[Electronic VMI] address the issue of uptime. It assures [an aftermarket business] has the parts it needs to get a customer back on the road.”

The biggest advantage provided by electronic VMI is the ability for vendors to use custom data analytics to perfect the inventory required by an aftermarket distributor.

Edward Kuo, director of sales, motor vehicles at Datalliance, says his company’s VMI software works by compiling as much sales data as possible for every component from a vendor that a distributor sells over time. From there, the program studies how the distributor’s sales and turn rates vary depending on a number of factors — including customer base, location, date, sales promotions and services offered.

This data allows the vendor to match the distributor with an ideal stock order for each component based on its turn and usage probability, Kuo says. The vendor then automatically orders and ships the components to the distributor from its parts distribution center.

“It really reduces the amount of time a distributor has to spend researching what they need for their inventory. It takes those calculations out of their hands,” he says, adding, “It allows them to focus on how they are going to sell their products; not on how many they need to stock.”

Michael Cancelliere, senior vice president and general manager of North American parts at Navistar, says his company’s VMI technology also analyzes a dealer’s customer base when new components are released, and then automatically ships the new parts so the dealer is stocked when the parts are requested.

Geared to help manage larger fleets, he says Navistar’s system looks at the truck sales histories and vehicle specs of fleets around a dealer’s location to predict how many new parts may be required.

“We are proactive to help our dealers with new inventory when we know it’s going to affect them,” Cancelliere says. “We can look at a fleet’s trucks and see what they might need and get it to [the dealer] when they will need it.”

Electronic VMI also minimizes parts obsolescence and helps improve inventory turns.

Cancelliere says Navistar has seen a considerable drop in parts obsolescence throughout its dealer network since its program debuted. He says the company now has the data necessary to predict parts that may drift into obsolescence and clear them from dealer shelves to make room for more necessary inventory.

“We have a provision in our software that will tell us, and the dealer, what parts aren’t turning and what should be returned,” he says. “You can still do that manually, but it would be so much more time consuming.”

That speed advantage also allows vendors and distributors to quickly identify fast-moving parts, or parts that fluctuate based on weather and climate.

If a dealer is selling one part three times a week in August but only averages three sales per month in September, electronic VMI will identify that trend instantaneously. It will then make sure to update the part quantity on the opening September stock order so the distributor isn’t sitting with extras through the fall.

“There’s no reason to stock extras if they aren’t going to sell,” Kuo says.

Doing that manually, by walking a parts warehouse or crunching numbers at desk, isn’t an effective use of anyone’s time, adds Cancelliere.

“I think the old way was tribal knowledge,” he says. “The parts manager just knew what to stock and what he needed every week. It worked, but it wasn’t exact.”

But removing the human element from inventory management is a tough step for most aftermarket businesses.

Some distributors who are successful independently managing their inventory see no reason to change, while others acknowledge room for improvement in their processes but are uncomfortable handing their inventory over to a vendor and a computer.

To ease that concern, Kuo says Datalliance teams with its heavy-duty vendors to teach distributors about how electronic VMI works, its benefits and its services before adding the process in a new facility.

“There has to be trust,” he says. “VMI vendors just want to help their distributors be profitable on their product lines, but some [distributors] need to see how” before agreeing to use the service.

Once that method is visible, Gerrard says many aftermarket businesses are quick to take advantage of the service. Using Navistar’s dealer inventory alliance (DIA) program is free to International dealers, and more than 95 percent are currently operating the system in their locations.

“In today’s environment it is really becoming required,” says Gerrard. “The typical dealer today is so functionally savvy in all area of their business. They see what [DIA] can do for them and know they need to have it.”

FleetPride started using Datalliance’s VMI software in 2008. Steve Fogolini, director of supply chain at FleetPride, says the technology has grown considerably since its introduction back then.

He says hard work and collaboration between both businesses made the system the effective tool it is today.

“Building a foundation for the relationship is critical to making it work,” Fogolini says. “It’s not just an additional task. It has to become part of your business.”

FleetPride has done that, and it is now reaping the benefits.

“Some of our major suppliers are using it and it’s working phenomenally for us,” he says.

And for distributors who still worry about handing over their inventory to a machine, not to worry. Kuo says Datalliance’s system still allows distributors and vendors to manually change parts orders when they see fit.

Navistar’s system works the same way.

“[Dealers] have the ability to tweak it based on their market and needs,” Cancelliere says.

VMI doesn’t eliminate human intuition; it just minimizes the need for it.

The customer “doesn’t have to worry about getting the correct quantity anymore,” says Kuo. If they truly feel a VMI stock order needs adjustments they can do so, but there’s no longer a need to spend hours agonizing over this week’s order when the computer can accurately complete it in minutes, he says.

That gives the distributor more time to sell the parts and work toward servicing its customers.

“It allows distributors to use technology to be more efficient and create a better inventory for their customers,” Kuo says. “It’s not for everybody, but it’s very good for a lot of businesses.”

It’s too good of a tool to be overlooked.

“I think it can add value throughout the entire industry,” says Fogolini.

Adds Gerrard: “Dealers today are scared to death of not being able to address a customer’s needs. This helps them deal with that in a very efficient and accurate way.”