Automotive Supply Chain: Forecasting Inventory In A Changing Climate

Welcome to Part 3 of our series Driving the Bumpy Road of Automotive Supply Chain.

In this series, Slimstock Canada will help you resolve the most common areas of concern in the automotive aftermarket supply chain, and provide you with in-depth coverage on how it is drastically changing.

The star of our series is Jack, a supply chain analyst at Universal Exports, a Canadian Automotive Aftermarket Distributor. Jack has more than 15 years of experience as a supply chain professional in the distribution industry. The last few years have been challenging yet inspiring due to widespread economic and regulatory changes, both foreign and domestic.

In our last article in this series we looked at how Jack handles product lifecycle management in the constantly shifting demands of the market. Today we’ll see how Jack’s job is affected by seasonality and the changing climate, and the forecasting and supply chain changes it requires.

It's the first Monday of May, and Jack is relieved. The winter felt long, and he was happy to put his heavy down jacket and bulky Timberland boots into the closet. He also removed the snow tires from his SUV and put them in the back of his garage. As he left for work, he had his annual vacation on the mind.

Winter was tough on Jack, and so was his boss since Universal Exports lost 15% of sales due to unavailability of over 400 SKU's. The unpredictability of the weather – sometimes freezing, sometimes brisk, sometimes blizzarding – made it difficult to keep the right inventory allocation at Universal Exports’ branch locations. Jack preferred summers, with their weeks on weeks of sunny days. He jokingly called himself the master of demand planning for summers, as over the past five years he had helped the company achieve over 98.5% service levels during the summer months.

Forecasting the Unpredictable

Just as Jack stepped out of the house with car keys in hand, he saw flurries falling onto his windscreen. His weather app popped up to alert him about a massive snowstorm expected in the next two hours. Jack left for work with fingers crossed, as neither he nor Universal Exports were ready for this. The lead times for importing Frost Guard, snow wipers and other winter-related supplies are over three months, and Jack knew that they were already running thin on supplies since April.

Supply chains are continuously at risk of disruption from changes in regulatory framework, market and technological factors and, more than ever, climate. An unexpected shift in any of these areas can put sales and working capital in jeopardy. Changes in weather patterns can cause a delay in lead times, but can also result in loss of sales if their impact on forecasting seasonality patterns are not accounted for during weather transition months.

Canada’s Transport Challenges

Keeping Canada supplied with the right seasonally appropriate items can be challenging. It is the world's second largest country by area, and the average distance between metropolitan cities is over 1,000 km. Additionally, close to 90% of Canadians live within 160 KM of the border with the U.S.A, but there are still opportunities in serving customers outside of that range. Jack knows all of this, however despite significant capital investments and a network of 30 branch locations, Universal Exports struggled last year to follow the demand pattern of its retailers.

The main cause of Jacks’ frustrations is seasonality. He tries to ensure that each location has enough snow shovels and antifreeze supplies just before winter begins. But there have been more cold spells both earlier and later in the year recently, making these items difficult to stock. If not forecasted correctly, an opportunity that should be fantastically profitable ends up as a cost against profits from surplus stock sitting idly on shelves.

Changing climates and changing demand forecasts

How much do you have to order to satisfy the exact demand for a one-off scenario? You know how much you sell on an average day, and you can overlay a seasonal demand pattern. However, when it comes to an exceptionally hot or cold day you have no historical sales data to go on. If summer comes later than expected and half of Canada decides to buy antifreeze instead of pressure washers and chamois cloths, car stores may as well throw their regular forecasts in the bin.

It is becoming increasingly difficult for automotive players to ensure the right products are stocked on the shelves: customer demand is becoming more erratic, the number of multi-channel retailers is increasing, and the life cycles of products are becoming shorter. As an inventory manager, you can no longer rely on just a static plan.

But what should you do to stay profitable despite the challenges of seasonality and a changing climate? Check out our guide “8 Top Tips to Rein in Seasonal Demand Fluctuations” to be better prepared for what’s coming as you drive the bumpy road of automotive supply chain.

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