SmartForecasts Spurs Sales and Operations Planning Success at Prestolite Electric

SmartForecasts helps reduce inventory by 24% and increase fill rates to 95%

Prestolite Electric, with headquarters in Plymouth, Michigan, manufactures starter motors and alternators for heavy duty vehicles. Its products are sold to original equipment manufacturers (OEM) and also as aftermarket service parts for nearly any non-automotive engine, including engines for agricultural, marine, military, class 6, 7, & 8 trucks, and other industrial equipment. Prestolite has a direct sales channel supporting about 100 OEM customers, while aftermarket parts are sold via Prestolite’s international network of almost 1000 parts distributors spanning 55 countries.

Prestolite has a manufacturing facility in Arcade, New York, and a major distribution center in Florence, Kentucky, which manages and stocks 4000 product items. The company, which employs approximately 2000 people worldwide, also has operations in the UK, Argentina, and China.

The Challenge
The original forecasting and planning process at Prestolite involved a junior planner in New York who produced demand forecasts using Excel spreadsheets and basic moving average methods. The forecasts and Excel charts were then sent to the inventory planning team in the Kentucky distribution center for analysis and implementation.

Because the inventory team had over 100 years of experience with Prestolite, the planning process benefited from their deep institutional knowledge. However, there were two significant problems with this approach to demand planning. First, there was no formal ownership of the forecast, and this could lead to finger-pointing when the forecasts did not closely approximate actual demand. Second, safety stock and inventory levels were produced using ad hoc "rules of thumb", and this often resulted in incorrectly estimated, unbalanced inventories.

According to Joe Pattacciato, Director of Supply Chain at Prestolite, "We needed a company owned forecast that had buy-in from all departments and let us understand the precise financial tradeoffs between desired service levels and inventory stocking requirements. With this type of forecast, we could deploy our inventory resources more cost-effectively and hopefully, improve customer service at the same time."

The Solution
In 2006, two events occurred that acted as catalysts for change in Prestolite’s supply chain planning process. First, the group of veterans managing the forecasting process was scheduled to retire soon, and, second, the company hired a new President and CEO, Russ Ford. Because of these events, Prestolite would take steps over the ensuing two years to launch a new sales and operations planning (S&OP) process that has helped the company weather the recent economic downturn, and also position it for growth in the post-recessionary recovery.

Since Russ Ford had previously been involved in supply chain operations, he realized that a number of changes were necessary in Prestolite’s planning process. An important part of those changes involved finding a demand forecasting and planning system that could help the company transition to a more formal planning process, which Ford hoped would help reduce inventory and its associated costs. He also tapped an experienced Prestolite employee, Joe Pattacciato, to become Director of Supply Chain and lead the transitional effort. This internal promotion proved to be a key to achieving the president’s goals.

Prestolite set about evaluating several forecasting and planning systems. Part of the evaluation process involved an accuracy test of demand forecasts and inventory recommendations based on the company’s demand history. When compared to results provided by a number of competing solutions, Smart Software’s industry-leading demand planning and forecasting system, SmartForecasts®, demonstrated significantly greater accuracy and required less safety stock to achieve the same service level. Another important differentiator was its ability to integrate directly with the company’s existing IT Infrastructure, which included an internally developed ERP system running on an Oracle database.

With SmartForecasts installed by mid-2007, Pattacciato started making changes in Prestolite’s planning process by bringing together stakeholders from various departments in the company. This multi-disciplinary planning team included staff members from production, inventory planning, OEM and aftermarket sales, and customer service. The combination of team members from across the company and a leader they trusted was critical to the success of the project. To get off on the right foot and maximize the company’s value from SmartForecasts, Pattacciato also invested in product training and business process consulting from Smart Software.

SmartForecasts now serves as the foundation of Prestolite’s S&OP process, producing accurate, more timely demand forecasts that the planning team can evaluate before a company (i.e., consensus) forecast is created. For all A and B level parts—those parts considered important because of sales volume or inventory value, the planning team can look at each part’s SmartForecasts forecast and safety stock recommendation, recent sales levels, and feedback from the sales force before arriving at a company forecast. This result plus information on what’s currently in stock helps the team make better, more cost-effective decisions for inventory planning.

An extra bonus in using SmartForecasts has been the improvement in the quality of information provided to Prestolite’s distribution facility in Kentucky when it needs to plan and run special product promotions. Planners at the facility make good use of SmartForecasts’ unique promotion modeling features to systematically evaluate the effects of past specials on sales and project sales for upcoming specials. These results provide reliable, statistically-based estimates of future demand based on past promotional experience, and this helps insure that proper stocking levels are maintained to cover the demand.

The Results
SmartForecasts has become the centerpiece of a S&OP process at Prestolite that is efficient, reliable, and objective. This new planning process has facilitated buy-in across the company, and also helped to improve communications between the company’s New York manufacturing facility and its Kentucky-based distribution operations. "When everyone’s involved," said Joe Pattacciato, "finger-pointing ends, everybody has responsibility, and the forecast that’s adopted becomes a company owned forecast."

Since implementing SmartForecasts and its new supply chain planning process, Prestolite has achieved some impressive results. The company reduced its standing inventory by 24% while simultaneously improving fill rates and service levels, eliminating obsolete inventory, and making needed investments in the critical A and B parts.

Probably the greatest impact has been felt in Prestolite’s aftermarket parts business. Because of seasonal swings and promotion-driven sales, this part of the company’s business has a greater degree of uncertainty than its OEM business. SmartForecasts has enabled Prestolite to better understand the effects of seasonality and promotions on product demand and to do a better job of planning for them. Today the company’s aftermarket business has achieved a 95% fill rate― a marked improvement over the 80% fill rates common before the implementation of the S&OP planning process.

"In our aftermarket business, if you don’t have a part in stock, the customer will go elsewhere," claims Pattacciato. "In the S&OP process, SmartForecasts biggest help has been in forecasting aftermarket demand. This has helped us allocate our inventory resources more effectively and realize significant cost savings. With these savings, we’ve been able to reinvest in additional parts inventory where it’s needed― a major factor in increasing the fill rates of our A and B level parts and improving customer service."

Finally, an unexpected benefit of using SmartForecasts and implementing the S&OP process happened in late 2009. Despite a tough economic climate, Prestolite’s better balanced inventories led to improved customer service levels and an increase in cash flow sufficient to enable the company to make strategic investments it had previously postponed. And, ultimately, in a year of otherwise challenging economic conditions, the operational improvements helped this company land a major refinancing that positions it well for growth in the future.

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