It is no secret that the number of SKUs needed to effectively cover the consumer tire market has exploded over the last decade. Like a jungle, the dense growth seems to go on for miles and in all directions.
When you consider multiple speed and load ratings, P-metric, Euro metric, LT and high flotation sizes as well as the many available brands, original equipment and plus-sizing, the complexity can seem overwhelming. Many have fallen victim to the pitfalls of walking unprepared into this mess. If you are not careful, you can wind up with an unwieldy number of parts to manage, a bloated or confusing product screen and worse yet, slow moving or unmoving inventory tying up your cash.
Blame it on OE
How did this happen? Volumes can be written about the reasons behind the growth of unique sizes and SKUs in the tire industry, but in the interest of time this article will focus on the low-hanging fruit.
Original equipment affects to the greatest degree what most tire retailers and distributors will deal with in a day’s work. New sizes that are fitted to new vehicles and multiple tread designs and specifications of the same size and model tire are the biggest culprits. Over the last three decades, the number of unique sizes fitted to U.S. vehicles in a model year has nearly quadrupled. In 1983 there were 157 unique sizes, in 1993 there were 237, in 2003 there were 340 and in the 2012 model year — a whopping 588 unique sizes.
Micro cars like the Smart Fortwo and Mitsubishi i-MiEV introduced narrow, low profile 15-inch tire sizes like 145/65R15 72H and 155/60R15 74T into the market in the 2012 model year. Size 235/40ZR19 92 (Y) was introduced to the market in 2004 on an Aston Martin Volante, but Volkswagen fitted an H-rated version to the Beetle Turbo for 2012 and Lexus just introduced a V-rated version to the 2013 GS350. The Continental ContiProContact has five different 245/40R18 variants: 93H for Jaguar, 93H and 97H for Audi and 93V and 97V for Mercedes-Benz. The Michelin Latitude Tour HP has six different 255/55R18 variants: 105H for Acura, 105H and 105V for Mercedes-Benz, 109V N0 and N1 for Porsche and 109H Zero Pressure for BMW.
These are just a few examples of what has added to the complexity of the consumer tire market. But like all complex problems, the solution is best handled by breaking down the problem into smaller, manageable pieces. By focusing on a small piece of the jungle at a time and hacking away at the wild growth in a systematic way, a path will emerge. Along the way you will learn to use the terrain to your advantage, and over time you can feel confident that you are staying on the path and traveling in the right direction. Let’s get started taming this wild SKU proliferation and get on the path to choosing a product assortment that is optimal for your market and your business.
Research and review
An old television advertisement for a purveyor of men’s suits claimed that “An educated consumer is our best customer.” The owners believed that people who knew enough to recognize the quality of their garments would understand the value of doing business with them. This is true not only for consumers but also for inventory planners. The planners with the ability to understand which of the tires in this enormous selection are most beneficial to their businesses will understand the value of the complexity and how it can be put to work for them. It’s the process of education and the tools for education that will be our focus going forward.
The main steps in this educational process are research and review. An inventory planner will need to research a number of key areas to do a comprehensive analysis.
While conducting internal research, the key areas to review are: the current inventory system, historical sales trends, future projections and customer traffic or inbound calls. It is also beneficial to consult key sales employees regularly. In addition, there are a number of external resources that can be used to gain insights about new vehicle trends, regional vehicle registrations, tire industry trends, consumer behavior and demographics.
Revisiting your current inventory system is a great place to start. Do your ABC classifications still reflect the appropriate performance? Are there new items that you have added to your system that do not have an ABC rating? Do you have discontinued items that are still active in your system? After you have cleaned house a bit, it is time to research the items that will make up your new optimal product assortment.
Next you will want to review some external sources to get a clearer picture of where the market stands. Understanding the vehicle population in your area is an important part of inventory planning for a retailer and distributor. Vehicle registration data by ZIP code can help you narrow down the vehicles that are in your market so you can prepare your inventory accordingly. You can use your own customer information to find out the range of ZIP codes your customer base spans. Then, for instance, if you find out that 15% of the vehicles in your market area are Honda Accords, you might want to carry not only the correct sizes in your product screen, but also the correct original equipment tires as well. You also can use more general vehicle sales information over a period of time to create a big picture of vehicles you should be prepared to fit. Perennial top sellers like the Ford F-150 and Toyota Camry should always be on your watch list, but be mindful to search for vehicles that are new to the top sellers list, as they may soon visit your shop.
Another great source of information that can help guide your product assortment is original equipment fitment data. Whether you use the tire manufacturers’ data books or subscribe to a service that assembles them all in one database, nothing will give you a clearer picture of what tires and sizes you will need in the future (or perhaps right now). By looking back a year or two, you can get a pretty good idea of which tires will be coming into the first replenishment cycle. When utilized with the vehicle registration data, it creates a great one-two punch for helping to define new sizes and SKUs you will need going forward in your market. If you use a database that gives you not only the size but also the make and model of the OE tire, you can use this to your advantage as well.
If a vehicle is fitted with three-season tires, but you are a dealer in the Snowbelt, you may need to add an SKU in the all-season or winter categories. If the OE tire is a brand that you don’t carry, you need to decide if you want to add it or an aftermarket option in a brand that you favor. If you already stock an aftermarket version of that same manufacturer, model and size, you have to decide if you need both.
Staying ahead of the game
Now that you have assembled and studied the external information about what is needed in your market, you will need to compare that to what you currently sell and project to sell. Earlier, you cleaned house on the ABCs in your inventory (or whatever classification system you use), so it is now time to dig into the internal information: the numbers that drive your business, the customers who call or visit and the employees who interface with them.
Reviewing your sales history can be tricky depending on your system.
If you have been diligent about identifying items that were a special one-time purchase, purchased at a significant discount, purchased to replace a back order or associated with a promotion, you are way ahead of the game. Without the benefit of that perspective, interpreting your sales data becomes more of a chore. With or without that information though, you will still use the same process.
What you are looking for initially are anomalies: SKUs with spikes in sales, fast growth or SKUs with unusually low sales. You will need to determine if those growth items are because of promotions or price actions or because of legitimate demand. You will need to determine if SKUs spiked because the demand, price or promotion was limited, or because the items were never replenished. For slow or unmoving items, you will need to determine if they have dwindled because of a lengthy back order, were a special order that didn’t pan out or if you have had only one unit in stock for a few months. This process can be trying but is necessary to truly understand your sales history and inform your sales projections.
Traffic through your showroom or call center logs can be a tremendous source of information to help inventory planning. If you keep a detailed record of each customer and vehicle that you serve in your retail locations, you can use that information to further fine-tune your assortment, not to mention the obvious marketing benefits. Like the vehicle registration data, your traffic data narrows the search area to your active and hopefully repeat customers. If you see a lot of Toyota Tundras in one location and a lot of Volkswagen Jettas in another, you can plan accordingly. Likewise, by reviewing your inbound calls you can tell which customers are getting more or less active. If one account is the only source for ordering a certain SKU, and they haven’t called in six months, you might not need to carry that SKU anymore. If nothing else, it prompts a dialogue with the representative that handles the account to find out the situation. Which is a good lead-in to another great source of information for assortment planning: the sales staff.
Account reps, whether they are inside or outside, can be extremely helpful in assortment planning. By scheduling periodic interviews with the employees who interface with your customers, a wealth of information can be had. Are you selling more of an SKU because a competitor is out, or because a manufacturer you don’t distribute is back ordered on that size? Are your customers repeatedly requesting an SKU that you don’t stock? Are your customers asking about a new tread that you are undecided about stocking? Setting up a consistent dialogue between the planning and sales staff will allow the communication of inventory strategy and customer strategy to become part of your company culture.
Advanced inventory planning
Vehicle owner and consumer demographics can be the last piece of the puzzle for advanced inventory planners. By learning more about what drives a consumer to purchase, you can understand more completely what inventory is needed to meet the demands of that consumer. It is certainly beneficial when creating a complete inventory strategy. Demographics put all of the areas you’ve researched together. With a deep enough understanding of your customer, you can more easily decide which new treads are needed in your product screen, what new SKUs to add, what SKUs to discontinue and whether to carry the 245/40R18 93H, the 93V or both.
Completing all of these steps consistently will not be easy. You will have to be disciplined enough to create the time monthly, quarterly or annually to make this research a part of your inventory planning process. You might not have the funds available to purchase vehicle registration data, but you can source one of the many automotive websites that report vehicle sales. You may not be able to purchase a substantial original equipment database, but you can study the new “Tire Guide” when it comes out early in the year, and you can study the tire manufacturers’ data books and websites. You may not have kept a comprehensive record of special purchases or promotions in the past, but you can start. You may not have kept a comprehensive database of your store traffic and inbound calls, but you can start doing that as well. You may not schedule regular meetings with your sales staff, but you should. The most important thing is that you make the consistent effort to focus on your market and customer with the resources available to you.
If you commit to the research and commit to the process, you have taken a huge step toward effectively dealing with the complexity of today’s consumer tire market and making the wild SKU proliferation of the past decade work for you instead of against. Keep at it, and in time you won’t be just surviving in the jungle, you’ll be thriving.
Next time, we’ll talk about how to effectively implement all of that hard work into your new product plan. ■
Robert Abram has worked in the tire industry since 1992, most notably with Dealer Tire LLC and Yokohama Tire Corp.
Tire size proliferation at a glance
(domestic OE passenger tire segment)
Model year Unique sizes Top radial size
1983 157 P195/75R14
1993 237 P235/75R15
2003 340 P265/70R17
2012 588 P265/70R17
Source: MTD Facts Issues; “Tire Guide” database