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Chain reaction: Changes in inventory management bode well for dealer supply

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Chain reaction: Changes in inventory management bode well for dealer supply

Any changes in inventory management directly affect profitability along the tire supply chain, from manufacturer to distributor to retailer.

To manufacturers, they affect fill rates. At its 2004 Dealer Conference in February, Goodyear Tire & Rubber Co. announced a new stocking strategy designed to address its fill-rate problems.

"Historically, brand and product line have been the determinative factor where we stock product," said Jack Winterton, vice president of replacement sales for Goodyear's North American Tire operations. "This year, sales volume by sku will be the fundamental driver that determines where we stock our product."

To tire wholesalers, inventory management is even more crucial to their success. "Inventory management is more important today for the retailer and the distributor than at any point in the history of the tire industry," says Dan Brown, senior vice president of procurement for American Tire Distributors.

There are a number of recent, interrelated changes in the manufacturing sector that complicate inventory management efforts today, he says.

* In the last two years, manufacturers have moved to free up capital dollars invested in inventory, resulting in lower levels of inventory.

* Manufacturers are maintaining less reserve inventory or safety stock than they had traditionally carried.

* Manufacturers are moving closer to just-in-time production.

* Manufacturers are now globally sourced, managing their production on a worldwide basis. "Sizes within the same style might be produced in several different factories, located in different countries around the world," says Brown. "As a result, manufacturers cannot respond as quickly to inventory shortages or spike demands."

* Tire and wheel styles and sizes continue to proliferate. "The life cycle of wheels is much shorter and the product is more fashionable than ever before."

The volume of imports flowing into the domestic replacement market is increasing, says Brown. "Importing by container loads presents other challenges to achieving inventory turn objectives. It requires much longer lead times, and limits the number of different sizes that can be loaded onto a single container."

Target Tire Inc. recently implemented a new "locator system" for its warehouses. "Before instituting the system, our warehouses were organized by brand, by style of tire, by size," says Randy Arthur, the system's architect. Now tires are assigned to individual pallets, making them easier to track.

"The system allows us to put our fastest moving products near our shipping docks, which significantly improves warehouse efficiency. The vast majority of our warehouse activity now happens in the front third of our warehouses."

At the recent 2004 Target Tire Dealer Meeting in Charlotte, N.C., independent tire dealers sounded off on how reducing their consumer tire inventory affected the way they do business.

One dealer, Rich Hoffman, president of Hoffman Tire & Alignment Inc. in Fayetteville, Ga., added a service bay to his shop after shaving 15% off his inventory last year. Another used the extra space to get into truck tires.

Craig Chrisman, owner of Westgate Tire, a division of Chrisman Enterprises Inc., in Newport, Tenn., says he tries to keep his inventory as low as possible in part because the TREAD (Transportation Recall Enhancement, Accountability and Documentation) Act scares him. "The TREAD Act (is) in the back of my mind. If (the government mandates) expiration dates you will want to get (the tires) in and out as soon as possible. That will help everyone -- the manufacturer, the distributor and myself."

Not all dealers look at reducing inventory. "It's all predicated on price," says Burk Hershey Jr., president of Hershey Tire Co. Inc. in Staunton, Va. "If I can bring in a cost-effective amount of inventory, then I will increase it.

"The interest rates are a big help right now. You can over do it and if you have a good line of credit, the savings will easily pay for the interest costs."

When asked, "Is your inventory up, down or the same as it was five years ago?" dealers at the Target Tire dealer meeting answered different ways for different reasons. In addition to Target Tire, they listed a number of other distributors through which they buy, including American Tire Distributors, Carroll Tire Co. (a subsidiary of TBC Corp.), Parrish Tire Co. and Black's Tire Service. Some of them also were members of the American Car Care Centers, MAST (Michelin Americas Small Tires) Alliance and/or Bridgestone/Firestone TireStarz dealer networks.

Name: Freeman Todd Jr.

Title: Vice president

Dealership: Main Street Car Care

Location: Conway, S.C.

No. of stores: 1

Inventory five years ago: 300-500

Inventory today: Close to 1,000

Why the increase? "The number of tire sizes that are out there. There are a number of name brands that they want."

Name: Larry Fulmer

Title: Owner/president

Dealership: Augusta Tire & Wheel Inc.

Location: Augusta, Ga.

No. of stores: 1

Inventory five years ago: 1,500

Inventory today: 1,000

Why the decrease? "You've got availability. I've got American Tire Distributors five minutes from me, Carroll Tire 10 minutes away, and Target Tire delivers every day. I buy a majority of my tires from Target."

Name: Richard Wasielewski

Title: Manager

Dealership: Midway Tire & Battery

Location: Hampstead, N.C.

No. of stores: 1

Inventory five years ago: 1,800

Inventory today: 2,400

Why the increase? "Usually because where we are located, nothing is open on Saturdays and we do a lot of business on Saturdays. We have to have the tire on hand or they'll go 30 miles into Wilmington (N.C.)."

Name: Rich Hoffman

Title: President

Dealership: Hoffman Tire & Alignment Inc.

Location: Fayetteville, Ga.

No. of stores: 1

Inventory five years ago: 800

Inventory today: 700

Why the decrease? "Five years ago, inventory was harder to get. With the delivery systems today and inventory fill rates today, you don't have to carry as much. I've cut inventory by $25,000 this past year.... Nobody stocks your hard-to-find stuff -- you can get it overnight. Everybody used to stock it because they were afraid they were going to lose a sale."

Name: Tim Bridges

Title: Owner

Dealership: Greensboro Discount Tire & Auto Service Centers

Location: Greensboro, N.C.

No. of stores: 1

Inventory five years ago: 3,000

Inventory today: 1,500

Why the decrease? "Wholesale delivery systems -- we've got two and three times a day delivery."

Name: Burk Hershey Jr.

Title: President

Dealership: Hershey Tire Co. Inc.

Location: Staunton, Va.

No. of stores: 1

Inventory five years ago: 1,500

Inventory today: 1,500

Why the same? "Years ago, we might sell 40 units of a popular size. Now there might be eight, and the other 32 sizes are (split) between other sizes. It's sort of a shifting in and shifting out."

Name: Craig Chrisman

Title: Owner

Dealership: Westgate Tire, a division of Chrisman Enterprises Inc.

Location: Newport, Tenn.

No. of stores: 1

Inventory five years ago: 800

Inventory today: 1,000

Why the increase? "I'm trying to keep the inventory as low as possible. With Target we have daily delivery. There are so many tire sizes coming out on new vehicles that we can't keep everything. If I did, I'd probably have 2,500 tires at least, maybe more."

Name: Kent Cooke

Title: Owner

Dealership: Albemarle Tire & Retreading Co. Inc.

Location: Albemarle, N.C.

No. of stores: 1

Inventory five years ago: 1,000

Inventory today: 1,200

Why the increase? "Different sizes, the business built up a little bit and you have a lot more low profiles. We try to keep a sample of different tread designs. For common tire sizes (like the P225/60R16), you'll keep five or six different tires."

Name: Worley Massey

Title: Owner

Dealership: Wake Tire & Services Inc.

Location: Wake Forest, N.C.

No. of stores: 1

Inventory five years ago: 2,000

Inventory today: 700-800

Why the decrease? "Because (Target) opened a warehouse in Durham and they deliver to me twice a day. Plus, look at the number of sizes. I used to stock almost everything."

Name: Don Carpenter

Title: Owner/president

Dealership: Carpenter Tire Inc.

Location: Lynchburg, Va.

No. of stores: 2

Inventory four years ago: 1,000

Inventory today: 1,500-2,000

Why the increase? "The buying opportunities like this (as part of Target's annual dealer meeting, a "sell-a-thon" is held). Manufacturers put out different deals at different times. Overstocked suppliers make deals."

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