Supply chain secrets: With truck tire inventory, the best defense is a good offense
If commercial tire dealers can agree on one thing, it’s that truck tire supply chain management is far from being an exact science.
The challenge becomes that much greater when you go from a relative scarcity of supply, like the market experienced last year, to a situation in which there are plenty of units to go around, such as now.
How do you ensure a steady flow of product, which translates into a steady flow of cash? Some dealers use incentive programs to keep their employees selling. Others consult both their suppliers and customers to devise a forecast they hope is accurate. Many track their existing stock carefully while looking at past trends.
CTD recently spoke with decision-makers at four prominent regional commercial tire dealerships to get their thoughts on truck tire supply chain management. Here are their secrets:
Ron Bennett, CEO and president, Service Tire Truck Centers (STTC), Bethlehem, Pa.: “Part of our managers’ bonus is predicated on eight turns a year. It gives everybody the desire to turn what you buy so we’re not overstocked. Then at the beginning of the year at corporate we negotiate pricing with all our vendors so we don’t have to buy tons of stuff. The only time we buy trailer loads is when there’s a real special deal. When there are big deals, we buy heavy. If there aren’t, then it’s at our normal negotiated price.”
What happens when you buy too heavy? “Well, we did that last year… what you end up doing is dumping the stuff. You need the cash flow.”
It wasn’t easy to dump the extra stock, says Bennett. “We ended up selling some at cost. We were heavily overloaded with inventory for the first four months of the year.”
However, STTC’s truck tire levels are back to normal. “It took us through July to get back to where we had to be.
“We have a good mix of customers. The last thing you want to do is tie yourself up big-time in big fleets because there’s no money, there’s no gross profit. You don’t want any more than 40% of your business to be national accounts.”
Pete Glesing, director of commercial development, Best-One Tire & Service, Monroe, Ind.: “I’m not sure there’s one magic secret. What comes into play are our manufacturers and what their supply looks like. If supply is tight, it’s incumbent upon us to buy what our fleet customers need. We don’t want to be out of product. If supply is thin, we try to purchase as much as we can based on what our fleet customers need.
“We look at historic inventory levels. We look at our max levels and our minimum levels. We also look to our large fleets and ask them questions: Do they have new equipment coming on? Are they using older equipment? That’s a big part of the process.
“The manufacturing side is somewhat out of your control. You do the best you can with the information they give you and then plan accordingly.”
Glesing says Best-One’s truck tire inventory levels have been “spotty” this year. “We’ve seen spikes and there were times we kind of scrambled a bit, depending on manufacturer, tire size and tread design.
“Of course, you wouldn’t like to buy more than it seems you’ll need so you don’t tie up your cash in inventory. But if you’re told a particular tire or size will be short, you say, ‘Maybe I should hedge my bets.’”
John Snider, CEO and president, Snider Tire Co., Greensboro, N.C.: “We carry multiple tire lines. Managing those multiple lines and keeping our inventory turns to a level we think is appropriate is a challenge.
“Our big issue is trying to have enough inventory in stock to meet the demand of our customers and also balancing that with not having obsolete or slow-moving inventory that ties up our cash and creates space issues. It’s sort of a double-edged sword; you want to have enough so when the phone rings and you have an opportunity to sell some tires, you have them in stock but not so many that you end up tying up your capital.
“Part of it is forecasting. We’ve been involved with one of our large suppliers in a collaborative forecasting project for about a year that has been beneficial. We’ve brought it within 90% accuracy. That’s good for both sides, particularly last year when product was short. It enabled them to anticipate our needs and be a better supplier to us. But it’s very difficult, particularly if you have multiple locations and a broad customer base.”
Snider Tire has commercial tire locations in eight states but does business in 30 states. “A lot of things impact inventory levels. For one, the marketing programs of suppliers sometimes dictate that you need to buy 100 of something in order to get 50 at a favorable price.
“There are a lot of things that go into it. In a perfect world, I’d like to have a central warehouse where we brought everything in and redistributed it, but unfortunately with the cost of transportation, it’s prohibitive for us to do that.”
Critical to inventory management “is having managers who are watching (levels) very closely, making sure they don’t have things in their inventory that shouldn’t be there, and when they do, they have a plan to get them transferred or sold. It sounds simple but it’s not that simple.
“The purchasing patterns of some of our customers are pretty irregular. With your big fleet customers, of which we have a fair number, it’s much easier to predict their needs than our smaller, local customers.
“Our managers have guidelines they work with and we count on them to make the decisions. A lot of decisions have to be subjective rather than objective. There has to be some gut instinct in some of those decisions.”
Kevin Haddox, (“We don’t have titles,” says Haddox.), Southern Tire Mart, Columbia, Miss.: “We’re always looking at tires that aren’t moving. That’s probably the biggest thing we do. If a tire has been in your warehouse for 45 days to 60 days, it’s now on your books; it’s gone from being a tire to a dollar.
“Our managers can run movement reports daily if they want to. Most guys will look at reports a minimum of once a month, maybe more often. It seems to be a good measurement for us.
“Of course, you can play games with (stock). You can transfer a tire from one location to another. We don’t do that. But you can’t make money by having money sitting in your warehouse. You have to sell your way out of it.”
Product phase-ins and changeovers can contribute to excess inventory, according to Haddox. “For instance, Bridgestone had the R250 (medium truck tire) and then came out with the R260. We wound up having two SKUs in inventory. We try to work with our customers so we don’t keep (multiple SKUs).”
STTC’s Bennett says successful supply chain management also depends upon “not getting caught up with the manufacturers and the hype to buy at the end of the quarter and the end of the year. If you can’t sell the stuff and make a profit, why load up? How good of a deal is it? The manufacturer is concerned with selling it to you, not what you’re doing with it.”
More units to go around?: Buy intelligently, says Snider
Twelve months ago, replacement medium truck tires were in shorter supply than usual. This year, many dealers report the situation has been reversed, partially because so many trucks were bought last year to beat new Environmental Protection Agency engine emissions standards.
“I think the manufacturers are certainly sitting on more units,” says John Snider, CEO and president of Greensboro, N.C.-based Snider Tire Co. “We have to manage our inventory levels to our level of business. The manufacturers are trying to do the same thing. I think that’s one of the reasons, particularly with larger dealers, there is going to have to be some kind of collaborative forecasting agreement between the dealer and manufacturer.
“The manufacturers knew this was coming and I’m sure they tried to manage their production to what they thought the market was going to do. It certainly hasn’t been unusual… as far as programs to try to blow tires out of the warehouse. The market is what the market is. You can’t make the market grow.”