Ice cream sells better in the summer and snow shovels are in greater demand during winter months. It’s pretty obvious that demand for products like these are affected by the season. Management understands the relevance of seasonality, plans for it, forecasts against it, and maintains inventory around it. However, seasonality is not as apparent in aftermarket organizations and many other industries so it is often overlooked. If businesses conduct a little research, though, they would find that seasonality does exist and, when properly identified and managed, can reap big rewards.
Aftermarket organizations often ignore seasonality when forecasting and planning inventory. It’s a complex issue with many obstacles that tend to obscure management’s view of the potential payoff. Here are just a few things that make it difficult:
- Little attention is given to the issue because the majority of parts, as well as the capital equipment they support, are not seasonally driven.
- When reviewed at the individual item level, there isn’t enough statistically significant information available for slow moving items in inventory to create a reliable seasonality index/curve. Hence, many organizations choose not to address the subject.
- Many organizations lack the tools and processes needed to successfully incorporate seasonality analysis into forecasting and inventory management.
Because of hurdles like these, management disregards the impact of seasonality and diverts time, effort and resources to other priorities within the organization.
What’s It Worth?
Uncovering and responding to seasonal patterns is like finding buried treasure! It allows companies to further optimize and right-size inventory, thereby reducing the risk and cost associated with excess stock while still ensuring the availability of critical parts.
That availability can lead to a tremendous boost in service level. Providing customers with the parts they need when they need them leads to highly-satisfied customers and increased sales via repeat business.
Think differently. Question and poke holes in the current approach to forecasting and inventory management. It will lead to some surprising revelations. Here are a few steps leaders can take to validate that seasonality does exist and to start a new conversation with management.
Begin with an analysis of product demand. But rather than approaching the analysis on an individual item level, choose a product group on which to focus. This is important because many individual parts do not have enough significant demand on a yearly basis to support detection of seasonality, especially when examined at a regional or dealer level. By grouping parts with similar seasonal characteristics, the analysis will be of much higher quality and clear patterns (rather than coincidences) will present themselves. This will be more useful when incorporating seasonality profiles into item forecasts. For example, thermostats, radiators and certain gaskets and filters might belong in one group. They are all connected to or support the heater.
Test and simulate different approaches when grouping parts. Plot findings in a way that makes it easy to see statistically-significant trends. A good software program that automates the testing and simulation process is vital to accurate and lucrative findings. Some parts may need to be added to a group and others deleted in order to optimize opportunity. Geographic dimensions also need to be considered. Sales of the same items from warehouses in different geographies with similar weather patterns/climates can be grouped together to further support trends.
Next, write a business case. Start by outlining the average stock and service levels that are currently maintained for the product group. Then create a scenario in which seasonality is considered. Compare the two. Take a look at how much stock is tied up in each scenario and how much it costs – considering not only capital expenses, but the impact on service and warehousing as well.
The business case should clearly support the fact that untapped potential does exist. Repeating the exercise for numerous seasonal product groups should prove the potential is exponential. This may be all some companies need to reconsider the impact of seasonality and begin taking steps to incorporate seasonality analysis into forecasting and inventory management processes.