Having too much of something is usually a good thing, except if you work in manufacturing.
Conversely, having too little is even worse.
Striking the right balance between having enough inventory to meet customer demand and minimizing excess stock is essential for running an efficient and cash-flow positive operation. We’ll explore how leveraging data insights and forecasting techniques can empower automotive manufacturers to run lean operations, avoiding the pitfalls of excess or insufficient inventory.
In our example, we examined data related to a company’s inventory of vehicle engines. To accurately determine how many engines to manufacture, we began by analyzing the actual demand for vehicle engine sales from the company. Engines are quite expensive to make and somewhat large, so having too many or too few can quickly become problematic.
We gathered the sales data from the past five years and broke it down by quarter. With Minitab, we decided to visualize our data in two different ways. The first being by total number of sales made in each quarter, and the second being the average number of sales by quarter to see if there was a clear seasonal difference. Here are the graphs we generated using graph builder:
The overall sales data showed a clear upward trend in the number of total sales, indicating year-over-year demand growth and opportunities for more revenue.
The second graph demonstrated a clear seasonal demand pattern; demand for the engines was much higher in Q2 and Q4. Demand tended to be lowest in Q1. This seasonality was critical to plan for the upcoming years.
After analyzing the data, leadership wanted to know if they could reliably forecast both YoY and seasonal demand. To achieve this, we employed time series with decomposition, found within the “Stat” menu on Minitab Statistical Software.
We were able to visualize the overall trend while also forecasting seasonal demand for the next three years:
We also gained insight into the percent variation and were able to analyze the seasonal indices. The time series analysis showed a clear upward trend for overall sales with seasonal spikes in the springtime and autumn. We were able to project sales three years into the future, with an estimated 1645 engines being sold in Q4 of 2026. This knowledge enabled proactive preparation and a data-driven idea of how many engines the company would need to produce over the coming quarters and years. Additionally, with a MAPE of 0.62, the team could be confident that the trend shown by this projection could be trusted.
Running a lean operation, characterized by minimal excess inventory and optimized inventory turnover, offers numerous benefits for automotive manufacturers. By maintaining lean inventory levels, manufacturers can minimize carrying costs, reduce the risk of obsolescence, and improve cash flow. Moreover, lean operations enable manufacturers to respond quickly to changes in market demand, enhancing agility and competitiveness in the industry.
On the flip side, the consequences of excess or insufficient inventory can be detrimental. Excess inventory ties up valuable resources, leading to increased storage costs and the risk of inventory write-offs. Conversely, insufficient inventory can result in missed sales opportunities, delayed order fulfillment, and ultimately, dissatisfied customers. Striking the right balance is important for mitigating these risks and maximizing operational efficiency. That’s why it’s so important to ensure that you have relevant data so you can make the right calls in these situations.
Leveraging data insights and forecasting techniques is essential for optimizing inventory management in the automotive industry. By understanding sales patterns, forecasting future demand, and embracing lean operations, manufacturers can effectively navigate the complexities of inventory management and drive sustainable growth. And, as companies generate more data, analyses can be quickly rerun to account for unforeseen variables, such as a recession or surging economy.
As automotive manufacturers strive to maintain a competitive edge, harnessing the power of data-driven insights will be vital for success.