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How to Predict Inventory Needs by Region

Learn what you can do to help predict your inventory needs.

Episode 125: If you sell heavy-duty parts, you know that predicting how much inventory you will need in each region is very difficult.  Get it right, and revenue will go up, get it wrong and you risk losing customers to competitors who have the inventory in stock. So, how can you predict how much inventory you need in each region?

In this episode, Mark Hazel, Associate Director for Commercial Vehicle Reporting from IHS Markit answers that question for us.  He has 10 years of diverse experience in the automotive industry, working across the supply chain.

His background includes pricing strategy experience with car-sharing start-ups, as well as forecasting and demand planning for light and heavy-duty automotive suppliers. Most recently, Mark was part of the aftermarket division at ZF (formerly Wabco) in product management for their air dryer management systems.

IHS Markit Logo. In this episode, they help us understand how to predict inventory needs by region.

To learn more, go to IHSMarkit.com.

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Complete Transcript of Episode:

Jamie Irvine:

You’re listening to The Heavy-Duty Parts Report. I’m your host, Jamie Irvine. And this is the show where you get expert advice about heavy-duty parts that keep trucks and trailers on the road longer while lowering cost per mile. If you sell heavy-duty parts, you know that predicting inventory is an important but difficult job, especially if you are a company that is trying to predict inventory for different regions. You get it right, and your revenue goes up. You get it wrong, and you risk losing customers because you don’t have the inventory at the right time. This is a challenge. So how do you predict how much inventory you’re going to need in each region? And this really applies to both manufacturing and parts distribution companies.

Well, my guest today is Mark Hazel. He’s the Associate Director for Commercial Vehicle Reporting from IHS Markit. So Mark’s the guy we want to talk to because he’s got 10 years of diverse experience in the automotive industry, working across the supply chain. His background includes pricing strategy experience with car sharing startups, as well as forecasting and demand planning for light and, this is what’s important to us, heavy-duty applications. So Mark recently worked for ZF or WABCO and he worked as a product management person for the air dryer management systems. So he got firsthand knowledge of what it’s like to be a manufacturer for heavy-duty parts and to struggle to predict inventory needs. So I’m really excited to have Mark on the show. Let’s bring him on now, Mark, welcome to The Heavy-Duty Parts Report.

All right. So what I’d like to really get into right away is I’d like for people to understand how the average manufacturing company or even parts distribution company, how have they been predicting their inventory needs when it comes to a specific region? Like what historically have they been doing?

Mark Hazel:

Absolutely. So most of these parts companies will rely on the OE to tell them their vehicle buyers. So they’ll always take a holistic approach and they just divide that number. Even we push that on down throughout the chain. So those suppliers will look to them to tell them what the vehicle population is. And therefore those OEs will have a good idea of what the failure rate is on specific parts. However, a lot of times, you know, if you’re a supplier trying to break into the market or you don’t have an established relationship with that OE, understanding that population may be very difficult.

Jamie Irvine:

So I think to some people who are listening to this, maybe you’re listening on TNC radio as a driver right now, or you’re listening on the podcast or watching on YouTube and you’re part of the heavy-duty parts industry, you kind of go under the assumption that these parts manufacturers, especially the ones that are larger tier one manufacturers, that they would have a more sophisticated approach, but that doesn’t seem to be the case. Why is it so important to have accurate predictions on inventory needs both at the manufacturing level and at the distribution level?

Mark Hazel:

I think the easy answer for all of those suppliers and distributors out there is it’s money. You know, it’s going to cost us money to make and store parts and no one wants to make parts that aren’t needed. Or on the flip side, you don’t have too much inventory. That’s kind of saturating the market but then you take money. And aside from that, reputation and satisfaction is such a huge part in the truck world. We look at that metric of downtime. So the minute that that truck goes down, that fleet, that customer, they’re losing money. So they want to be able to get to a reliable shop where they know right away that that truck is going to get fixed as soon as possible. And they’re back out on the road. If they can’t find it, they’re going out and they’re looking for someone else who has that part.

Jamie Irvine:

Well, I know as someone who’s sold parts and worked both at a manufacturer and also at parts distribution companies myself, I remember how difficult it was to make these predictions. I think of the last parts retailer that I worked for, we had all these Volvo parts that were up in our mezzanine and I was there for three and a half years so I did I think three or maybe four inventories. And I counted those parts and I swear the numbers hadn’t changed in the three and a half years I’d been there. So that’s an example of when you get it wrong, and you get the wrong parts in a specific region.

And really, I think what was driving that was the fact that our particular region wasn’t an urban center. And so we didn’t have a lot of the Volvo products in our area because our area was more rural and was more focused on industry. And so there were Mack trucks, but not Volvo. And there were other trucks in the oil fields and logging. And that’s a perfect example of what happens when you get it wrong, you get all this inventory and then what do you do with it?

Mark Hazel:

Anyway what we get that’s wrong we go back to that downtime. You know, that piece losing money. And however, they can get that part and get back on the road in the quickest fashion possible. And they’re even going to pay a premium. So if you are a distributor or dealer looking to have parts, this is crucial. You don’t want to be that person who has a wrong part or too many parts just sitting up there because they’re just going to go find someone else who has them.

Jamie Irvine:

Right. It’s like, yeah, I got lots of Volvo parts to sell you. And the guy says, well, I only have Kenworth and Peterbilt, so you can’t help me. That doesn’t help the fleet. Doesn’t help the parts reseller. It doesn’t even help the manufacturer because what ends up happening is those manufacturers who sold you the wrong parts, they end up getting RGAs later, you know, requests for return to get all that inventory to go back. And then that doesn’t help anybody. So this is an important part of getting this right so we’ve talked a little bit about the impact at every level of manufacturing, distribution, and fleet.

When you think of the current supply chain issues that are going on, and this is such a external thing that really no one was able to predict coming. I think this is also a once in a generation or once in a lifetime event, when you were working at manufacturers, was there ever any talk about preparing for supply chain disruption at the scale that it’s at today? I’m just curious about that.

Mark Hazel:

I can speak to, in previous life, the highest level, you know, playing that sophisticated, in terms of where we were looking at specific regions. So, you know, when a hurricane or like the tsunami hit certain regions, we would be on the look and see, okay, we know we have parts coming from the supplier that’s in Japan. And we now know that anything going to our facilities, you know, that was going to be coming off of that phone from Japan, you know, that’s going to be delayed. So you had insight to how you are going to be a factor down the road, but you know, like you said, this, what we’re going through now is just a once in a generation thing. It’s hard to plan for something like that.

Jamie Irvine:

I can see how, even though you’re looking at it from a global perspective, that’s a regional disruption. If you have like a tsunami in one area and you could always pull inventory from other places and with the situation that we’re in right now, it’s such a global phenomenon that it would be impossible to plan for. We’re going to take a quick break. I’m looking forward to talking to you more about this. We’ll be right back.

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And before the break, Mark and I were talking about what happens when you don’t get your inventory mix right. What’s the impact on the manufacturer, the distribution company, the fleet. I’d like to keep our conversation going Mark. And now I kind of want to shift to where you’re working now. Like we mentioned in the past, you’ve worked in various aspects of supply chain management, but now you’re working for a new company and I’d like to learn a little bit more about what IHS Markit actually does. So fill us in.

Mark Hazel:

At a 30-thousand-foot view, we help our clients make high-impact data-driven decisions with confidence. We are the leader in automotive and data insights, providing forecasts and binary services. We look at every single market in the world. We also look at it from the OE all the way down to your distributor or your supplier. We look at the value chain as well from product planning, marketing, sales, and the aftermarket area as well. So our customers will stand from major OE all the way down to your supplier, your distributor, obviously today, we’re looking at the commercial vehicle market. And so that’s what I’m responsible for is all of our reporting, the planning that goes into that.

So when we look at North American commercial vehicles, IHS takes every single VIN that is registered in your state, in your province in north America. And we have over 32 million commercial vehicles in our database and over 2 million fleet. So we break that down into new registration. So that way we can track trends. You know, I want to see a massive trend right now is electrification. So we’re able to see that trend of electrification. We track vehicles in operation. We’re able to tell you how many vehicles are operant. But you know, all of that said, we’re here today to talk about inventory. We have a module that we put onto that database for the aftermarket parts.

So this takes all of our vehicles in operation, takes us 32 million vehicles we have on the road. And we compare that with our expert insight on replacement demand for GVW three through eight. So we have a 12 part categories. So we’ll look at categories from electrical, engine, steering, suspension, tires, over 95 parts. You know, when you think about it, you stock it, it’s probably a part that we’re actually looking at. So because we look at every replacement rate at a VIN level, we don’t need a high level assumption that says, Hey, we think you need this many tires, we think you need this many air dryers. We’re taking that down to a VIN level, so we truly understand, because we know where that vehicle is registered. We know if it’s in Michigan, if it’s in Florida, we have that understanding.

Jamie Irvine:

So Mark what’s really changed to make this information now available? Was it just that the technology hadn’t gotten there yet, or is it now that something has changed where this VIN information is now available to a company that’s outside of the OE?

Mark Hazel:

Absolutely. So this is all information that we had for awhile, but what’s really driving this and what’s driving the need is like we can just look at the situation we’re in with our supply chain. So what we really want to be able to do with this is help customers understand that vehicle population. What is that vehicle being used for? And all of that information will give us accurate replacement rates and accurate part volumes. A great example of this is you look at that refuse truck hitting their brakes every time they stop in front of your house to pick up the trash. They’re going to go through more brakes and AC compressors than that guy that’s got the class 8 hauling from coast to coast. So understanding that and having all that information is absolutely crucial to stocking your parts.

Jamie Irvine:

So it’s not just total number of trucks, but it’s also what kinds of trucks are they and what are they doing. So you work for a manufacturer, how would a manufacturer use this solution in an ideal way to improve their prediction of inventory needs for their distributors?

Mark Hazel:

The majority of the OEs subscribe to our database that we have for commercial vehicles. So they look at those trends and see that population. By doing this, they understand get a better idea of industry. They get a better understanding of the parts demand as well.

Jamie Irvine:

Mark, let me ask you something, you mentioned OEs there, so we’re not talking about the truck OEs. They obviously know how many trucks they built. We’re talking about the parts manufacturers who then supply parts for the trucks after they’ve been manufactured. So oftentimes with the larger manufacturers, like WABCO that you work for, they have a OE division where they’re manufacturing parts directly for the truck manufacturers. And then they have an aftermarket division where they’re making parts available when those trucks need to have replacement parts put on. So when we say OE that’s what you meant by that right? That helps us to better understand. So manufacturers, once they understand the number of trucks by region, what would be the next step that they would do from there using this data?

Mark Hazel:

So we have a by region, we’re able to look at it and break it down even further, you know, city, state, zip code level, depending on what types of fleets are operating in those level, in those areas as well. So that, that was then back to the vocational aspect. Are you in an area that is very heavily involved in agriculture or are you in the area where you’ve got those long hauls going. So because of that, because of understanding where the vehicle is registered, we’re able to break that down into entirely different way.

Jamie Irvine:

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We’re back from our break. And before the break, we were talking about how IHS Markits software solution that is all about giving manufacturers and parts distribution companies the data they need to predict inventory. We were talking about how a manufacturer would use it. I’d like to shift gears a little bit. Mark, how would a large parts distribution company use your solution in order to help them to better support fleets who are the backbone of our industry and of our society?

Mark Hazel:

I think a lot of that is still goes back to that last example, too. So, you know, the way that we’re able to break it down by location, by region, that’s also going to give the people in that area who will have a better understanding of what fleets are coming in. You know, if you know that a fleet is very heavily in semi, you know Class 8, we can help you from that route as well, and really give you a deep, deep dive into the type of inventory you should be stocking just based off of our understanding of the market. You mentioned suppliers too.

So we mentioned that a few times. You know, whether distributor or supplier, you know, as a product manager, I was able to take that data and weigh that you know, I knew I was responsible for this market. I knew how many vehicles and I knew what the market should be. So therefore I can now take the IHS data, I understand that market share. So whether you’re a supplier or distributor, this can help you in growing your market share as well, because you’re able to see, okay, this is the actual market, here’s what I’m stocking, here’s my gap. Now let’s go after it.

Jamie Irvine:

It makes me think of that old saying, you can’t manage what you don’t measure. So if you don’t have a correct measurement, you’re not going to be able to manage it. You’re not going to have enough focus in the right areas. And you’re going to end up having a bunch of Volvo parts when there’s no Volvos in your store’s location. So we don’t want that to happen, not to knock Volvo. I mean there’s certain areas where there’s nothing but Volvos, but it just happened to be my particular situation back a few years ago, selling parts. I just remember that. So when, when you told me kind of the old way of doing things, the way that manufacturers have been doing it for a long time, I was kind of surprised. And what is the economic impact of that old way? And then we’ll talk a little bit about how your solution can move the needle financially for the companies that use this data.

Mark Hazel:

Probably for me, you know, in my previous life, it was finding percentages or educated guesses on what we think is going to happen based on the economy or previous sale or what business we were winning, which is all great. Those are obviously all very important parts that go into creating a forecast or understanding of your market. However, you know, replacement rates are a very complicated thing. So that’s really where our solution comes in. And because we understand, like we’ve given an example of the refuse trucks, that’s going to go through so many more brakes and more air compressors, that whole system. So if you are someone who your customer base is that long haul group, your inventory is going to be out at that level for a supplier or distributor that is really understanding your market and what’s going on. So it’s giving you that factual based approach of how many parts need to be replaced because of how we tie that replacement rate back.

Jamie Irvine:

So whether you’re a manufacturer trying to figure out how many parts to make, or you’re a distribution company trying to figure how many parts you need to stock and how much market share you actually have. What do listeners who would like to take a look at your solution, what would be their first step?

Mark Hazel:

We’re there for everyone, you know, supplier, distributor, manufacturer. So reach out to us on our website, you can reach out to me, we’ll get them in touch with an account manager. We can set them up to run them through a demo of what the Markit looks like, how I can help you. And then we can go from there.

Jamie Irvine:

You’ve been listening to The Heavy-Duty Parts Report. I’m your host, Jamie Irvine. And we’ve been speaking with Mark Hazel, Associate Director for Commercial Vehicle Reporting from IHS Markit. To learn more about IHS Markit, visit IHSmarkit.com. So that’s, I H S, Markit ,with an I.com, but don’t worry, links are in the show notes. If you’d like to just check it out there, you can click right through. Mark, thank you so much for being on The Heavy-Duty Parts Report. I really appreciate it.

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