AutoZone's Major Supply Chain Investments Redefining the Customer Experience

Telling a customer to wait till tomorrow for the part they need to get their broken down car back on the road is the worst possible outcome for an auto parts dealer. Leading auto parts retailers like AutoZone must be able to meet varied and unpredictable demand quickly and seamlessly or risk having potential sales walk out the door. Worst yet, disappointed customers might be driven to the competition and never return.  

To ensure that customers are able to get the part they need, when and where they need it, AutoZone implemented its "Yes! We're Got It" strategy last year and is currently working to fulfill this promise with significant investment it two key supply chain areas.

"This year is different and requires a different message because we have more ways to solve our customers' desires than ever before," said Bill Rhodes, chairman of the board, president and CEO, AutoZone on a recent earnings call with analysts. "This year is about ensuring our store AutoZoners are able to utilize the significantly enhanced availability and close the sale."

To make this strategy a reality AutoZone has invested in multiple frequency deliveries and what it calls mega hub stores to keep its locations stocked with the 23,000 SKUs the typical AutoZone store has on its shelves.

Over the past year AutoZone has rolled out multiple frequency deliveries at 1,000 additional stores, raising the total number of locations with this capability to 1,900. Traditionally, AutoZone's stores are replenished once a week, making out-of-stocks a common occurrence, especially on specialty parts that are only kept on-hand in quantities of one.

Under the new store replenishment system, stores are receiving deliveries from their distribution center at least three times a week, with the busiest locations receiving even more deliveries.

"Over the next 12 months, we expect to roll this increased frequency model to roughly an additional 1,000 stores," Rhodes said. We are targeting to have around 3,000 stores receiving this level of service by the end of fiscal 2017. We continue to model 15 to 20 basis points of gross margin headwind from this initiative in 2017."

The second major ongoing supply chain initiative is the mega hub store concept. The supersized stores carry up to 100,000 SKUs, which is double what the typical hub store stocks. The roll of the mega hubs is to supply the surrounding stores and other hub stores with inventory multiple times a day and on an overnight basis.

"The mega hubs continue to outperform our expectations," Rhodes said. "They are doing really, really well. We have got 11 of them now. We will hopefully open more than a handful this year and are proceeding very well with that."

So far in the early going the two enhancements are increasing sales by $1,000 to $1,500 per store, per week. With the goal of having 3,000 stores on the new increased frequency model by the end of fiscal 2017 the initiates have the ability the greatly affect the bottom line.  
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