The CFO of Advance Auto Parts is streamlining four discrete supply chains into a single one to assist the company’s margin expansion priorities.
By Russ Banham
CFO Jeff Shepherd saw the world as an audit and consulting partner at EY, before helping client company General Motors through its bankruptcy in 2009. The following year, Shepherd joined GM as assistant controller, rising to become controller of General Motors Europe. As someone who is admittedly not a “car guy,” these experiences were called upon over the past five years as CFO at Advance Auto Parts.
The publicly traded company is one of the largest aftermarket automotive parts provider in North America, operating 4,724 stores and 312 Worldpac branches and serving 1,329 independently owned Carquest stores. Carquest and Worldpac were acquired along with their parent company in 2013. Eight years earlier, Advance Auto Parts acquired Autopart International, “leaving us with four separate banners, each with its own discrete supply chain,” Shepherd said.
While most businesses today are coping with the prolonged supply chain crisis, Advance Auto Parts has it four times worse. The task before Shepherd was to develop a single world-class supply chain that would assist the company’s margin expansion priorities.
In early September, I spoke to Shepherd about his progress in integrating four supply chains into one.
RUSS BANHAM: Looking over the number of acquisitions in Advance Auto Part’s history, is it fair to assume that integrating the companies’ supply chain was kicked down the road?
Jeff Shepherd: I’d say that was the case following our 2014 acquisition of General Parts International, which was a really big deal, as it added 38 distribution centers plus the Carquest and Worldpac locations. But you’re right; they didn’t get integrated, leaving us with, and I’m not exaggerating, four of everything. Same thing from a finance perspective, we had four disparate systems.
Fast forward to an investor day we had in April of last year when we put out some margin expansion initiatives. We’d finished 2020 with operating margins a bit over 8% and said our plan was to grow them to between 10.5% and 12.5% by 2023. One initiative to do that involved our strategic sourcing. Another was getting those four supply chains down to two and eventually to one.
BANHAM: Why was it so difficult to integrate the various supply chains previously?
Shepherd: I’d compare it to the work my team and I led on the finance side. There, we had four disparate ERP systems when I got here in 2017 (as chief accounting officer). That’s not abnormal when you acquire; the difference here was a significant lack of investment in technology on our part at Advance and also at Carquest. We had a version of Peoplesoft, for instance, that Peoplesoft didn’t support anymore. It was that antiquated. It took me three seconds to realize the situation was unsustainable.
We’re still on the journey from four supply chains to two through the end of this year and looking to go from two to one in 2023.
What we did was look at the technology underpinning our finance systems to determine if there was a best-of-breed solution. Unfortunately, that was not the case. We needed to bring out a fifth system (from Oracle) which eventually would integrate to have a single process from procurement and a finance and accounting standpoint.
BANHAM: Where are you in this process at present?
Shepherd: From an ERP perspective, we now have one system across all banners. From a supply chain perspective, we have completed cross-banner replenishment, re-supplying our stores logically, based in part on the different parts going to different stores in a region. If there’s an Advance store in Washington D.C. and a Carquest store only 50 miles away, the same truck can make deliveries the same day. That didn’t happen before.
That said, we’re still on the journey from four supply chains to two through the end of this year and looking to go from two to one in 2023. We’re putting in a common warehouse management system and a common labor management system on top of that to introduce a standardized level of productivity.
BANHAM: Has the supply chain crisis slowed down progress?
Shepherd: When we measure our stock rate, the expected availability of parts in our stores, it has not dipped, despite the supply chain crisis. We’re no worse off than the broader industry and in some areas, we’re out in front of it. For example, we over-purchased items like rotors last year from the three places in China that make them, just in case. Best of all, we finished with a margin rate of 9.6% last year, so we’re making considerable progress towards 10.5% by 2023.
BANHAM: Looks like you were born in the Lansing area of Michigan, not exactly the Motor City but close. Not a car guy, really?
Shepherd: I wasn’t interested in cars or working on them over the weekend. But I somehow made my way to the industry and love it.
Russ Banham is a longtime contributor to CFO magazine.