1.1 Supply Chain Management & Strategic Planning Supply Chain … · 1.1 Supply Chain Management & Strategic Planning Supply Chain Evolution – The Supercheap Auto Group Story Peter

1.1 Supply Chain Management &

Strategic Planning

Supply Chain Evolution –

The Supercheap Auto Group Story

Peter Birtles

Managing Director

Supercheap Auto Group

Carter McNabb

Partner

GRA Pty Ltd

Name of presenter here Title of presentation

Agenda

• Group Overview

• Supply Chain Evolution

• Key Observations


Group Overview


History

1974 First shop in Brisbane

1993 7 SCA stores in South East Queensland

2000 50 SCA stores

2002 100 SCA stores

2003 Marlows acquisition – conversion to SCASCA launches in NZ

2004 Public listing on ASX200 SCA stores

2005 BCF launched

2008 Goldcross acquired


• The leading retailer of auto parts and accessories across Australia and New Zealand

• Convenience retailer focusing on value and range

• 255 stores today

• The leading retailer of boating, camping and fishing products and accessories across Australia

• Destination retailer focusing on range and service/value

• 59 stores today


• The largest specialty retailer of bicycles, parts and accessories across Australia

• Destination retailer focusing on range and experience

• 18 stores today

• Group services provides Logistics, Finance, IST, Property, Risk and HR Management support to the retail businesses

• 5 Distribution centres in Brisbane, Melbourne, Perth and Auckland

• Overseas sourcing office in Hangzhou, China

GROUP SERVICES


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Supply Chain Evolution


Pre 2001

BRISBANE‘SHED’

DOMESTICSUPPLIERS

IMPORTSUPPLIERS(AGENTS)

INDENTSUPPLIERS


Operational Objectives

• Support new store roll out

• Efficient centralised replenishment

• Support developing import program

Key Processes

• Receipt, store, stage and pick

• Some direct to store

• Max Min replenishment

Major Systems

• Point solutions

• No ERP or WMS

• Paper based picking

Key Challenges

• Continually outgrowing infrastructure

• Limited performance measurement

• High cost of operation

• Reactive not proactive

Pre 2001


2001 to 2003 : Development Initiatives

Infrastructure

• 15,000m2 National DC

• National logistics provider appointed

Process Development

• Open to Buy management

• Demand replenishment planning

• RF picking

Systems Development

• Manhattan PkMS

• SAP R/3

People Development

• Recruited expertise

• Systems training


BRISBANE‘DC’

DOMESTICSUPPLIERS


INDENTSUPPLIERS

2001 to 2003 : One Order, One Drop, One Invoice, One Payment




• Support 120 stores

• Reduce out of stocks

• Reduce logistics costs as % of sales

Key Processes Introduced

• Demand replenishment planning

• Monthly sales and operations planning

Major Systems

• Manhattan PkMS

• SAP R/3

Key Challenges

• National store expansion

• Variable performance

• Limited team work

• High level of frustration

• SKU profile variability

2001 to 2003 : One Order, One Drop, One Invoice, One Payment



Infrastructure

• DC in Perth

• DC in Auckland

• Overflow DCs in Brisbane

• Conveyor pick systems

Process Development

• Store level demand forecasting and inventory planning

• Performance management

• Daily Weekly routines

Systems Development

• GAINS

People Development

• Role coaching

• Systems training

• Replenishment and re-ordering roles move to Merchandising

• Merchandise operations planning


BRISBANEDC

DOMESTICSUPPLIERS


INDENTSUPPLIERS

2003 to 2005 : Project FOSIL : Focus on Supply, Inventory and Logistics

PERTHDC

NEW ZEALANDDC


2003 to 2005 : Project FOSIL : Focus on Supply, Inventory and Logistics



• Support network across 2 countries

• Reduce out of stocks

• Reduce inventory per store



• Store based demand replenishment planning

• Weekly sales and operations planning

• Performance analysis

Major Systems

• Manhattan PkMS

• SAP R/3

• GAINS

Key Challenges

• Variable performance

• Cross functional solutions

• Capacity for multi brand growth and efficiency



Infrastructure

• DC in Melbourne

• BCF DC in Brisbane

• Exit overflow DCs in Brisbane

• MHE and Conveyor systems

Process Development

• Multi brand supply chain solutions

• Supply Chain Methods

• Inventory Analysis

• EDI

• Master Data Management

Systems Development

• PkMS upgrade

• SAP upgrade

• GAINS enhancements

People Development

• Strategic focus

• Investment in capability development

• Role coaching

• Cross functional team working

• Performance management


2006 to 2009 : Multi Brand - Multi DC

BRISBANEDC

DOMESTICSUPPLIERS


INDENTSUPPLIERS

NT

PERTHDC

NEW ZEALANDDC

DIRECTIMPORTS



MELBOURNEDC

INDENTSUPPLIERSINDENT

SUPPLIERS

DIRECTIMPORTSDIRECT

IMPORTS

DOMESTICSUPPLIERSDOMESTIC

SUPPLIERS


2006 to 2009 : Multi Brand - Multi DCOperational Objectives

• Support network across 3 brands and 2 countries

• Inventory optimisation

• Safety


• Return on capital


• Culture Change

• Process discipline!

• Facts not Opinion

• Overseas sourcing

Major Systems

• Manhattan PkMS

• SAP R/3

• GAINS

Key Challenges

• Different demand replenishment planning solutions

• Supplier performance

• Operational forecasting


The Supply Chain NumbersDec 2002 Dec 2008

SKULs 1.15 million 3.5 million

Stock Investment $67 million $225 million

DC Space 15,000 m2 88,000 m2

• $23m saving in LFL SCA inventory • >1% pt improvement in OOS• 0.5% pt reduction in logistics costs as a % of sales

• $15m investment in supply chain infrastructure• $10m investment in supply chain systems


Future Development InitiativesInfrastructure

• None planned!

Process Development

• Flow Thru / Cross Dock

• Voice picking

• VMI / VOI

• Consistent demand replenishment planning solution across the Group

• Inventory Optimisation

• Trade Partner CollaborationSystems Development

• Enhancing existing systems to support process development People Development

• Same Headcount – Bigger Jobs

• Leadership Development

• Team Member Skills


Reflections

• Appropriate balance of long term and short term focus

• Culture change is the key driver– Strategic Planning

– Organisational Alignment

– Cross Functional Approach

– Fact Based Analysis

– Process Discipline

• Invest in Capability Development – not just investment in infrastructure, systems and processes


Key Observations


Key Observations & Summary

• “planning ahead”

• self funding growth

• Why do these opportunities exist?


“Planning Ahead”

• Better to build in efficiencies and capabilities up-front!

• improves chance of survival and success

• reduces the magnitude of the problem later on

• a key theme of the Supercheap Auto Group story


Self Funding Growth• improve operating cash flow (OCF) today• increase customer service levels & sales• reduce capital intensity of future growth• improve ROCE levers and ratios underpinning the

‘sustainable growth percentage’– revenue growth that can be funded internally at the

current debt to equity ratio– retained income/opening equity

• by way of example, Supercheap Auto– improved operating cash flow by 17% or $23 million whilst

increasing service levels via advanced demand management & inventory optimisation

– increased margins and gained market share in a depressed sales environment

– In FY06, added 30 new stores or $60 million in revenue with no additional investment in inventory

– $100m invested in opening new stores over three (3) years with only $40m increase in net debt

– avoided need for additional DC (fixed asset) investment due to inventory and operating efficiency improvements


Inventory Optimisation = rapid, free cash generation

• improve ROCE– improves profit by increasing revenue via

better service and reducing costs– improves net asset turnover by reducing

inventories

• fund initiatives from improved cash flow versus debt

– with $50 million in inventory, a 20% or $10 million reduction over 5 years equates to $50 million in funding you don’t have to find

• quick win opportunity – exists in your business today

• The key is inventory ‘mix’ or ‘balance’– not just inventory levels


A riddle...

• two competing companies

• ‘Company A’ has high margins and low asset turnover

• ‘Company B’ has low margins and high asset turnover

• How might ‘Company B’ drive ‘Company A’out of business?


This happens in real life…

• In FY06, Supercheap Auto announced inventory reductions, service level improvements and profit increases in depressed retail sales environment

• funded expansion from operating cash flow improvements

• other industry players and competitors issued profit downgrades citing excess inventories & debt levels as contributors

• share price tripled (3x) within 12 months


In their words…• "Super Cheap Auto through the year certainly has gained market share and has been successful in growing both

its gross and net margins in what certainly have been difficult trading conditions. We are also very pleased that our average inventory investment across Super Cheap Auto has reduced by 10% but we've been able to achieve that reduction in stock levels at the same time as increasing inventory presence on shelf in-store. So it's been a case of taking inventory out of our distribution centres and supply chain and increasing investment in on-shelf availability." Peter Birtles, Managing Director, Super Cheap Auto Group, Full Year Results presentation to the Australian Stock Exchange, August 2006.

• "From a balance sheet perspective, the key take-aways are our significant reduction in inventory per store number, down to below $500,000 per store, and that's resulted from our continuous improvement in relation to our supply chain area and in particular our forecasting and replenishing systems. The key point to note there is that we’ve actually improved our in-stock position while managing down our overall inventory level."Gary Carroll, Chief Financial Officer, Super Cheap Auto Group, Full Year Results presentation to the Australian Stock Exchange, August 2006

• "The work that we’ve done on inventory and the control that we’ve shown in the businesses has meant that we have very strong operating cash flow during the year, and that allowed us to fully cover the investment that we have made in our new stores in both Super Cheap Auto and in BCF. We have been able to fully fund the investment we have made in fixed assets and in inventory in those businesses." Peter Birtles, Managing Director, Super Cheap Auto Group, Full Year Results presentation to the Australian Stock Exchange, August 2006.

• "The positive results the Group has achieved in terms of gross margin and working capital control has really shone through in terms of the cash flow statement where our operating cash flow has enabled us to fully fund the roll out of the entire Group both from a fixed asset and working capital perspective. Breaking that down in a little more detail, the tight control on stock, while improving our in-store stock position, has generated in itself a $12 million benefit from an operating cash flow perspective." Gary Carroll, Chief Financial Officer, Super Cheap Auto Group, Full Year Results presentation to the Australian Stock Exchange, August 2006


Why do these opportunities exist?

• “…a retailer’s inventory

position is the most

important predictor of the

impact of slower sales on

gross profit margins”

Inventorie

s (volume te

rms),

Trend estim

ates-Quarte

rly change

‘More shocks in store for retail stocks’The Australian Financial Review 7 May 2008

Retail T

rade (v

olume te

rms),

Trend estim

ates-Quarte

rly change


A few key reasons for inventory imbalances

• ‘Top Down’ planning

• averaging or ‘lagging’ techniques

• simplistic inventory policies & ‘broken links’


Familiar with this one?

• We’re going to consolidate 5 Warehouses into 1 Distribution Centre

• What are the expected inventory savings?


Not any “one thing”• People

– ‘Despite any amount of understanding, obstinate habits do not disappear until they are replaced by other habits. But habits are only won by exercise, and appropriate education is the sole means to this end.’

• Carl G. Jung, “Modern Man in Search of a Soul”

• Processes

– must be integrated and adaptive, one version of the truth

• Systems

– devil is in the detail and definitely ‘horses for courses’, but only if you want to outperform

– only make a difference if People & Process capabilities exist


In summary

• excellent example of what’s possible • improved operating cash flow via

inventory optimisation and self-funded growth during difficult times

• reduced costs whilst improving service levels and market share

• turned their supply chain capabilities into a sustained competitive advantage and now recognised as both retail and supply chain market leaders

– 2009 ‘Australia's Best’ Platinum Award For Supply Chain Excellence

– 2008 ‘Australian Retailer of the Year’(Australian Retailers Association Awards)

– 2007 ‘Supreme Award for Best Retailer and Innovation in Retail’ (National Retail Association Awards)

‘Smaller names big performers’Australian Financial Review11 March 2009

Documents

1.1 Supply Chain Management & Strategic Planning Supply Chain … · 1.1 Supply Chain Management & Strategic Planning Supply Chain Evolution – The Supercheap Auto Group Story Peter