1.1 Supply Chain Management & Strategic Planning. Supply Chain Evolution The Supercheap Auto Group Story

Transcription

1 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

2 Agenda Group Overview Supply Chain Evolution Key Observations

3 Group Overview

4 History 1974 First shop in Brisbane SCA stores in South East Queensland SCA stores SCA stores 2003 Marlows acquisition conversion to SCA SCA launches in NZ 2004 Public listing on ASX 200 SCA stores 2005 BCF launched 2008 Goldcross acquired

5 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

6 The largest specialty retailer of bicycles, parts and accessories across Australia Destination retailer focusing on range and experience 18 stores today GROUP SERVICES 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

7 08/09 fcst Our sales growth 07/08 06/07 05/06 04/05 03/04 02/03 01/02 00/01 99/00 98/99 97/98 96/97 95/

8 Supply Chain Evolution

9 Pre 2001 IMPORT SUPPLIERS (AGENTS) BRISBANE SHED INDENT SUPPLIERS DOMESTIC SUPPLIERS

10 Pre 2001 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

11 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

12 2001 to 2003 : One Order, One Drop, One Invoice, One Payment IMPORT SUPPLIERS (AGENTS) BRISBANE DC INDENT SUPPLIERS DOMESTIC SUPPLIERS

13 2001 to 2003 : One Order, One Drop, One Invoice, One Payment Operational Objectives Support new store roll out Support 120 stores Reduce out of stocks Reduce logistics costs as % of sales Major Systems Manhattan PkMS SAP R/3 Key Processes Introduced Demand replenishment planning Monthly sales and operations planning Key Challenges National store expansion Variable performance Limited team work High level of frustration SKU profile variability

14 2003 to 2005 : Development Initiatives 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

15 2003 to 2005 : Project FOSIL : Focus on Supply, Inventory and Logistics PERTH DC IMPORT SUPPLIERS (AGENTS) BRISBANE DC INDENT SUPPLIERS NEW ZEALAND DC DOMESTIC SUPPLIERS

16 2003 to 2005 : Project FOSIL : Focus on Supply, Inventory and Logistics Operational Objectives Support new store roll out Support network across 2 countries Reduce out of stocks Reduce inventory per store Reduce logistics costs as % of sales Major Systems Manhattan PkMS SAP R/3 GAINS Key Processes Introduced Store based demand replenishment planning Weekly sales and operations planning Performance analysis Key Challenges Variable performance Cross functional solutions Capacity for multi brand growth and efficiency

17 2006 to 2009 : Development Initiatives Infrastructure DC in Melbourne BCF DC in Brisbane Exit overflow DCs in Brisbane MHE and Conveyor systems Systems Development PkMS upgrade SAP upgrade GAINS enhancements Process Development Multi brand supply chain solutions Supply Chain Methods Inventory Analysis EDI Master Data Management People Development Strategic focus Investment in capability development Role coaching Cross functional team working Performance management

18 2006 to 2009 : Multi Brand - Multi DC NT PERTH DC BRISBANE DC NEW ZEALAND DC MELBOURNE DC IMPORT SUPPLIERS IMPORT (AGENTS) SUPPLIERS IMPORT (AGENTS) SUPPLIERS (AGENTS) INDENT SUPPLIERS INDENT SUPPLIERS INDENT SUPPLIERS DIRECT IMPORTS DIRECT IMPORTS DIRECT IMPORTS DOMESTIC SUPPLIERS DOMESTIC SUPPLIERS DOMESTIC SUPPLIERS

19 2006 to 2009 : Multi Brand - Multi DC Operational Objectives Support network across 3 brands and 2 countries Inventory optimisation Safety Reduce logistics costs as % of sales Return on capital Key Processes Introduced 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

20 The Supply Chain Numbers Dec 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

21 Future Development Initiatives Infrastructure None planned! Systems Development Enhancing existing systems to support process development Process Development Flow Thru / Cross Dock Voice picking VMI / VOI Consistent demand replenishment planning solution across the Group Inventory Optimisation Trade Partner Collaboration People Development Same Headcount Bigger Jobs Leadership Development Team Member Skills

22 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

23 Key Observations

24 Key Observations & Summary planning ahead self funding growth Why do these opportunities exist?

25 Planning Ahead Better to build in efficiencies and capabilities upfront! improves chance of survival and success reduces the magnitude of the problem later on a key theme of the Supercheap Auto Group story

26 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

27 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

28 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?

29 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

30 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 "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 "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

31 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 More shocks in store for retail stocks The Australian Financial Review 7 May 2008 Retail Trade (volume terms), Trend estimates - Quarterly change Inventories (volume terms), Trend estimates - Quarterly change

32 A few key reasons for inventory imbalances Top Down planning averaging or lagging techniques simplistic inventory policies & broken links

33 Familiar with this one? We re going to consolidate 5 Warehouses into 1 Distribution Centre What are the expected inventory savings?

34 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

35 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 Review 11 March 2009