Background

• Rapid growth was putting pressure on existing infrastructure.
• 250 stores, 5 DCs and consolidation points in China
• inventory of 14,000 SKUs and 3 million SKULs

Challenge

Strong need to balance capital, costs, customer service and capacity successfully across supply chain: the existing processes were not delivering desired inventory, service and cost results.

• organisational challenges: tenuous link between merchandising, finance and supply chain, skill levels and knowledge insufficient
• very diversified products: fast and slow movers, long "tail", import and local supply
• high promotional activity, and need to maintain store presence for customer experience
• lack of visibility, inability to diagnose, several sets of numbers

Approach

GRA performed a fact-based opportunities assessment before re-designing and implementing enhanced demand and replenishment processes.

• establishment of optimal service level, inventory and supply chain policies from supplier to DC to store, based on simulation and analysis
• development of supply chain processes: Forecasting, promotions planning, new line, new store opening, DC and store replenishment, stock rebalancing, vendor scheduling, Christmas pre-build, etc.
• implementation of a "bottom up" demand planning, inventory optimisation and supply planning (DRP) system: store level forecasting and planning of over 3 million SKULs managed by a team of 8 planners
• coaching and mentoring at all levels of the business to embed processes, to establish disciplines and transfer knowledge – sustainability!
• new performance management framework, directly linked to operational activities

Outcome

Out of stocks were reduced by half with 17% 'like for like' inventory reduction

• 2% absolute reduction in inventory, whilst adding ~30 stores and a new warehouse
• $60 million sales increase with no additional inventory investment
• $12 million improvement in operating cash flow within 12 months
• Out of stocks below target level of 3% and capacity management through peak periods

Quotes:

"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

"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 instore 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.

For a presentation overview on GRA's working capital and service level optimisation work with Super Cheap Auto download the document below:

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GRA - Super Cheap Auto Case Study