Advance Auto Parts 2006 Annual Report Download - page 29

radio frequency hand-held devices to help ensure the accuracy of our inventory.
Standard Operating Procedures. Our SOP system is a web-based, electronic data management system that
allows our team members instant and quick access to any of our standard operating procedures through a
comprehensive on-line search function.
Store Support Center
Merchandising
Virtually all of our merchandise is selected and purchased for our stores by team members at our centralized
store support center in Roanoke, Virginia. In 2006, we purchased merchandise from over 400 vendors, with no
single vendor accounting for more than 6% of purchases. Our purchasing strategy involves negotiating multi-year
agreements with certain vendors, which allows us to achieve more favorable terms and pricing.
Our merchandising team is currently led by a group of seven senior professionals, who have an average of 22
years of automotive purchasing experience and 27 years in retail. The merchandising team is skilled in sourcing high
quality products globally and maintaining consistent inventory levels. The merchandising team has developed strong
vendor relationships in the industry and, in a collaborative effort with our vendor partners, utilizes a highly effective
category management process. We believe this process, which develops a customer focused business plan for each
merchandise category, improves comparable store sales, gross margin and inventory turns.
Our merchandising strategy is to carry a broad selection of high quality brand name automotive parts and
accessories such as Bosch®®
, Castrol , STP®, Prestone®, Monroe®® , Bendix , Purolator®, Dayco® and Trico®, which
generates DIY customer traffic and also appeals to commercial customers. In addition to these branded products, we
stock a wide selection of high quality proprietary products that appeal to value conscious customers. These lines of
merchandise include everything from chemical and wash-and-wax products to tools, batteries, parts and interior
automotive accessories under the names of Professional’s FavoriteTM, Joe’s GarageTM, Mechanic’s ChoiceTM, Auto
XpressTM, AutocraftTM, EnduranceTM and WeareverTM.
Sales of replacement parts account for a majority of our net sales and typically generate higher gross margins
than maintenance items or general accessories. We customize our replacement part mix based on a merchandising
program designed to optimize inventory mix at each individual store. The custom assortment is based on that store's
historical and projected sales mix coupled with regionally specific customer needs.
Supply Chain
Our supply chain consists of centralized inventory management and transportation functions which support a
logistics network of distribution centers, PDQ® warehouses and stores. Our inventory management team utilizes a
replenishment system, or E-3, to monitor the distribution center, PDQ® warehouse and store inventory levels and
order additional product when appropriate while streamlining costs associated with the handling of that product. E-3
utilizes the most up-to-date information from our point-of-sale system as well as inventory movement forecasting
based upon history, sales trends by SKU, seasonality and demographic shifts in demand. E-3 combines these factors
with service level goals, vendor lead times and cost of inventory assumptions to determine the timing and size of
purchase orders. A significant portion of our purchase orders are sent via electronic data interchange, with the
remainder being sent by computer generated e-mail or facsimile.
Our transportation team utilizes a transportation management system for efficiently managing incoming
shipments to the distribution centers and stores. Benefits from this system include reduced vendor to distribution
center freight costs, visibility of purchase orders and shipments for the entire supply chain, a reduction in
distribution center inventory, or safety stock, due to consistent transit times, decreased third party freight and billing
service costs, decreased distribution center to store freight costs and higher store in-stock position.
We currently operate eight distribution centers. All of these distribution centers are equipped with our
distribution management system, or DCMS. Our DCMS provides real-time inventory tracking through the
processes of receiving, picking, shipping and replenishing at our distribution centers. The DCMS, integrated with
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