O'Reilly Auto Parts 2015 Annual Report Download - page 16

FORM 10-K
8
Distribution Systems
We believe that our tiered distribution model provides industry-leading parts availability and store in-stock positions, while lowering our
inventory carrying costs by controlling the depth of our inventory. Moreover, we believe our ongoing, significant capital investments
made in our DC network allows us to efficiently service new stores that are planned to open in contiguous market areas as well as servicing
our existing store network. Our distribution expansion strategy complements our new store opening strategy by supporting newly
established clusters of stores and additional penetration into existing markets in the regions surrounding each DC.
Distribution Centers:
As of December 31, 2015, we operated 26 DCs comprised of approximately 10.0 million operating square feet (see the "Properties" table
in Item 2 of this Form 10-K for a detailed listing of DC operating square footages). Our DCs stock an average of 146,000 SKUs and
most DCs are linked to and have the ability to access multiple other regional DCs' on-hand inventory. Our DCs provide five-night-a-
week delivery, primarily via a Company-owned fleet, to all of our stores in the continental United States. In addition, stores within an
individual DC's metropolitan area receive multiple daily deliveries from the DC's "city counter," most of which receive this service seven
days per week. Our DCs also provide weekend service not only to stores they service via their city counters but also to strategic Hub
locations, which redistribute products to surrounding stores. Our national Hub store network provides additional service throughout the
week, and on weekends, to surrounding stores.
As part of our continuing efforts to enhance our distribution network in 2016, we plan to
• finish implementing voice picking technology in our last remaining DC in Billings, Montana;
• continue to implement enhanced routing software to further enhance logistics efficiencies;
• continue to implement labor management software to improve DC productivity and overall operating efficiency;
• continue to define and implement best practices in all DCs;
• make proven, return-on-investment based capital enhancements to material handling equipment in DCs, including conveyor
systems, picking modules and lift equipment; and
• enhance our distribution network by adding one additional new DC in Texas and expanding one existing DC in North Carolina.
As of December 31, 2015, we had a total growth capacity of over 600 stores in our existing distribution center network. In 2016, we
plan to open one additional DC, which will be located in Selma, near San Antonio, Texas. This new DC will have the capacity to service
250 stores and, taking into account this new DC and 210 planned, net, new store openings in 2016, we expect to end the year in 2016
with a total growth capacity in our distribution network of over 600 stores.
Hub stores:
We currently operate 297 strategically located Hub stores. In addition to serving DIY and professional service provider customers in
their markets, Hub stores also provide delivery service to our other stores within the surrounding area and access to an expanded selection
of SKUs on a same-day basis. Our Hub stores average approximately 10,000 square feet and carry an average of 44,000 SKUs.
Products and Purchasing
Our stores offer DIY and professional service provider customers a wide selection of products for domestic and imported automobiles,
vans and trucks. Our merchandise generally consists of nationally recognized, well-advertised, premium name brand products, such as
AC Delco, Armor All, Bosch, BWD, Cardone, Castrol, Gates Rubber, Monroe, Moog, Pennzoil, Prestone, Quaker State, STP, Turtle Wax,
Valvoline, Wagner, and Wix, and a wide selection of quality proprietary private label products, which span the entire good, better and
best value spectrum, under our BestTest®, BrakeBest®, Import Direct®, Master Pro®, Micro-Gard®, Murray®, Omnispark®, O'Reilly
Auto Parts®, Precision®, Power Torque®, Super Start®, and Ultima® brands. Our proprietary private label products are produced by
nationally recognized manufacturers, meet or exceed original equipment manufacturer specifications and consist of house brands and
nationally recognized proprietary bands, which we have acquired or developed over time. Our "good" house brands provide a great
combination of quality and value, a characteristic important to our DIY customers, while our proprietary national brands offer "better"
and "best" options for our more heavy-duty DIY customers, as well as our professional service provider customers, who require high
quality products that can be relied upon to support and grow their businesses.
We have no long-term contracts with material purchase commitments with any of our suppliers, nor have we experienced difficulty in
obtaining satisfactory alternative supply sources for automotive parts. We believe that alternative supply sources exist at competitive
costs, for substantially all of the automotive products that we sell. It is our policy to take advantage of payment and seasonal purchasing
discounts offered by our suppliers and to utilize extended dating terms available from suppliers. We have entered into various programs
and arrangements with certain suppliers that provided for extended dating and payment terms for inventory purchases. As a whole, we
consider our relationships with our suppliers to be very good.