O'Reilly Auto Parts 2012 Annual Report Download - page 20

FORM 10-k
10
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 and controlling inventory. Moreover, we believe that 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 located in the regions surrounding each DC. We currently have a total growth capacity of over 400
stores in our distribution center network, which will increase by 300 stores with the completion of our Lakeland, Florida DC in the
first quarter of 2014.
Distribution Centers:
We currently operate 24 DCs comprised of approximately 8.6 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 electronically receive orders from computers located in
each of our stores. Our DCs stock an average of 142,000 SKUs and most DCs are linked to multiple other regional DCs’ 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 a DC metropolitan area receive multiple daily deliveries from our DC “city counters”, most of which
receive this service seven days per week. In addition, our 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 2013 we plan to:
• continue to implement a voice picking technology in additional DCs;
• implement enhanced routing software to further enhance logistics efficiencies;
• continue to implement labor management software to improve DC productivity and overall operating efficiency;
• develop further automated paperless picking processes;
• improve proof of delivery systems to further increase the accuracy of product movement to our stores;
• continue to define and implement best practices in all DCs; and
• make proven, return-on-investment based capital enhancements to material handling equipment in DCs including conveyor
systems, picking modules and lift equipment.
Hub stores:
We currently operate 240 strategically placed 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 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 42,000 SKUs.
Products and Purchasing
Our stores offer DIY and professional service provider customers a wide selection of brand name, house brands and private label
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. In addition to name brand products, our
stores carry a wide variety of high-quality house brands and private label products 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 house brand and private label products are produced by nationally recognized manufacturers and meet or
exceed original equipment manufacturer specifications and provide a great combination of quality and value – a characteristic
important to our DIY customers.
We have no long-term contractual purchase commitments with any of our vendors, nor have we experienced difficulty in obtaining
satisfactory alternative supply sources for automotive parts. We believe that alternative supply sources exist at substantially similar
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 vendors and to utilize extended dating terms available from vendors. Again in 2012, we entered
into various programs and arrangements with certain vendors that provided for extended dating and payment terms for inventory
purchases. As a whole, we consider our relationships with our vendors to be very good.
We purchase automotive products in substantial quantities from over 500 vendors, the five largest of which accounted for
approximately 25% of our total purchases in 2012. Our largest vendor in 2012 accounted for approximately 8% of our total purchases
and the next four largest vendors each accounted for approximately 3% to 5% of such purchases.
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