O'Reilly Auto Parts 2014 Annual Report Download - page 15

FORM 10-K
8
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. As of December 31, 2014, we had a total
growth capacity of over 800 stores in our distribution center network.
Distribution Centers:
As of December 31, 2014, 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 electronically receive orders from computers
located in each of our stores. 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 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 2015, we plan to:
• continue to implement voice picking technology in additional DCs;
• complete migration to our warehouse management system in our final DC;
• 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;
• 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 283 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 41,000 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 proprietary 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 proprietary 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 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.
We purchase automotive products in substantial quantities from over 500 suppliers, the five largest of which accounted for approximately
23% of our total purchases in 2014. Our largest supplier in 2014 accounted for approximately 6% of our total purchases and the next
four largest suppliers each accounted for approximately 3% to 5% of our total purchases.
Marketing
Marketing to the DIY Customer:
We use an integrated marketing program, which includes radio, direct mail and newspaper distribution, in-store, online, and social media
promotions, and sports and event sponsorships, to aggressively attract DIY customers. The marketing strategy we employ is highly
effective and has led to a measurable increase in awareness of the O'Reilly Brand across our geographic footprint. We utilize a combination