Dive Brief:
- Advance Auto Parts is consolidating its distribution networks into a single operation to boost efficiency and better serve customers, President and CEO Shane O'Kelly said on a Feb. 28 earnings call.
- The auto parts retailer has long used two distinct distribution center networks to replenish its store inventories, one originating from Advance Auto Parts itself and the other from Carquest, which it acquired a decade ago.
- The Advance Auto Parts and Carquest network currently has 38 distribution centers. The unification will include converting smaller, legacy facilities from replenishment nodes to market hubs, in which inventory is forward-deployed closer to customers.
Dive Insight:
Advance Auto Parts is looking to streamline its distribution network after gross profits fell nearly 12% year over year in Q4, in part due to elevated supply chain costs. Consolidation efforts are already underway, with Advance Auto Parts in the midst of its first market hub conversion, according to O'Kelly.
"We know that our current network is inefficient and needs substantial work to improve our cost structure and inventory availability," the CEO said.
Converting smaller facilities into market hubs will allow Advance Auto Parts to order products into fewer distribution centers, increasing inventory productivity in the process. Historically, Advance Auto Parts has used its 38 distribution centers as "full-on replenishment nodes" that are tasked with providing every product unit to a store needing that product type, according to O'Kelly.
"Some DCs don't have the size and capability to do that," O'Kelly said. "Thirty-eight is far too many for my past life, in terms of where you'd expect your vendors to ship into. So the idea is we create a national network of larger DCs."
The supply chain consolidation will probably extend into 2026, but Advance Auto Parts will move as fast as it can to complete the overhaul, O'Kelly said.
"This is my third time combining supply chains in companies, and we want it to be sooner rather than later," said O'Kelly, who has previously served as CEO for The Home Depot's HD Supply subsidiary, PetroChoice and AH Harris. "But it's a multiyear endeavor. I think that's just the practical reality of what happens."
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