Merging the distribution operations of two auto parts suppliers should have been as easy as replacing a windshield wiper blade. But it turned out to be more like an engine rebuild.
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
Creating one company from two after a merger or acquisition is a bit like assembling a jigsaw puzzle in which not every piece is designed to fit. Almost invariably, the companies involved end up having to rework a few of those pieces before everything falls into place.
That was certainly the case when O'Reilly Auto Parts, a large auto parts distributor and retailer based in Springfield, Mo., purchased the 1,340-store Phoenix-based CSK Automotive Inc. in July 2008. From a geographic standpoint, the CSK acquisition made eminent sense for O'Reilly—O'Reilly's stores are located mainly in the Midwest and Southeast, while CSK's are mostly in the Upper Midwest and West. But the purchase also brought with it the need to unite two disparate operations. And one of the merger's biggest challenges arose out of the fact that the two companies had very different distribution models.
Almost from its founding in 1957, O'Reilly has pursued what it terms a "dual market strategy," serving both the do-it-yourself market (customers who do their own auto repairs) and the do-it-for-me market (garages and repair shops). The two markets carry very different service expectations: While the do-it-yourselfer may be willing to wait for a part, an auto technician with a car on the lift doesn't have that luxury. He wants the part no later than tomorrow. So O'Reilly had designed its distribution network to provide daily replenishment to both its stores and professional installer customers. Among other things, that meant it had a fairly extensive DC network (the company currently operates 19 facilities in 15 states), with sites strategically located within overnight reach of customers.
By contrast, CSK had built its business around the do-it-yourself market—a model in which weekly replenishment was deemed sufficient. That was reflected in its distribution network, which included just four main DCs at the time of the acquisition—DCs that were set up to handle bulk picking, not the piece picking that typically takes place in O'Reilly's DCs.
Tick tock!
It was a given from the start that O'Reilly would convert the CSK network over to its distribution model, rather than vice versa. The company considers its daily replenishment capabilities to be a key market differentiator. "One competitive advantage we have is the ability to provide overnight service to our stores," explains Greg Johnson, O'Reilly's senior vice president of distribution operations. "That's what we've built our reputation on. To run our fleet of 350 tractor-trailers nightly is costly, but we are confident that this more costly model continues to provide the highest level of service to both our do-it-yourself and do-it-for-me customers, and therefore continues to drive higher revenues for both our company and our shareholders."
It was also clear from the outset that the team charged with overseeing the distribution network integration would be working against the clock. O'Reilly is committed to completing the project by the end of next year, so that it can move forward with plans to expand its business in the former CSK markets. "We cannot grow the wholesale model to its fullest extent until distribution is in place," explains Johnson, a 27-year O'Reilly veteran and one of the key executives involved in the CSK integration. "We cannot go to installers and say 'We deliver once a week' and expect them to make us their primary supplier."
Adding to the challenge was the need to carry out the integration project while simultaneously overseeing a long-planned expansion. So far this year, O'Reilly has opened a new DC in Greensboro, N.C., and moved its Kansas City distribution operations into a new, larger facility. In addition, the company is on track to open 150 new stores in 2009.
Network news
In order to meet the aggressive network integration timeline, the team began planning months before the acquisition was completed, says Johnson. The first step was to conduct an overall network evaluation to determine where the company would need to add DCs and what should be done with the existing CSK facilities. At the time of the acquisition, CSK was operating four main DCs— located in Arizona, California, Michigan, and Minnesota—plus four smaller facilities.
Based on its network review, O'Reilly decided it would need to add four more centers, to be located in Seattle, Denver, Salt Lake City, and Moreno Valley, Calif. The Seattle DC is scheduled to open in November, with all four scheduled for completion by June 2010.
That left the question of what to do with the four CSK sites. After some review, O'Reilly decided to close CSK's Minnesota facility, consolidating its operations with those of an existing O'Reilly DC in the Minneapolis/St. Paul area. O'Reilly has also decided to relocate operations at the former CSK facility in Dixon, Calif., to a larger DC in Stockton, Calif., that will give it more room for growth.
But not all of the former CSK facilities are slated for closure. O'Reilly decided to keep but remodel the Michigan and Arizona DCs, installing additional automated equipment to support the company's daily delivery model and to accommodate projected growth. The Michigan remodel was completed in April; work at the Arizona facility is under way.
In both cases, the conversions have involved upgrading the facilities' material handling systems to shift from bulk picking to piece picking. For instance, the Michigan remodeling included the addition of a three-level pick module, conveyor, automated sortation equipment, racking, seven shipping lanes, and a new returns area.
Down to business
At the same time, planning was getting under way for the new DCs O'Reilly would open. With deadlines looming, the team got right down to business, reports John T. Giangrande, a senior account executive for Fortna Inc., the systems integrator and supply chain consulting firm that's working with O'Reilly on the DC remodeling and construction program. "We took a look at the time frames and broke those down into site selection, design, engineering, and implementation phases and go live dates," he says. "We worked through all that in the first few weeks."
Despite the time constraints, O'Reilly opted against the one-size-fits-all approach to DC design. "We cannot build 'cookie cutter' DCs because we design our DCs based on market potential," Johnson says. "The last five or six are similar, but no two are alike."
The design work has truly been a team effort, involving input from Fortna, O'Reilly, and managers from the former CSK. Larry Ellis, former senior vice president of logistics for CSK and current Western divisional vice president of distribution for O'Reilly, praises his new colleagues for their open communication. "The O'Reilly team has not only worked with us to... teach us the new systems," he says, "but they have also included the West Coast distribution team in the numerous planning meetings through each phase of the conversion."
All the planning has paid off. The project continues on schedule well into year two, putting O'Reilly in a strong position to move ahead with its expansion. When the integration is completed, O'Reilly will have a total of 23 DCs—and enough capacity to give the planning team a short breather. "Prior to the CSK acquisition, we were on pace to open a new DC about every 18 months," Johnson says. "With this plan, we will have the capacity in the distribution network to take us out for a couple of years."
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."