CSK Auto Inc. is a wholly owned subsidiary of CSK Auto Corp., the largest specialty retailer of automotive parts and accessories in the Western U.S. and one of the largest such retailers nationwide, based on store count. CSK Auto operates 1,273 retail auto parts stores in 22 states under the brand names Checker Auto Parts, Schuck's Auto Supply, Kragen Auto Parts, and Murray's Discount Auto Stores. To help manage the importing of products it buys from Asia, CSK decided to partner with a third-party logistics provider. It selected Expeditors, Seattle, to take on the job.
Q: How did you come to supply chain management as a career?
Ellis: I started at the very bottom, cleaning out trailers and picking merchandise in the warehouse while I was working my way through college. After college, I continued working for this automotive supply company based in Indianapolis called Fleener Auto, which had about 60 stores. I started as a second-shift manager in the distribution center and later was promoted to manager. I ran that distribution operation for about five years. Fleener then was acquired by Perry Drug Stores and consolidated with three other companies to create a 300-store operation. I was made distribution manager over all three divisions in the chain and was responsible for opening a new, highly automated distribution center in Moraine, Ohio. While I was in that position, the company decided to sell its automotive arm to a company called Northern Automotive, which now is CSK. At the time of the acquisition in 1989, Northern Automotive had 500 stores and four distribution centers. I was fortunate to be named director of distribution with management responsibility for those four DCs. In 1997, I was promoted to vice president of warehousing and transportation and two years ago I was named senior vice president of logistics. My responsibilities include the warehousing group, all facets of transportation, as well as the special order and priority parts division and the replenishment division.
Q: So what does the CSK supply chain look like today?
Ellis: We have four main distribution centers, in Dixon, Calif., Phoenix, Mendota Heights, Minn., and Detroit. The facility in Detroit was included in our acquisition last December of Murray's Discount Auto Stores. We also have four cross-dock facilities, in Los Angeles, Seattle, Denver and Salt Lake City.
Q: You source goods both globally and domestically?
Ellis: Yes. CSK further developed their involvement in the international market about three years ago. We increased our import volume by tenfold. This created a problem for us because we didn't have an order management system in place for international trade. Our freight was all pre-paid and we were relying on our vendors to keep us informed, but without the track-and-trace capability of an order management system, we had no visibility to when merchandise was arriving at our West Coast facilities.
We decided that we wanted to partner with a third-party logistics company to help us solve this problem, so we began looking at different companies and interviewed several. We needed a partner that had technical skills, a robust platform and experience working with other Fortune 1000 companies on similar problems. Expeditors met all of these requirements and, in the end, they were our choice for a business partner.
Q: What were the drivers that led you to increase your offshore sourcing?
Ellis: The majority of automotive merchandise that we sell is manufactured here in the continental U.S. As a company, however, we needed to find more garage and tool category products to tie into our weekly advertising fliers and those were the products we were sourcing offshore.
We also saw that this change in our business model would not only give us an opportunity to shift from a pre-paid to a collect logistics mindset, but would also provide us with a track-and-trace system.
That being said, the first task I gave Expeditors was to attack detention and demurrage. I really needed to get this cost reduced for the company and Expeditors had a solution. The end result was a 92 percent reduction in detention and demurrage charges from ocean carriers, which was accomplished by better visibility through the track-and-trace system and also by their assigning us an on-site account manager, Dawn Merchant. Dawn is a licensed customs broker and is also IATA/FIATA [International Air Transport Association / FÃƒÂ©dÃƒÂ©ration Internationale des Associations de Transitaires et AssimilÃƒÂ©es] certified. Her knowledge and expertise has helped CSK Auto to reach the next level.
Expeditors' IT department worked closely with CSK's IT department under the direction of Larry Buresh to implement their exp.o internet tracking and reporting tool. At CSK, we use the E3 order platform from JDA Software. This replenishment system transmits the orders to the Expeditors exp.o system. Exp.o tracks orders from the point of E3 through various channels to the off-shore manufacturer, onto the vessel, through the port of entry and all the way to the CSK distribution centers. We started out slowly, with Expeditors over-managing us until we were sure that the process between the two companies was working smoothly and reliably.
Expeditors uses its systems to monitor what we have coming in, whether pre-paid or collect. CSK buyers can go online every day and find out where each and every purchase order is in relationship to the need or the demand for that product and this enables them to do a much better job managing their end of things.
The system also helps us with upstream tracking, so we can have visibility after we have placed a purchase order with our vendors. The Expeditors program enables us to communicate electronically with our vendors so we can find out, for example, if a vendor has ordered the raw materials to manufacture the ordered items, or whether they have gone through the required quality inspections. This helps us make sure that the order will be able to meet our expected ship date.
Q: Expeditors also handles all the international shipping?
Ellis: Yes, and it's ocean shipping for the most part. Dawn Merchant works with our buying department to identify the best means of shipping in order to give CSK the best margin opportunity, whether that is FOB [free on board] Shanghai or DDP [delivered duty paid] to our facility in Phoenix. They assist us in managing this process daily. They analyze every item to help the purchasing people find the most cost effective and efficient way to order products.
Q: That also involves calculating total landed costs?
Ellis: Absolutely. Dawn created a customized program internally for CSK where she works with the buyers and vendors to get various pricing options for each item that the company is thinking about purchasing. Then she puts them through Expeditors' system to come up with a landed cost evaluation on each individual item. That information is shared with our buyers to help them make the best product selection and determine the most cost efficient way to purchase the items. In the past, basically everything was purchased with freight pre-paid. Now we assist the buyers in choosing the most cost effective option, which helps us achieve a better margin. Currently, we are able to provide total visibility of those orders from the time the order is placed all the way to when the product gets to the DC.
Q: Other than detention and demurrage, where did you realize savings?
Ellis: From the process that I just described, we have seen margin increases. That is from pulling costs out and better managing our shipments.
The track-and-trace capability also helps us identify potential delays earlier in the process. Since we are primarily dealing, in this case, with garage and tool products, we can work directly with our advertising department to let them know to pull an item from the flier if it looks like we are going to have issues delivering it. It is very beneficial from that standpoint.
We also have saved in terms of the amount of time we previously spent looking for containers that were being moved by vendors and that were somewhere between the manufacturer and our DC. Now that we have improved visibility, we are spending our time doing more productive things.
Another item that has evolved along the way in this partnership is Expeditors' assistance in helping us comply with the government-mandated PierPASS Program, which went into effect last July 4. This is a program that originated at the Port of Long Beach in response to the State of California trying to decrease the volume of traffic during normal business hours. PierPASS waives their fees for importers who pull their containers out of the terminals during off-peak hours.
Expeditors manages all of our containers to ensure that as many of them as possible are pulled from the ports during off-peak hours. As a result, we have decreased our costs by 70 percent from what they would have been without our participation in this program. I would estimate that this alone has saved us about $100,000 this year.
We also get the advantage of having those containers that are pulled during the evening delivered to us early the next morning, so it is operationally more efficient as well.
One more major program that has evolved over the last 12 months has been a classification program. Expeditors' subsidiary, Tradewin, reviews our documents on each new item that we purchase from all of our offshore vendors and classifies the items to ensure compliance. We use their Tradeflow tool to store, update and manage all of this information. Overall, I think CSK Auto and Expeditors have developed a true international business partnership.
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