Auto parts supplier loads inventory as just-in-time delivery loses appeal
CarParts.com CFO-COO David Meniane is one of a growing number of finance executives who are increasing inventory and pushing back on the longstanding trend toward lean, just-in-time inventory management.
The e-commerce company’s inventory, which focuses on seals and brakes and other parts for car owners, hit $131.7 million in the third quarter, nearly 3 times the size it It was before the December 2019 pandemic, according to SEC filings.
Meniane believes this approach has helped grow the company’s market. The company expected a 33% increase in sales to $582 million in fiscal 2021 from a year earlier.
“In this environment [just-in-time] does not work. The longer the lead time, the less reliable the supply chain, the more inventory you need to stockpile,” he told CFO Dive. Otherwise, “we lose the sale to whoever has inventory and is more aggressive”.
Meniane is part of a wave of companies reconsidering their lean approaches to supply chains as congested ports, skyrocketing container costs and scarcity have led to bare shelves and threatened sales. Lean inventory management, or just-in-time inventory planning, is the practice of trying to match inventory levels to consumer demand and has taken hold over the past few decades as American businesses adopt a method which Toyota is often credited with.
Against a current
Loading inventory is a concept that Meniane says goes against CFOs’ instincts to maximize returns and reduce ownership costs, but he sees it as necessary now, although it’s probably “transitional,” he said.
Lean inventory management will come back into vogue, likely by 2023, he said. “I think that’s going to subside over the next two years. As delivery times get tighter, you’re going to see more and more companies having less inventory.” He hopes his business will eventually have less inventory but maintain higher sales.
Meniane came to the company, formerly known as US Auto Parts Network, in 2019 after spending nearly three years as executive vice president of LA Libations and before that around six years as CEO of Victoria’s. Kitchen. Since joining, the company has pursued a strategy focused on building a vertically integrated, streamlined supply chain that brings inventory closer to the customer for competitive advantage.
Under the new strategy, the company, which has benefited from a tailwind during the pandemic as customers flocked to online shopping, has invested in its real estate and technology, both designed to help it to control its future rather than relying on other suppliers or outsourcing.
CarParts.com grew from two distribution centers in 2019 to six, reducing the average delivery time of products to customers to 1-2 days, compared to an average delivery time of nine days three years ago .
Additionally, the company has invested in AI, machine learning, tools, and software. He also hired a 12-person forecasting and data science team to examine trends in inventory management, freight and labor, and pricing. Among their immediate tasks: to use technology to identify trends that signal products it more or less needs with the goal of eventually transitioning to an era of leaner inventory.
“We’re building a system based on machine learning and artificial intelligence and when the lead times start to shrink, we’ll get our capital back,” he said.