AutoZone’s supply chain expansion: A case study

Don’t confuse network fill rate with success​

While expanding your distribution center network might look good on paper — increasing your overall in-stock rate — it can mask inefficiencies. Josh cautions against focusing solely on network-wide fill rates. He stresses the importance of local fill rates, meaning the percentage of orders fulfilled from the DC closest to the customer. A high network fill rate alongside a low local fill rate often indicates an imbalance requiring attention.

Hidden costs can undermine expansion benefits​

Before embarking on an ambitious DC expansion project, businesses need to fully grasp the potential hidden costs. Josh highlights internal freight expenses as a common culprit. Moving inventory between DCs to fulfill orders adds up quickly and often goes unnoticed as it’s grouped with general transportation costs. Additionally, increased inventory carrying costs and the added complexity of managing a larger network can significantly impact the bottom line.

Prioritize inventory optimization before expansion​

Josh advises companies to exhaust inventory optimization strategies at existing facilities before investing in new distribution centers. Often, companies can achieve significant improvements in delivery speed and customer satisfaction by simply improving inventory management practices at their current locations. This might involve implementing demand forecasting tools, optimizing safety stock levels, and streamlining warehouse operations for greater efficiency.

Test new markets with 3PLs before full expansion​

For companies considering expanding their geographic reach, Josh recommends a cautious approach. Instead of immediately investing in new facilities, he suggests partnering with a third-party logistics provider (3PL). This allows companies to test demand and gauge the market’s response to faster delivery times in a new region without the significant upfront costs associated with building or leasing a DC.