Introduction
O’Reilly Auto Spares (OAP) is a company dealing with the sales of automobile parts that are used in repair of those that have broken down. It has grown over the years from a small company to a formidable force in the auto parts industry in the country having a wide network of stores in over 30 states in the country. Here, we study how it has grown into what it is now as we look at its strengths, weaknesses and opportunities as well as how to improve and expand it.
Background
O’Reilly Auto Parts was founded by Charles Francis O’Reilly and his son Charles H. O’Reilly in November 1957. It was first founded as O’Reilly Automotive, Inc. but later changed its name into O’Reilly Auto Parts. The company also trades its common stocks in NASDAQ after successfully completing its initial public offer in April, 1993.
The company has since expanded it sales as well as its chain of stores all over the country since its first full trade year which was in 1958. The sales have expanded from $700,000 dollars in the year ending 1958 to $4.8 billion at the end of the year in 2009. It has also expanded to be the third largest auto parts chain in America after purchasing CSK Auto among other previous purchases in 2008.
We look into how the company has been able to expand itself from the one founded in 1957 to the third largest auto parts chain in America and how much the company adhere to its strategies as well as adopt strategies that have since set it apart from the others.
The company faces many issues that affect its expansion and normal service delivery. For example, external competition, remodeling the select facilities of new purchases so as to integrate them to meet O’Reilly business as well as to build new distribution centers to support the ever growing O’Reilly Auto Parts (OAP) organization. Advance Auto Parts and AutoZone are the company’s main competitors in the auto parts industry with both of them having higher total sales than O’Reilly Auto Parts. The main issue the company faces, apart from the stiff competition from its rivals, is keeping pace with the company’s expansion as they reduce the inventory levels so as to be able to cope with their competitors. This way, the company is able to cope with the stiff competition and maintain high profits throughout the year. To sustain the right rate of growth and expansion the company had to adopt a new inventory system because the old inventory system was not able to handle effectively the analysis of the inventory. This prompted the company to employ the services of Manhattan Associates which then upgraded their IBM DB2 Universal Database for System i. although this has reduce the challenges their faced with the inventory analysis the company still faces slight hitches when it comes to their inventories as shown by the numerous customer complaints about lack of some products they would like to purchase.
Analysis of the External Environment
O’Reilly Auto Parts has been able to do well in the auto parts industry owing to the fact, that since its foundation, it has grown to be the third largest chain of auto parts in the country with an annual revenues clocking close to $2 billion. The U.S. Commerce Department estimates that Americans spending on repair of automobiles to be about $38 billion annually. This show that of all the revenue earned used on repairs and purchases of auto parts for repair an average of 5.26% goes to O’Reilly Auto Parts.
The OAP has been able to compete effectively amongst other competitors such as the AutoZone. OAP has purchased as well as merged with other auto part companies thus they have greatly reduced the intensity of competition that they might have faced from these other companies. For example their purchase of CSK AUTO was a milestone for them in overtaking most of its competitors so that they were able to establish themselves in the industry. OAP has also been able to build new distribution centers that have increased their reach to their customers and in doing that they have overcome the threat of substitute services. The existence of patents and rights has also played a great role in protecting OAP from new entrants who might have the same business model and inventories. Generally, OAP have been able to sustain themselves and even showing an increase in their earnings per share from $ 1.14 to $1.36 which is $0.01 better than the estimation of the analyst.
Analysis of the internal environment
OAP has a well-defined leadership structure that comprises of many people. The executive officers are ten in number and hold various posts in the system ranging from the chairman of the board, David O’Reilly, to Greg Henslee the chief executive officer. It is evident that due to their long service at the company they have been able to gain knowledge and understanding of the right quality of strategic leadership. This is depicted through the firm’s acquisitions and how they handle the issue concerning the inventory system inefficiency. The company’s executive has articulated their strategic leadership by putting down the right guidelines that they abide to and has seen the growth of the family. For example, to eliminate competitive rivalry they have set up new distribution centers all over the country so that they are able to reach as many of their customers as possible.
The company has also managed to stay afloat because of the use of technology. When the company realized that they needed to sustain their high sales and also effectively integrate
With the new acquisitions they resorted to employ the Manhattan Associates. The latter was able to upgrade their inventory system from an IBM DB2 Universal Database to System i so that it could cope with the customer’s needs. They also provided sales/inventory forecasts by looking at the inventory recommendations after comparing daily sales to distribution centres batch processes.
Analysis of Strengths, Weaknesses, Opportunities & Threats
O’Reilly has been able to acquire many other companies, such as CSK AUTO, thus has been able to increase its outlets to over 3600 store outlets in the country. These store outlets are well stocked with all types of accessories from fluid to external parts and chemicals as well as many employees to be able to attend to their vast number of customers. The main weaknesses of OAP are that it does not cover a vast geographical area and it also has a very high, above the accepted, debt to equity ratio.
It has the opportunity to offer new and remanufactured hard parts and other variety of products. It also enjoys the prospect of exporting its product to developing and under developed countries thus it is able to earn foreign exchange. It can also integrate forward manufacture designs and automobiles.
Analysis of Business-level and Corporate Strategies
The company chose differentiation strategy over the low cost strategy so that it could be able to take optimal advantage because of its distribution excellence. Its distribution network consists of 23 distribution centres and over 3600 stores. The company also boasts of long fleet of tractors and trailers that they use for these deliveries every five days of the week to all the stores in America.
The company has also adopted multiproduct strategy so as to attract more customers to their end. They have done this by stocking external parts as well as chemicals and liquids that the customers purchase given that they have two kinds of customers, do it yourself and do it for me kind of customers. This has prompted them to different kind of service levels.
O’Reilly Auto Parts has grown over the years through acquisition of other auto parts companies in the industry. One of its major acquisition being the CSK AUTO which they have co-operated with so as to gain more and more in terms of profit. This strategy is used so as to reduce competitive rivalry as they expand their reach and cover a larger area than before. Other acquisitions include KarPro Auto Parts, Mid-State Automotive Distributors, Inc. and Automotive Distributors, Inc.
Recommendation and Justification of Strategic Alternatives
I would recommend that the company uses a concentric diversification strategy so that they can attract more customers to their stores. This strategy can work well for the company because of the fact that it has many stores in the country plus the fact that it has a tendency of acquisitions as it broadens the inventory coverage. This will give it an edge of its competitors as they will have a wider range of products to choose from thus increasing its sales and profits.
If they adopt this strategy they will be able to attain business synergy as it also expands its bases as they will have achieved strategic fit and will even strengthen the various departments. Through the establishment of inventory presence across a broader market area the company is able to increase their market share. This will make the expand more.
Implementation Plan
There are a number of steps to be taken in the implementation of the concentric diversification strategy. First, the company is to broaden their inventory base by either acquiring more or through production of more inventories. Secondly the company should increase the number of the distribution centers as well as the number of its stores either through acquisition of other ‘like-minded’ companies. Then the company, through its delivery network, should supply more inventories to the stores. By doing these the company would have created a wider market base thus increasing its sales.
Conclusion
OAP is a formidable force in the auto parts industry. Although it is amongst the biggest auto parts chain in the country, owing to the acquisition, it has a very high debt to equity ratio. This translates the company’s aggressiveness in acquisition of other companies. This warrants the company to use the various strengths and opportunities available to it so as to counter this status like taking advantage of the over 3600 store countrywide to increase its market base so as to increase its sales. Using the recently upgraded inventory system the company is capable of increasing its inventory base thus through implementation of a concentric diversification strategy they are able to reverse the debt to equity ratio and make great milestones.
References
Naples, Gary, J. (2000). Beyond the Numbers: Managing the Assets of An Automobile Parts Business. SAE International. pp. 39–40.
Plunkett, Jack W. (2005). Plunkett's Retail Industry Almanac 2006: The Only Complete Reference To The Retail Industry. Plunkett Research. p.10.
