Good morning,
It’s estimated the ongoing semiconductor shortage has cost the automotive industry worldwide about $210 billion in lost revenues and the lost production of 7.7 million cars.
As the chip shortage continues, many drivers are maintaining their existing cars. That may be an advantage for Torrance, Calif.-based CarParts.com (Nasdaq: PRTS), an online provider of aftermarket auto parts. Its inventory includes engine parts, collision parts, and accessories. The company’s “secret sauce” for building its supply chain is an in-house team of data scientists, bulk inventory, advanced technology—and old school communication, David Meniane, CFO and COO at CarParts.com, told me.
“Externally, people see us as an e-commerce retailer,” says Meniane who began at the company in 2019. “But internally, a lot of the investments we’ve made over the last three years were around supply chain, and we’ve doubled the size of the business.”
In Q3 2021, CarParts.com generated revenue of $142 million, up 21% versus the prior year of $117 million and 90% on a two-year stack. It grew inventory to $131.8 million, a company record, Meniane says. Q4 earnings are expected on March 1. The stock’s 52-week high and low is $21.28 and $7.85, respectively. The stock price was at $9.42 on Jan. 18 and closed on Feb. 17 at $8.77.
In the following Q&A, Meniane discusses what he thinks has positioned the company for continued growth. The interview has been edited for clarity and length.
You’ve said it’s vital to have effective communication and transparency with manufacturers. How so?
Meniane: It’s a very hands-on approach. I personally speak with our top manufacturers, whether it’s in Asia or in Europe, every week or month. But on a day-to-day basis, our entire team spends a lot of time with our vendors. Our VP of international supply chain ended up going to Taiwan for four months to actually be there for face-to-face meetings, even in the middle of the pandemic. So, the ability to meet face to face was a huge component to our ability to bring in additional inventory. I think the auto parts business is still a very traditionally anchored business. We have to play within the confines of how the auto parts business works.
How did you work on enhancing your supply chain?
Meniane: The company’s been around for 25 years. Our team came in to execute a transformation in 2019. We started building capabilities in-house. We built an inventory forecasting team, a data science team, and an ocean freight and trade compliance team in-house. We started at the top with a head of that department and then eventually started building up those teams. Over the last three years, we have hired 11 data scientists including, three Ph.Ds. as well as tripled the size of our logistics team. Without getting too granular, total investment is in the millions of dollars, and it is a critical element of our secret sauce giving us a competitive advantage in the marketplace.
How has the lead time for supplies changed?
Pre-pandemic, average lead time (order to delivery) for premium auto parts out of Asia was 4 to 5 months on average, and now it’s closer to 6 or 7 months. Some manufacturers out of China have a 12-month lead time. The longer the lead times, the more inventory you need to carry on your books. During the pandemic, we asked our partners to continue making investments to set up our partnership for long-term support. To do that, we provided long-term forecasts and gave them financial commitments around volume and growth.
What types of advanced technology are your teams using?
Meniane: The accuracy of our forecasts is higher when we use machine learning than when we use traditional kind of mathematical tools. For example, at any point in time, we can carry over 100,000 individual SKUs (scannable bar codes) in our warehouses and have to do inventory forecasting for all of them. Items with a predictable demand are easier to forecast than seasonal items or slower-moving items with sporadic demand. Machine learning provides us with a more accurate forecast. Impact on the business is two-fold: reduce chances of being out of stock but also increase inventory turns which reduces carrying costs and makes our business more efficient. In addition, machine learning is used for pricing, estimating freight and margin in real time, and cartonization. And the technology is also used for labor planning and management. We’ve just expanded our Texas footprint. And we’re opening a new warehouse in Florida. So, we should be hiring a few hundred new team members in the next few months.
It sounds like CarParts.com is charting a course to disrupt the traditional auto parts industry.
The next issue of CFO Daily will be in your inbox on Tuesday! Have a good Presidents Day weekend.
Sheryl Estrada
sheryl.estrada@fortune.com
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Big deal
A new Pew Research Center report, COVID-19 Pandemic Continues To Reshape Work in America, found 59% of U.S. workers surveyed, who said their jobs can be done from home, are working remotely most of the time. There has been an increase in remote work among college graduates and upper-income workers, according to Pew. Below are the percentages of respondents who said they are currently working from home all or most of the time.
Going deeper
In case you missed it, here’s what was featured in CFO Daily this week:
Staff shortages are holding back the travel rebound, says Trivago’s CFO
Female CFOs verbally outperform male finance chiefs in the Q&A portion of earnings calls
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Leaderboard
Here are notable moves:
Amy Bradshaw was named CFO at Torch.AI, a data processing company powered by artificial intelligence. Bradshaw’s experience spans more than two decades. Most recently, she served as CFO for Kansas City-based law firm, DiPasquale Moore. Prior to that, Bradshaw spent five years at Netsmart Technologies as VP of financial planning and analysis, where she built a team to support the company’s growth both organically and through acquisitions.
Ken Boller was promoted to CFO at Akoustis Technologies, Inc. (Nasdaq: AKTS). Boller joined the company in 2017 as corporate controller and has served in the role of interim CFO since 2018. Prior to Akoustis, he was a regional controller and corporate director of accounting at Ecolab. Boller also held senior roles at ATI Allvac and AWWC.
Christine S. Breves, SVP and CFO at United States Steel Corporation (NYSE: X) will leave the company in 2022, after nine years of service. Breves will continue to serve as CFO while the company conducts a search for a permanent replacement. She has agreed to stay on as EVP of business transformation to support the company’s Best for All strategy. Breves joined U. S. Steel in 2013 as VP and chief procurement officer. In 2017, she was appointed SVP of manufacturing support and chief supply chain officer.
Steve Morris was promoted to SVP and CFO at Allete, Inc. (NYSE:ALE), an electric services company. He succeeds Robert Adams, who is retiring in June. Morris has served as VP and chief accounting officer since 2016. He joined the company in 2001 as Minnesota Power’s manager of financial reporting and budgeting. Morris was appointed director of internal audit for Allete in 2005, named director of accounting in 2010, and in 2014, he was promoted to controller. Prior to joining Allete, Morris worked at RSM LLP (formerly McGladrey and Pullen) as a senior manager.
Tim Arndt was named CFO at Prologis (NYSE: PLD), effective April 1, 2022. Arndt will succeed long-time CFO Tom Olinger, who plans to retire. He is a seasoned finance leader with Prologis, having joined AMB in 2004 in portfolio management for the company’s strategic capital business. Over his tenure, he has worked in several capacities, including as corporate treasurer, head of corporate planning and in the company’s global deployment team. Previously, Arndt worked in real estate strategy at Gap Inc. and in debt capital markets at Forest City Enterprises.
Gerald M. Haines II was named CFO at Metabolon, Inc., effective April 1. Current CFO John Kurtzweil has announced his retirement. Haines joins Metabolon from Impulse Dynamics, where he served as EVP and CFO. Before Impulse, Haines held senior executive leadership roles at multiple public companies, including Mercury Systems and Verenium Corporation.Haines will partner with the leadership team to help guide the company’s strategic development and market expansion plans.
Thomas Tran was named CFO at UpStream Healthcare. Tran has over 35 years of experience in healthcare and retired in early 2021 as CFO of Molina Healthcare. He previously served as CFO of WellCare Health Plans, Inc., and held senior leadership roles at UnitedHealth Group, ConnectiCare, Blue Cross & Blue Shield of Massachusetts, and Cigna. Tran will also have a seat on the company board.
Overheard
“I learned almost 70 years ago how integral hard work and kindness is to success.”
—Bob Moore, 93, founder of Bob’s Red Mill, the Oregon-based whole-grain foods manufacturer, as told to Fortune.
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