{"id":2118,"date":"2015-12-06T22:38:10","date_gmt":"2015-12-07T03:38:10","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/advance-auto-parts-a-golden-opportunity-tarnished-by-operational-missteps\/"},"modified":"2015-12-06T22:39:15","modified_gmt":"2015-12-07T03:39:15","slug":"advance-auto-parts-a-golden-opportunity-tarnished-by-operational-missteps","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/advance-auto-parts-a-golden-opportunity-tarnished-by-operational-missteps\/","title":{"rendered":"Advance Auto Parts: A Golden Opportunity Tarnished by Operational Missteps"},"content":{"rendered":"

\"advance-auto-parts-logo\"<\/a><\/p>\n

<\/u>Introduction<\/u><\/strong><\/p>\n

When Advance Auto Parts (NYSE:AAP) announced its acquisition of General Parts International, investors and management alike formed high expectations of the combined businesses\u2019 commercial and financial profile. \u00a0Since then, AAP\u2019s widely admired operational model has proved to be its Achilles Heel, as the company\u00a0struggles to manage an unwieldy integration.<\/p>\n

Business Model<\/u><\/strong><\/p>\n

Advance Auto Parts is the\u00a0leading supplier of aftermarket automotive parts, accessories and car maintenance items across North America, serving both commercial\u00a0and \u201cdo-it-yourself\u201d customers.\u00a0\"advance-auto-parts\"<\/a><\/p>\n

AAP\u2019s customer promise is two-pronged – the company seeks to deliver best-in-class service and support, and superior product availability. In order to deliver on \u201cgetting the right parts to the right place at the right time\u201d[1], AAP has historically leveraged a lean and efficient operating model.\u00a0 This includes (a) a supply chain designed to distribute, store and replenish a high number of SKU\u2019s, and (b) a scale and geographic reach broad enough to offer fleet solutions and serve national accounts.<\/p>\n

Over the last twenty years, AAP has performed very well, simultaneously expanding into the commercial market and capitalizing on strong growth in the \u201cdo-it-for-me\u201d independent professional segment. \u00a0Between 1995 and 2015, AAP added over 3,200 stores to operations.\u00a0 Since going public in 2001, AAP has grown nearly 1000% by market capitalization, outpacing the S&P 500 by a factor of 12. [2]<\/p>\n

\"548513_1\"When AAP announced in late 2013 it\u00a0planned to acquire competitor General Parts International (\u201cGPI\u201d) for $2.04 billion, the transaction was lauded as transformational.\u00a0 AAP\u2019s stock soared by 50% in the subsequent four months [2]. Management predicted the acquisition would yield increased operational efficiencies driving cost synergies of up to $160 million per year [3], coupled with a broadened ability to serve attractive key customer segments.<\/p>\n

 <\/p>\n

Operational Model<\/u><\/strong><\/p>\n

Now over two years after AAP announced its acquisition of GPI, AAP\u2019s once leading operational model is proving to be its own undoing. A myriad of integration challenges on the operations side are creating a drag on corporate performance. They include, but are not limited to:<\/p>\n