Global cuts costs with warehouse reduction – May 15, 2006

Global Motorsports Group is closing down half of its six U.S. warehouses in a cost-cutting move that company executives say will streamline operations and result in new and fresh inventory.
The closing of warehouses in Jacksonville, Fla., South Bend, Ind., and Fort Worth, Texas, is the first significant move reported by the Morgan Hills, Calif.-based company since Cerberus Capital Management became majority owners in January.
The three warehouses will be closed in the next 30 to 90 days.
The move comes with layoffs, although Global executives would not say how many employees lost their jobs. Global CEO John Lott would only say that the number of layoffs was “significant,” but in total did not equal to half the company’s workforce.
Cerberus’ Bryan Rishforth, vice chairman, said most of the layoffs were associated with the warehouse closings, but the company also “had some reductions in the executive chain,” although they did not name who was affected.
“We’re really focused on a very lean and efficient organization,” Rishforth said.
Global, owners of Custom Chrome and Motorcycle Stuff, will have warehouses in Visalia, Calif., Cape Girardeau, Mo., and Harrisburg, Pa., to service the western, central and eastern parts of the United States.
“The idea is by simplifying the number of distribution points we have in our network, we can much more effectively manage the inventory requirements and supply chain requirements of our network,” Lott said.
Will dealers in some parts of the country not receive Global shipments as quickly as before because of the reduction in warehouses? Lott said every distribution network has holes in it, but the new distribution model will serve 97 percent of the U.S. market in one or two days.
Rishforth said there will be some areas where “we’ll have to expedite shipments if they need things in one day of delivery. But we’ll have a few options available to folks when that’s a necessary requirement.”
Global executives believe the new distribution model will result in far fewer multi-box orders and a higher primary fill rate, a rate that measures how much of an order can be filled from the nearest warehouse. The primary fill rate, Lott believes, “is the most important measure of dealer satisfaction.”
Fewer warehouses does not mean there will be less inventory, Lott said. “There are many differences in warehouses and many ways to effect those changes, and we will be looking at every available option to make those facilities as efficient as we can possibly make them,” he said.
One inventory change Global announced is the company will no longer be carrying complete bike kits. The company will be stocking rolling chassis packages for customers interested in bike kits, but will focus mostly on providing customized motorcycle parts.
“As we optimize the cost side of the business, the intent is to redirect those dollars of newly found savings into new, fresh inventory for our dealers,” Rishforth said. “That’s really what this is all about.”
Rishforth said dealers can expect to see that new, fresh inventory for the 2007 season.
Global also believes the warehouse reduction can get the company to its goal of delivering “90 percent of our shipments in the service delivery requirements that we put out there for our customers,” Lott said.
How close is Global to achieving that?
Lott said Global still has “a ways to go” and the company will be in flux for a while as it moves inventory to the three remaining warehouses. But, he said, “you’ll notice significant improvement toward the middle or end this season.”
Neither Lott nor Rishforth would say whether any other big changes are coming in the near future for Global, which has gone through three refinancings and one other ownership change in the past four years.
“Clearly this is not an insignificant change,” Lott said, “and is meant to send a message that we are very much focused on improving our service delivery to our dealer base and to our vendor partners.”
The cost-cutting moves will not affect the company’s overseas operations. psb