An Evaluation of Canadian Tire’s Supply Chain

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Written by Timothy J. Tetreault on September 17, 2019 (Mount Royal University)

Operating an efficient and effective supply chain is a necessity for the long term longevity of an organization. A supply chain is the processes and procedures needed to most effectively get the product to the end consumer.

Supply chain management involves controlling the flow of resources and information within an organization such as policies, processes, and
procedures to best deliver the product to the customer. This includes handling and distribution activities, as well as financial management (Reed, 2018).

This article aims to evaluate some current supply chain elements in the retail organization Canadian Tire and suggest improvements to the system or strategy if any are needed. Location is important to the distribution of their stock among over 1700 stores, and this will be investigated as well as the future requirements for the supply chain.

Company Profile

Canadian Tire is one of Canada’s top retailers and a leader in their industry. They offer a multitude of products in the automotive, sports, home, garden, and living categories of goods. Their primary locations are easily recognizable by the triangular logo affixed to the front of each of their general merchandise stores. Canadian tire also owns the brand PartSource
which specializes in automotive parts (C, 2016).

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Canadian Tire operates on a franchise based system. There are 500 independently owned Canadian Tire locations across Canada operated by third party dealers. The merchandise found in each of the stores or online is purchased from the corporate entity for sale to consumers. The supply chain, marketing, and other administrative activities are taken care of
by the Canadian Tire Corporation (CTC). Each dealer owns their own inventories, must cover their own operational costs, and must comply with corporate guidelines. Sale pricing and purchasing abilities are set out by Canadian Tire (C, 2016). Canadian Tire recognizes that in order to become “Canada’s Store,” they need to branch out into other industries as well.

Canadian Tire recognizes that in order to become “Canada’s Store,” they need to branch out into other industries as well.

Canadian Tire Petroleum was founded in 1958 under the same
system as the regular Canadian Tire stores (About, n.d.). Today there are 296 gas bars (83 car washes and 293 convenience stores) operating under the banner “Gas+.” Canadian Tire has the contract to build and operate 23 Petroleum locations along major Ontario Highways (C, 2016).

In 1968, CTC expanded its portfolio by integrating financial services through the acquisition of Midland Shoppers Credit Limited (Canadian Tire, 2019). Canadian Tire Financial today has a wide array of Canadian Tire branded credit cards and insurance. Canadian Tire financial processes all of the transactions from their other subsidiaries and dealers.

PartSource caters to the automotive sector and specializes in automotive parts. Canadian Tire Automotive is a part of their stores and is targeted toward the average consumer while PartSource targets those people who wish to DIY their repairs.

In 2001, Canadian Tire Purchased Mark’s Work Wearhouse in order to capitalize on the high quality workwear, casual clothing, and activewear industries . They would later change the name to just “Marks” for branding purposes. Marks today has 349 corporate stores and 33 franchise stores across Canada (C, 2016). In 2011, Canadian Tire acquired the Forzani Group in a $771 million deal which made Canadian Tire a leader in the sports equipment and outdoor recreation retail sectors (Flavelle, 2011).

The Forzani Group owns SportChek, Sport Experts, and Atmosphere and has 433 locations across Canada (257 Corporate, 176 Franchise) (C. 2016). In 2013, Canadian Tire Corporation launched the subsidiary CT REIT which is a real estate investment firm. CT REIT owns 303 properties across Canada that are leased out to the CTC Dealers (CT REIT, n.d.).

Canadian Tire faces increasing threats from American based multinationals such as Lowes, Home Depot, Nordstrom, Walmart, and Costco. As a result, their ability to remain competitive depends on the competitive advantages associated with efficient operations, supply chain, and diversity in their business model (C., 2016).

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Although known primarily by its retail storefront, Canadian Tire’s success is based on their supply chain and distribution abilities. They strive on moving goods and products through their distribution networks. Efficient distribution management is essential to ensuring that every individual store of every brand is able to succeed in the competitive retail marketplace.

The vast majority of Canadian Tire’s inventory is processed in one of four distribution centers across Canada. There is one in Brampton, and one in Bolton, Ontario that are managed by Canadian Tire’s corporate entity. In addition, there is one in Calgary and another in Montreal that are operated by third party logistics companies.

The Forzani Group, PartSource, and the Marks subsidiaries have separate distribution centers located in Calgary and Mississauga (C.,2016).

Demand Forecasting

An important aspect of any supply chain is its ability to forecast future demand and ensure that the processes are in place to have the product ready for the customer (Reed 2018).

Canadian Tire has about 2000 suppliers that supply the inventory for their distribution centers, and ultimately, their stores. Domestic suppliers account for about 55% of these, while international imports are the other 45% (Wang, n.d.).

A forecast is needed to coordinate the orders out to suppliers so that the product is delivered timely, and in proper quantities. Canadian Tire uses historical demand information, combined with potential growth in demand to predict as accurately as possible, future demand. These forecasts take into account seasonal changes (you will sell more snow shovels in December than July) as well as trending styles. For new products, historical analysis of similar products is used. (Wang, n.d.)

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Canadian Tire keeps very little inventory on hand because of the efficiency of their forecasting. Every week, 2000 suppliers are sent production forecasts for 26 weeks in advance. If there are any sales, Canadian Tire ensures that they have an adequate amount of inventory to handle the demand. This allows the suppliers to be able to source raw materials, have them delivered in their own supply chains, and manufacture the products for Canadian Tire (Anne, 1998).

Distribution centers receive store orders from each of the individual dealers which are then picked from the stored inventory and shipped. The distribution center’s inventory will also need to be replenished from suppliers. The objective of the distribution center model is to move
as much product as possible as quickly as possible without running out, or having a large excess of inventory.

The statistical forecast allows Canadian Tire to more accurately predict how much demand there will be, and this helps in the replenishment process (Wang, n.d.).

Bolton, Ontario Distribution Center

In 2017 Canadian Tire Corporation opened a new distribution center in Bolton, Ontario to replace their aging Brampton facility. This facility is approximately 1.5 million square feet and is designed to receive 15,500 different SKUs from suppliers and store them for later shipment to
the Canadian Tire dealers (Trebilcock (a), 2019).

Bolton Distribution Center:

– 1.5 million square feet –

– 15,500 SKU Processing Capacity –

– 350 Daily Trailers –

– 244 Docks –

The facility is designed to process 350 trailers per day through 244 receiving and shipping docks, which amounts to about 65 million cubic feet
of product each year. The Bolton distribution center is designed to handle inventory for the approximate 1700 Canadian Tire dealers across Canada while the Calgary, Montreal, and Brampton locations are serve more regional purposes and deal only with items with high turnover (Trebilcock (b), 2019).

Photo by Pixabay on Pexels.com (not the Bolton Center)


Since opening the Bolton facility, Canadian Tire has experienced an improvement in product flow through its distribution network, as well as better pallet fill rates, and reduced costs (Trebilcock (b), 2019).


The distribution center is divided up into a cellular layout with three different departments. Building A is the largest of the three, and is also the most automated. This is where the smaller items, or easily movable and packable items are sorted and distributed. There is a 4 story picking center where items are picked, packaged, then sent down one of 197 chutes to be shipped out below.

Building B is designed for items that pass through the facility quickly as well as oversized items and the products are not stored long.

Building C is where awkwardly designed items such as snowblowers, lawnmowers, hockey sticks, and hazardous materials are processed. There is also a machine in this building that processes automotive tires automatically (Trebilcock (b), 2019).

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The cellular layout of the Bolton distribution center allows for efficient receiving, sorting, and distributing activities. By dividing the facility into areas that are able to process items with similar processing requirements, Canadian Tire is able to more quickly build orders for their dealers across Canada (Trebilcock (b), 2019).

Notably, receiving and shipping areas are on opposite sides of the facility. This allows products to flow through the facility smoothly, and Canadian Tire is able to limit the amount of interaction between differing items; there is little cross interaction between departments.

Location

The Bolton Distribution center’s location gives Canadian Tire many strategic advantages. The distribution center is located near the 400 series highway system which opens up easy access to essentially all of Ontario, down into the United States, and into the rest of Canada.

Many of the international suppliers that serve Canadian Tire are from the United States so this is a convenient location that is already designed for the large amount of traffic serving the facility. One of the perks of building outside of a larger urban center such as nearby Toronto, operating costs are kept low, and congestion is less likely to impair supply chain operations
(Foxman, 2018)

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In addition to this, CP and CN operates an intermodal train terminal nearby as well which means that the Canadian Tire containers can easily be shipped to and from the facility from western Canada and overseas markets through Vancouver, Halifax, and Montreal (Foxman, 2018).

In 2016, CT REIT purchased the former Sears Canada distribution center in Calgary after Sears went bankrupt. This warehouse backs onto Canadian Pacific’s Calgary train intermodal, and it also has easy access to both Stoney Trail and Deerfoot Trail (Wilcox, 2018).

Canadian Tire had already owned a distribution center next door to the former Sears one, but the Sears facility has access to the CP train line (Toneguzzi, 2018).

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Calgary is an an important distribution hub for companies wishing to build supply chains in Western Canada. There is easy rail and road corridors to other large cities such as Edmonton, Regina, Vancouver, and down into the United States.

Calgary was once primarily an oil and gas city, but recent infrastructure investments such as the Stoney Trail ring road, and the increasing airport cargo capabilities makes it a good place for building distribution centers (Buxbaum, 2017).

Shipping Containers

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Canadian Tire has invested in developing a fleet of 60’ shipping containers. These branded containers are designed to easily integrate with all of the supply chain systems that CTC has built. Canadian Tire has a contract with Canadian Pacific to be able to attach the containers to flat deck rail cars. This allows for easy transport to any of the Canadian Tire distribution centers. In Bolton and Calgary, the nearby intermodal terminals allow for simple unloading to flat deck semi-trailers.

In Halifax and Vancouver, the CP containers can be loaded onto ocean liners for Atlantic and Pacific transport. Foreign suppliers fill the containers with
product, and they are brought back to the Canadian distribution centers (Norbury, 2015).

Helly Hansen Acquisition

In 2018, Canadian Tire acquired the Norwegian clothing manufacturer Helly Hansen for $985 million. Helly Hansen has a supply chain that distributes products to more than 40 countries in Europe, and across the world (Press, 2018).

Helly Hansen specializes in manufacturing and distributing athletic, and work wear (Celebrating, n.d.). This acquisition supports Canadian Tire’s core business. Helly Hansen integrates very well with Marks, and Forzani branding. Both companies already carry Helly Hansen products, but the acquisition gives Canadian Tire access to the distribution network in Europe and the United States.

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Helly Hansen gains access to the CTC supply chain as well, therefore Canadian products can be sold in foreign markets (Canadian Tire Corporation, 2018).

The Helly Hansen acquisition is also important for Canadian Tire because it secures the availability of one of its biggest suppliers. Canadian Tire was for a long time one of Helly Hansens largest customers, but now that they are owned by CTC, there is little risk of losing contracts between the two companies (Canadian Tire Corporation, 2018).

Target’s Mistake

The american brand “Target” serves as a testimony to the consequences of rapid expansion without building a supply chain first, and Canadian Tire should be taking notes (Wahba, 2015).

In 2013, Target opened 124 stores in Canada and attempted to give other retailers such as Walmart, Costco, and Canadian Tire a run for their money. Upon opening however, shelves were empty, and the products that were present were costly and unappealing to Canadian shoppers. Inventory planning was neglected and Target ended up taking a $5.4 billion loss
(Wahba, 2015).

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Target purchased Zellers from HBC for $1.8 billion which gave them access to an existing distribution network. This is similar to Canadian Tire’s Helly Hansen investment. Target is branded in the United States to appeal to the middle class, whereas Zellers was meant for low-income citizens. The stores were also located in low income areas of Canada. Failure to choose middle-income locations played into the fall of Target (Wahba, 2015).

Technology, inventory management, and POS systems also played a role in the downfall of Target. The management teams at the Target corporate office decided to go with a software program known as SAP for their systems. This program is currently used by Indigo, Sobeys, and Loblaws.

The first time that Sobeys implemented the SAP program, it failed drastically and they reverted to old methods before trying again. Loblaws took 5 years before SAP worked for their supply chain. Target attempted to integrate the SAP program in a supply chain where none of the employees had prior experience with it in a short timeframe (Castaldo, n.d.).

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Target ordered massive amounts of inventory for their launch, but the inventory tracking systems, and the improvised supply chain resulted in lost orders, and delayed shipments. Stores were unable to keep a base amount of stock and as a result, shelves were empty. Target had three distribution centers in Canada, and each one was at capacity with goods.

Semi trucks were left idling outside because they were unable to access the distribution centers. Eventually Target resorted to renting additional storage facilities just to accomodate for the excess of stock. On paper, Target had tons of products in their system, and yet store shelves were empty (Castaldo, n.d.).

Canadian Tire’s expansion with Helly Hansen is not nearly as aggressive as Target’s expansion, but the consequences are just as likely.

Canadian Tire thus far has done an excellent job in building the supply chain before expanding, but previously all expansions were within Canada. Canadian Tire will face the same challenges that Target did if they intend to expand into the European and international markets. They will need to develop the existing Helly Hansen supply chain before they plan for additional expansion.

Conclusion

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In conclusion, Canadian Tire operates a very well designed supply chain. Product flows smoothly from each of the 2000 suppliers, through the distribution network, and into consumer hands. The corporate strategy aligns well to CTC becoming not only Canada’s retailer, but a leading global retailer as well.

There is not much needed as far as change is concerned, but Canadian Tire needs to be cautious with the rapid expansion that they have been going through with their Marks, Forzani, and Helly Hansen acquisitions. If the supply chain is unable to keep up, customers will experience high prices on goods, and slow service rates. Both of these factors will lead to
struggles in product turnover and cash flows.

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