Erik Gershwind: Yeah, Chris. So in the prepared remarks, we hit on three, in terms of the productivity. And what I would say is, mission critical 1.0 for the last three years was capitalizing on some of the low-hanging fruit that we saw and that led into the productivity target. I would say, we feel at least as good as we did for the last round, as we do for this round in terms of productivity. It’s just — it’s different kinds of stuff. And so the three anchors are, number one is category management. So the category management improvements, we hit on over the last few quarters, we’ve talked about line reviews. But line reviews are really just one tactic in what is a bigger objective here to improve category management performance and excellence.
And we mentioned a few of the other factors like looking at margin and mix management and portfolio optimization, kind of all feed into category management. Most of the benefit we’re going to see there is going to be on the gross margin line more so than the OpEx line. And look, I mean, obviously, it was one quarter Q1, but we were encouraged because we had telegraphed Q1 was kind of the depths of the price/cost negativity based upon timing and our average costing. So the fact that we could come out of the gate strong as we did, we felt good about it and we track back to category management. So I think that one you’re going to see play out on the gross margin line for the most part. The second one is the supply chain area. And it’s long been a strength of MSCs, particularly in the spot buy arena, supply chain that is.
And what I’m excited about is the team that Martina has assembled that’s now taking just a fresh look, and it’s a combination of some people that have been here a long time and know the ropes at MSC with some new people bringing fresh thinking and fresh ideas and we had two data points on the supply chain front this quarter, freight expense as a percent of sales that came down as it should, given rates, but we saw a nice improvement there. And then the second being inventory efficiency. I think you’re going to see more from us in the quarters to come on the supply chain front. I mentioned the team is really doing an end-to-end look at everything from how we’re operating inside the buildings to how we move things across the building. So that would be the second one.
And then third, this digital core, the systems project, which is really beyond the systems project, it’s going to unlock for us. We mentioned order to cash and procure to pay, which are two of the just the core value streams, how things move through MSC that there’s a lot to unlock there. That one will be in the later stages of this next chapter. I mentioned that the launch of the new system will be sometime around the end of fiscal ’25 so that will be a fiscal ’26 event. For the back half of ’24 and ’25, you can expect category management to influence gross margin and supply chain on the OpEx line.
Chris Dankert: Got it. Yeah. Thanks so much for the color there. I’ll jump back in queue here.
Operator: Thank you. And our next question comes from David Manthey with Baird. Please go ahead.
David Manthey: Yeah. Good morning, everyone. Happy New Year.
Erik Gershwind: Good morning, Dave.
Kristen Actis-Grande: Happy New Year, Dave.
David Manthey: First off, could you give us your mindset on headcount for fiscal ’24?
Erik Gershwind: Yeah. Sure, Dave. What we’ve talked about so far is, we saw the softening beginning last quarter and that we were going to temper hiring. And that’s essentially what you saw from us in the first quarter. So if you look, headcount in total is up more than 100% of the increase came in sales. So the rest of the business headcount and support function headcount was actually down up in sales. And being up in sales is really a function of two things. One was supporting the growth in the vending and the implant signings specifically. As you can imagine, the more of those we have, the more support there is. So we view that as a good thing. And the second was some other select basically investment opportunities on the front end of the business to drive growth.
The rest of the business was down. I would say the MO we’re following right now, Dave, is reflective of the environment in which we are operating. So we’re viewing the current step down in growth as fairly shallow and fairly temporary as evidenced by our outlook for the back half of the year. And so we’re taking an approach to headcount that’s moderating. And certainly, I think you’ll continue to see that temper but not a dramatic drop. I think if we were operating in a different sort of environment, you’d see a different playbook.
David Manthey: Got it. And then could you discuss your thoughts on growth versus IP this quarter? And related to that, you clearly are expecting some economic improvement as you move through the year, but does your outlook also assume that you reestablish 400 basis points of outgrowth later this fiscal year?
Erik Gershwind: Yeah, Dave. That is certainly, yes. The short answer is, yes. And definitely, we saw it compress here. From everything we can see, Dave, we don’t see a change in relative market share position in terms of what’s behind the compression and growth relative to IP. And a lot of it was a function of some spend contraction, some inventory burn things beyond just output that disproportionately affected us. So the short answer is, yes, our expectation and our focus is still on outgrowing IP by at least 400 bps.
