In August 2006, he returned to his former playing club, the Scarlets after being appointed Director of Rugby. In his first season in charge at the region, he guided the side to a fourth-placed finish in the 2006–07 Celtic League, while also leading the side to the semi-finals of the 2006–07 Heineken Cup, losing to Leicester Tigers 33–17. In 2007–08, the Scarlets struggled under Davies, losing all six games in the 2007–08 Heineken Cup, and dropping to sixth place in the 2007–08 Celtic League. In April 2008, it was announced that the Scarlets had sacked Davies, and that the 10 May clash with Edinburgh would be his last. After leaving Llanelli, he served as a consultant head coach with Cardiff RFC from November 2008 until May 2009. Where after he became National Academy Manager for the Welsh Rugby Union, where he was responsible for developing an international pathway at the WRU. This role doubled up with his duties as Wales U20's head coach which he was appointed as in September 2008.