Home Depot in Rapid Deployment Mode

Discussion
Jun 03, 2010
George Anderson

By George Anderson

Home Depot is continuing to roll out rapid deployment centers
(RDCs), large distribution centers positioned around the country, to help it
get products to stores more efficiently. In the process, Home Depot has been
able to reduce inventory on-hand at stores and improve turns.

Mark Holifield,
senior vice president of Home Depot’s supply chain, told attendees of the Janney
Capital Markets conference last week, "In Q1 we reported
increasing turns, and this is something we expect of ourselves going forward,
to continue to improve inventory turns."

According to a Dow Jones Newswires report, Home Depot has $11 billion invested in inventory.

Turns at the chain
improved for the first time since 2000, as the home improvement retailer began
opening RDCs last year. In all, Home Depot added 5.2 million square feet of
new distribution space in 2009, according to a report on the National
Real Estate Investor
website. Beyond adding space, Home Depot has improved
procedures and invested in technology at RDCs to respond more quickly to the
needs of stores than with typical distribution centers. Currently about 70
percent of the chain’s stores are served by RDCs with the plan to have all
locations receiving deliveries by year’s end.

More effectively managing the
supply chain is critical to Home Depot’s success, according to Mr. Holifield. "We’re
a project-oriented retailer, and if you don’t have that one item in stock,
the customer might take the whole project down the street," he said.

Discussion Questions: Are supply chain logistics any more or less important
in the home improvement channel than in other retail verticals? Does Home
Depot have a sustainable advantage in its supply chain strategy?

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13 Comments on "Home Depot in Rapid Deployment Mode"


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Dan Desmarais
Guest
Dan Desmarais
10 years 11 months ago

Home Depot has a long way to go before they master the supply chain as other retailers have. The complexity of the DIY business, along with local legislation, makes matching other industries almost impossible. The RDCs will help, and so will their ongoing understanding of the capacity of the products on the shelf.

The Home Depot continues to impress. Watch for them to keep the increase in turns.

Paula Rosenblum
Guest
10 years 11 months ago

Improving turn is always a good thing but for me, thoughts have turned to hurricane season and other potential natural disasters. When the hurricane hits, stores need generators, tarps, batteries, fans, plywood, and other emergency supplies.

If Home Depot can answer those needs, it’s a win for consumers, the retailer, and shareholders. It’s also great PR and will create more goodwill.

As was said above, HD continues to impress.

Roger Saunders
Guest
10 years 11 months ago

Home Depot’s focus on strengthening the supply chain is the right move. Based on consumer responses to the Consumer Intentions & Actions (CIA) monthly surveys, Home Depot has earned their stripes with the consumer.

When asked “What are the reasons why you buy your Home Improvement / Hardware items there?” consumers point to PRICE (74.2%), SELECTION (71.7%), LOCATION (73.0%), QUALITY (48.9%), and SERVICE (29.9%) as the top reasons from a list of 15 points. Lowe’s scores slightly higher and slightly lower on a couple of these points, but they are in the same ballpark.

We similar types of patterns for other big box retailers, but Home Depot rates high in relationship to Grocers, Electronics, Apparel, QSR players who have to hold a tight focus on supply chain. Home Depot’s customer base is better educated, earns a higher household income, and is more likely to be a home owner than the general population. That type of audience, while they may be unfamiliar with “supply chain effectiveness” knows it when they see it.

Ed Rosenbaum
Guest
10 years 11 months ago

Home Depot is catching on to what other retailers knew well before. They have some work to do to get it down as well as others. I applaud them for the start. It will be good for them, the customers, and vendors.

Something for us to revisit in another year to see how they are doing.

Gene Detroyer
Guest
10 years 11 months ago

Few things have as much leverage on a P&L for a retailer than to increase turns. There are two ways to increase turns. The first is to increase sales. The second is to decrease inventory. Reducing inventory by 10% will increase turns more than increasing sales by 10%.

Increasing sales by 10% is a huge and likely unprofitable undertaking. Reducing inventory by 10% is very doable with good supply chain, information systems and operations.

As a retailer centers the inventory in lieu of keeping it in a store the retailer can supply more stores with less back-up. The entire original rationale for Federal Express was to attack this problem/opportunity. Further, the central inventory does not have to focus on small widgets, but high cost items.

This is a very good move for HD and one that fits their business very well.

Sid Raisch
Guest
Sid Raisch
10 years 11 months ago

One thing that causes a problem here is that being in-stock is the cheapest form of customer service available to discount mass retailers.

Inventory requires a broader selection to hit what more consumers want to buy as well as having all of those choices in-stock at all times.

It is a necessary and relevant cost of doing business on a discount mass merchant scale that does not allow service at the level that can steer customers to what the retailer does have in-stock.

Kai Clarke
Guest
10 years 11 months ago

Home Depot needs a full 100% implementation of their RDCs. There are many suppliers who prefer NOT to do business with Home Depot because of their antiquated logistics model which forces direct to store distribution and places undue reliance on the supplier to maintain the integrity of the logistics chain. Now HD can determine their logistics efficiencies, control their TTM (time to market) while maximizing their inventory controls and turns by product, category and location.

Bob Vereen
Guest
Bob Vereen
10 years 11 months ago

The Home Depot is now adopting the distribution method used for decades by its major competitor, Lowe’s. If they can do it as well as Lowe’s does, it will be a successful strategy for them.

george dellon
Guest
10 years 11 months ago

You need to understand the history of Home Depot’s different supply chain solutions, from the beginning until now. They have adeptly utilized every ‘solution of the moment’ to keep there myriad SKUs in stock, and to handle that freight in the cheapest way possible. Lest we forget, the direct to store model enabled Home Depot to eclipse its traditional competitors and enabled them to work on lower margins (Remember Everyday Low Price”?).

The difference between cross docking and RDC must be of value, as they see it, and I wonder if the economics of the times, the saturation of the stores, and the ‘dis-economics’ of that saturation have led them to this current iteration. No dummies, these guys.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
10 years 11 months ago
Supermarket chain logistics are the most fragile due to the shelf lives of many of the products. Fashion retailer logistics would be next in fragility due to, well, fashion. Way at the end of the “fragilometer” in terms of logistics comes nuts and bolts and lumber and bricks – the DIY channel (no, not the TV channel by the same name). But all retailers share an equal fragility – out-of-stocks. Sid Raisch, in his comments, and Holifield, in the article, nailed (pardon the pun) the central issue for this discussion: If you are a project-oriented bidness, you’d better have all the ingredients in stock. Ever gone to the grocery store with a recipe in hand, intent on buying all of the ingredients but finding that some were unavailable? Same thing. While I’m equidistant between a Home Depot and a Lowe’s (about five minutes in each direction), as a non-project-oriented shopper I find that I have to shop both stores for what I want due to out-of-stocks and never-stocks. Bits and pieces. Gimcracks and gewgaws. Lightbulbs,… Read more »
Doug Stephens
Guest
Doug Stephens
10 years 11 months ago

From the research I’m doing, this has less to do with inventory turns and more to do with a fundamental shift in category demand. I think Home Depot is anticipating a qualitative and quantitative reset in what gets sold.

On the qualitative side, consumer tastes and preferences in home decor are going to be shifting more rapidly with more diversity across a growing number of niche consumer segments, geography and economic regions.

On the quantitative side, with the Boomers chilling out on home improvement spending, we can expect a normalization in demand for these products. We simply won’t be buying as much stuff.

Increasing inventory turns is what Wall Street wants to hear but the truth is the days of “stack it high and watch it fly” in the home improvement category are over – for now at least.

george dellon
Guest
10 years 11 months ago

1) Lest we forget, the web and the opportunity to lower freight costs. 2) Stack ’em high left when Bernie & Arthur left, as did the original entrepreneurial spirit that allowed for such great growth, and became difficult to manage when they got so big…and when the GE form of ‘measure everything’ took hold.

Right or wrong, they’re still the biggest, and from my experience, they seem to be more in-stock than their largest competitor. And don’t forget the Co-Ops; how well their DCs seem to work.

John Crossman
Guest
John Crossman
10 years 10 months ago

They have some very impressive people and I expect this area will continue to improve.

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