[DCv] Home Depot's Supply Chain Remodel

[Moderator]

http://www.dcvelocity.com/articles/?article_id=2378&source=fromDCVInsider&utm_medium=email&utm_source=Email%20marketing%20software&utm_content=13619099&utm_campaign=Insider+2009+Aug+1+_+kjhyht&utm_term=Home+Depot%27s+supply+chain+remodel

The remarkable story of the Home Depot has many chapters. But supply
chain excellence never made the book.

For its first 30 years, a period in which the company set all kinds of
retail growth records, the Atlanta-based home improvement giant
virtually ignored its supply chain—a fact even its top supply chain
executive freely acknowledges. "Supply chain had not been the focus of
the company for many years," says Mark Holifield, who joined Home
Depot as senior vice president of supply chain in 2006. "Management
instead had [its] focus on growing its stores."

Holifield defends the company's emphasis on expansion as right for the
time, which is hard to argue with given the retailer's history of
double- and even triple-digit annual growth. But by the time he
arrived at Big Orange, times—and market conditions—had changed. Home
Depot was confronting several challenges that were about to thrust the
supply chain into the spotlight and put Holifield at the center of the
action.

[Moderator: Reasoning, although faulty, is very common]

...After nearly three decades of operation, Home Depot had little in
the way of a formal distribution network. Vendors and suppliers
shipped merchandise directly to the retailer's cavernous warehouse
stores, which served as their own distribution centers. At an average
of more than 100,000 square feet, the facilities were easily able to
accommodate vast inventories of building materials and supplies.

But as the business evolved, that model began to fall apart. Over the
years, the retailer, which had saturated the major metropolitan
markets, had turned its sights on secondary markets, where it had
begun building smaller stores that were more in keeping with the
markets they served. But the smaller stores lacked the space to house
vast inventories, making them particularly vulnerable to stock-outs
and other forecasting errors. Eventually, customers began to notice
that items weren't always available when they came looking for them.
And that was something Home Depot was unwilling to tolerate. "In-stock
is a key issue with any retailer," Holifield says.

...After conducting a distribution network study, they came up with a
strategy for rebuilding Home Depot's distribution process and reining
in costs by centralizing operations. That would be a big change for
Home Depot, which had traditionally left many key decisions to the
individual stores....

,,,The retailer's transportation model was equally store-centric. At
the time of Holifield's arrival, about 80 percent of products were
shipped directly from vendors to stores. The remaining 20 percent
moved through a variety of distribution channels, including company-
owned lumber handling facilities, import warehouses, and centers known
as "carton DCs" that were designed to handle bulky items. In addition,
a small percentage of orders moved through Home Depot-operated LTL
consolidation points, known as transit centers.

That will all change under the new strategy. While in the past, only
20 percent of goods moved through company-run DCs, the new plan calls
for half of the goods sold by the company (by value) to move through
Home Depot facilities.

At the core of the new strategy is construction of 24 rapid deployment
centers (RDCs). The RDCs, which will be strategically located
throughout the country, will each serve approximately 100 stores.
These will be flow-through distribution facilities engineered for the
swift cross-docking of large volumes of merchandise, so very little
will be stored in them. Most products will ship within 24 hours of
arrival, according to Holifield.

The RDCs will receive freight in pallet loads that can be broken down
for case-level shipments, but they will also have the flexibility to
accommodate limited split-case picking. Some— but not all—of the
facilities will be automated....

...Although only a third of the RDCs are up and running at this point,
Home Depot is already seeing some benefits. One is increased
flexibility. With products now flowing through the centers, decisions
on which products to ship to which stores can be postponed until the
last minute. As a result, the company is doing a better job of store
replenishment, according to Holifield. In addition, forecasting errors
have dropped significantly. "It is far easier to be right with
forecasting for 100 stores, than [for] one store as it was before," he
says.

Out-of-stocks have been reduced by half, and customers find product
available 98.8 percent of the time, says Holifield. And because
replenishment functions have migrated closer to stores, overall
inventory has also been reduced by $1 billion on a year-over-year
basis, he adds. Holifield expects to see further inventory benefits as
more RDCs come on line. It's not just Home Depot that's profiting from
the new initiative. The benefits are filtering down to its vendors as
well.

"It's huge for our suppliers," says Holifield. For example, the move
to centralized ordering means suppliers now have just one order to
process instead of a hundred POs from individual stores, he says. In
addition, suppliers can now ship their products in truckload
quantities to the RDCs, which is much cheaper than sending LTL
shipments to individual stores. The combined savings have enabled Home
Depot to negotiate better prices with its vendors, which further
reduces overall costs, Holifield says...

...Holifield is currently looking for capable people to help manage
the new RDCs. Check out this site (https://careers.homedepot.com/cg/)
if you'd like to make Home Depot your new home away from home...