Home Depot: Overhauling the supply chain

Posted by Posted date Supply Chain Management 4 comments

While the details of logistics and supply chain management can get very complex, the basic concepts surrounding them are really quite simple. I’m always telling people who don’t know much about my job that it isn’t rocket science and a lot of it has to do with good common and business sense. I was reminded of this when I read this article on Home Depot’s plan to overhaul their supply chain. While the implementation on such a wide scale for such a large company is bound to be complex and possibly difficult, the concepts behind them are not. Via the Atlanta Journal-Constitution:

When CEO Frank Blake first took the helm of Home Depot, he visited a store in Prescott, Ariz. There, he saw a pyramid of John Deere tractors.

He looked around the arid landscape and thought to himself, “It doesn’t look like [Prescott] has seen a blade of grass, ever.”

He asked the store manager whether he sold a lot of tractors.

“I sold one last year,” the manager told Blake.

“Well, you’ve got 35 years of supply then,” the CEO replied.

Blake recounted this anecdote (to laughter) at a recent meeting of the Cobb County Chamber of Commerce to describe just how broken Atlanta-based Home Depot’s supply chain had become.

Another revealing quote:

“We are the single-largest less-than-truckload shipper in the United States,” Blake said. “A lot of trucks are going to stores that aren’t full. It’s not efficient.”

This says a lot about Home Depot’s supply chain problems and the need to fix them. Again, the concepts are easy to get – why are you distributing John Deere tractors to a desert store where demand for them will be incredibly low, forcing yourself to carry unnecessary inventory that will most likely never get sold? Full truck load shipments are cheaper and more efficient than less than truckload shipments, so increase the full truck loads you are doing and cut back on the LTL loads. However, overhauling the supply chain for such a large company and changing the way people think, analyze, and perform in a large organization is easier said than done:

“Home Depot admitted themselves that they are playing catch-up, not only with Lowe’s but with most other retailers,” said Brian Nagel, a retail analyst with UBS in New York.

“Home Depot stores are typically in a state of disarray, and they will admit that their stores need to be cleaned up.”

Part of this new initiative is to get the forklifts out of stores and reduce the amount of inventory piled up in stores, he said.

“Even high-volume stores end up looking cluttered. Conversely, you go to Lowe’s, which is a much cleaner shopping environment,” Nagel said.

Holifield, however, says the switch hasn’t been easy. The roll-out of two of the RDCs came last spring, right in the middle of Home Depot’s home improvement season.

Since then, Home Depot has slowed implementation of the project until they can get it right.

“I don’t envy that guy’s job,” said Doug Caldwell with ParcelPool.com, a Portland, Ore., logistics consultant. “They have a huge number of SKUs.”

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  • Gerard C October 14, 2008 5:03 pm edit

    I work for Home Depot and we have been complaining about this for years. Bob Nardelli was a complete disaster for Home Depot. He built too many redundant stores (we have 3 within 5 miles, and 10 within 20 miles, not too mention the other hardware stores. When he left he had plans to build 2 more in the same area) Further he moved everything over to auto ship. We now get huge over-supplies of things we don’t sell and have shortages of things we sell all the time. Frankly my store is not in disarray. You have here several problems. Too much management control. Managers rarely stay at any store more than 2 years, so they have no real knowledge of what they need in the store. But of course when managers do stay at one place for too long they start building fiefdoms, and surround themselves with yes men and brown nosers. HD has been working on a plan to phase out its IMA (inventory management associates) by getting rid of their duties and making them onverglorified price changers. Since the ordering has shifted away from the IMAs to computer programs we have more and more shortages, and more and more excesses). Managers on the other hand can always override the system and place orders, but in practice they have too much other work, and are not really qualified to know what is needed in any particular department. They tend to rely on sales staff to give them lists, but these people are dealing with customers and don’t have the time to make correct decisions. The best way is to have experts in the department make the ordering decisions instead of computers which really cannot decern the difference between weeks and events. One year we have flooding so we ordfer a huge supply of sump pumps and sell them all off. That same week the following year, the computers auto ship the same amount (this time they are late because the flooding happened 3 weeks earlier) and we lost the sales and were stuck with a years supply that sat on the shelves). Auto replenishment and remote purchasing decisions are the problem. (not partially full trucks). If we don’t have the merchandise then we have to do a transfer with another store. There is nothing more ineffeceient than having to spend money shipping one hammer, a paket of bolts, from one place to another via UPS or having a manager drive it over.

  • 3plwire October 14, 2008 6:51 pm edit

    Sounds like there are a number of issues affecting Home Depot’s supply chain, but the fact that Home Depot is the single largest LTL shipper in the U.S. is a pretty big one that shouldn’t be discounted. Inventory Management needs to be improved and LTL should be used at an absolute minimum. It’s a fact that FTL loads are more cost effective than LTL, so don’t discount it. Significant cost savings can be achieved by simply improving trailer and container load volume utilization.

  • Colleen Raye October 22, 2008 3:41 pm edit

    Too many power hungry egos get in the way of getting the job done. Why is it that the shopper has been ignored for years when this is who is making the company successful. Pulling staff from the store floors years ago was an obvious mistake. but common sense gets lost startiing at top management and working its way down through the department heads whose egos are too big to just get the job done! Get rid of some of the bottle-neck management people and silly programs/systems or as you call them “initiatives” that tend to lose site of the big picture, and hire the experts at the store level to assist your customers! Just do it!

  • SwizStick October 22, 2008 9:25 pm edit

    Why not do both? :) Keep your customers happy and implement cost savings initiatives!

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