Home Depot spells out supply chain strategy

Inventory represents an investment of about $11 billion annually for Home Depot, and that’s one reason why the company is continuing to emphasize its revamped supply chain as a key corporate initiative. Another is the constant pursuit of efficiency.

During the Janney Capital Markets Consumer Conference, Home Depot SVP supply chain Mark Holifield laid out the company’s strategy for supply chain management going forward.

The company looks to add five rapid deployment centers (RDCs) by the end of the year, for a total of 19. That’s when it expects its supply chain synergies to pay big dividends.

“In the baseball analogy, I feel like we’ve put a good first season behind us as an expansion team, and we’re now ready to shoot for a championship run,” he said. “We’ve gotten ourselves into the game, we’ve got the basics in place. From here we’re going to really leverage this distribution network that we’ve put up to really put up a competitive advantage.”

Holifield said the chain’s strategy aimed at four key points:

Integration, optimization and standardization of many of the distribution centers;

Implementing new capabilities going forward, such as import transload, ultimately taking more imports through rapid deployment centers;

Managing transportation better; and

Improving forecasting models and replenishing practices.

Holifield said to meet these objectives, the company looked at what worked in the past, and focused on bringing the successful models into the future.

“What drove the economic engine at the Home Depot for many, many years was opening new stores,” he said. “Today what drives the economic engine at the Home Depot is disciplined capital allocations, driving productivity and efficiency. And our supply chain objectives, while related to all three of those, is very focused on driving productivity and efficiency at the Home Depot.”

As part of its self-examination, the company noted a weakness in its system.

“What we found is that about 80% of goods were flowing direct to store, which was inefficient, lead to poor inventory turns, poor in-stock and high logistics cost,” he said.

Holifield said that the upgraded system networks and central distribution centers identify four key paths for products to flow to stores.

The first path, for lumber and bulk building materials, was through a basic flat-bed distribution system. Second was stocking distribution centers, which handled high-value items with no turnaround predictability, such as lawn mowers and power tools. Third was the development of rapid deployment centers.

“We identified that about half of our goods needed to flow to our stores through RDCs,” he said. These items include low-value goods.

Holifield said that the company currently has 14 operational RDCs across the country and anticipates 19 by the end of 2010, which would provide 100% coverage of U.S.-based stores.