At Home Depot, supply chain investment pays dividends

The next phase for Home Depot's supply chain transformation is the implementation of a new forecasting and replenishment system within the company's 19 rapid deployment centers (RDCs).

"This new system integrates our store and DC systems and is an important step in improving the throughput and productivity of our overall supply chain," said Ted Decker, the Atlanta-based retailer's senior VP U.S. Retail, speaking at the recent Oppenheimer & Co. Consumer Conference.

In January of this year, Home Depot opened its 19th RDC, and the company now serves 100% of its stores through the RDC infrastructure, he said. Not counting special orders, about 40% of the merchandise flow to stores goes through the RDCs. 

Much of the 40 basis points of margin expansion experienced by Home Depot in 2010 came from the supply chain transformation, he said. And as the flow-through reaches 50%, the company expects to capture higher gross margin dollars.

"Many of [the RDCs] have just had their first spring, and the facilities operations will mature and they'll get more efficient," Decker said. "Then we will put more volume through them; we will add more vendors and continue to lower the cost of goods of flow through the RDCs."

In-stock positions will be another area of improvement, especially in the chain's lower-volume stores, according to Decker. The RDC system relieves store managers of the concept of "vendor minimums." "You can order one unit, and that's the whole beauty of the business model," he said.