We believe that one of the unique differentiators of Supply Chain Matters vs. traditional media has been our ability to monitor and provide ongoing commentary on supply chain successes and/or setbacks across many industry settings. We literally tie existing news and developments with some form of context, whether crisis, transformational or renewal related.
Earlier in the year, I penned a somewhat lengthy commentary, Can Home Depot Close it’s Supply Chain Gap? This commentary was on the heels of a Wall Street Journal write-up that noted that Home Depot was challenged with playing catch-up with rival home improvement retailer Lowe’s, and that current executives conceded that because of lack of actions from prior senior management, the company’s supply chain capabilities had a long way to go to become industry competitive. Our previous commentary also noted that previous attempts to implement a “big IT’ an approach that scoped very large projects in scope and budget had very mixed results. Rival Lowe’s on the other hand, practiced a more pragmatic and managed scope of supply chain transformation.
With the endorsement of CEO Frank Blake, the Depot embarked on a $260 million investment in improved supply chain capabilities through 2010, which included moving the majority of inventory through regional flow-through deployment centers, shifting inventory replenishment to the RDC’s themselves. There were also investments in supply chain network design and inventory optimization capabilities, and in January of this year, a $60 million investment in hand-held terminals to improve customer-facing capabilities.
A few weeks back, I made it a point to review Home Depot’s Q2 2010 financial results, and in particular, the transcript of the earnings briefing. I did not have to go far in the transcript to find mention of the supply chain transformation effort. Besides a relatively optimistic report on sales and earnings growth in a tough economic environment, CEO Frank Blake noted that RDC’s 14 through 16 were opened, and that the overall RDC network now serves over 80% of U.S. stores. The goal remains as 100% support by the end of 2010, which is more aggressive than reported earlier in the year. Craig Menear, Executive Vice-President, Merchandising noted that U.S. market share had improved 28 basis points on a 12-month rolling basis, that in-stocks were at record high levels and the combining of import and domestic distribution centers were yielding benefits in more simplified product flow. Also mentioned was the rollout of a Teradata DCM forecasting tool to enable better inventory decisions and respond more quickly to sales needs at store SKU level.
CFO Carol Tome noted that gross margins had increased 41 basis points from last year, and that retail inventory was reduced $38 million from a year ago. During the Q&A sessions with analysts, Tome was asked directly as to what gross margin benefits were directly related to supply chain. Her response was that supply chain was doing a great job of driving the business but the true benefits from the transformation will come next year.
Having Home Depot’s senior executive team endorse the initiatives and accomplishments of the supply chain transformation team is noteworthy, and on the surface, a lot of progress is underway. We trust that this continues, and we extend our Supply Chain Matters ‘thumbs-up’ salute to the entire Home Depot supply chain team for their transformational efforts. We will continue to monitor this effort and hopefully have more detailed commentary in the coming months.