TUTORIALS Case Study One Introduction The Home Depot, Inc. (Home Depot) is the world's largest home improvement retailer. The company operates in the US, Canada and Mexico. It is headquartered in Atlanta, Georgia, and employs about 371,000 people. The company's retail stores stock about 30,000 to 40,000 different kinds of building materials, home improvement supplies and lawn and garden products. Home Depot offers a wide range of national brands, as well as lower-cost proprietary and exclusive products. Some 9,000 products are designated as eco-friendly and are easily identifiable in-store. Home Depot also offers services such as installation, plumbing, moving, equipment rental and loans. In August 2016 Home Depot announced that it had achieved its highest sales and profit ever during the second quarter of the year. The company is benefiting from home renovation ambitions across the US and has been able to attract sales for home repairs and remodels even in a tough retail environment where consumers are spending less on clothes and other items. 'Housing continues to be a tailwind for our business,' commented CEO Craig Menear in prepared remarks. Strength in the housing market has been bolstered by low interest rates and declining unemployment, with the price of homes across the nation continuing to climb higher. Strategy The foundation of Home Depot's strategy is epitomised by its 'three-legged stool' strategic framework, which focuses on creating value to customers and shareholders by connecting the business end-to-end. The framework is centred on three 'legs': (i) customer experience; (ii) product authority; and (iii) capital allocation driven by productivity and efficiency. - Customer experience: this is much more than customer service - it is about providing a seamless, frictionless experience no matter where customers shop, be it in the digital world, in the retail stores, at home, or on the jobsite. - Product authority: Home Depot continues to strive to be the leader in product authority, balancing the art and science of retail by consistently delivering the best and most innovative products at the best value. - Capital allocation driven by productivity and efficiency: the company will continue to invest in order to drive productivity and efficiency. The 'seat' of the stool is the concept of interconnecting retail practices, which is the strategy of collaborating more closely internally and externally as part of an end-to-end approach. The aim is to drive growth, value and productivity for customers and shareholders Customers Home Depot distinguishes between two broad categories of customer: retail and professional. The retail portion can be further broken down into two distinct types of customer. 'Do-it-yourself' (DIY) retail customers prefer buying raw materials and completing their projects independently. At the other end of the spectrum, so-called 'do-it-for-me' (DIFM) retail customers are less likely to undertake projects on their own. As such, they are more likely to pay extra for installation services. Professional customers can be individual contractors such as repairmen, small business owners and tradesmen, but also construction managers. Their needs require more complex services, such as the ability to have orders delivered directly to construction sites. Home Depot has a loyalty programme for professional customers, Pro Xtra, which provides additional member benefits such as purchase tracking, exclusive offers and rewards points. Home Depot also has a private-label credit card programme in collaboration with Citigroup that is available to both DIY and professional customers. Sales on the credit card accounted for about 23% of Home Depot's sales in fiscal year 2015 on about 11 million accounts. In 2016, Home Depot expanded the financing services available to professional customers. In addition to regular benefits, it is offering professional customers the option of 365-day returns, fuel discounts and a credit period of 60 days. The Supply Chain Home Depot currently operates 2,269 retail stores, of which 1,977 are located in the US, 181 in Canada and 111 in Mexico. The Home Depot retail stores average about 104,000 square feet of enclosed space, with approximately 24,000 additional square feet of outside garden area. Home Depot procures products directly from manufacturers worldwide. In addition to the sourcing operations at its Store Support Centre in Atlanta, Georgia, the company has seven sourcing offices located in Shanghai, China; Shenzhen, China; Taipei, Taiwan; Gurgaon, India; Rome, Italy; Monterrey, Mexico; and Toronto, Canada. The company currently operates 34 distribution centres (DCs) in the US and Canada; 21 stocking DCs in the US, Canada and Mexico; and 10 speciality DCs, which include offshore consolidation and returns logistics centres, in the US and Canada. Additionally, it operates 18 rapid deployment centres (RDCs) in the US. RDCs allow for aggregation of product needs for several stores to a single purchase order, and then rapid allocation and deployment of inventory to individual stores upon arrival at the centres. According to www.dcvelocity.com (2009), Home Depot virtually ignored its supply chain for the first 30 years, a period in which the company set all kinds of retail growth records. Even its top supply chain executive freely acknowledges this. 'Supply chain had not been the focus of the company for many years,' says Mark Holifield, who joined Home Depot as its 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 Home Depot, 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 centre of the action. One challenge was the downturn in the housing sector. As SUPPLY CHAIN MANAGEMENT TUTORIALS 2 construction and credit began to decline, Home Depot moved swiftly to cut expenses by streamlining its operations. As chairman and CEO Frank Blake puts it, 'A downturn is a terrible thing to waste.' Another challenge was the realisation that Home Depot could no longer afford to ignore the logistics side of the business. After nearly three decades of operation, the company had little in the way of a formal distribution network. Vendors and suppliers shipped merchandise directly to Home Depot's cavernous retail stores. Such was the size of the facilities, they were easily able to accommodate vast inventories of building materials and supplies. 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 were not 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. Although it was clear that they were looking at a complete supply chain remodelling project, Holifield and his team were undeterred. After conducting a distribution network study, they came up with a strategy for rebuilding Home Depot's distribution process and controlling costs by centralising operations. That would be a big change for Home Depot, which had traditionally left many key decisions to the individual retail stores. For example, in 2006 about 70% of items were ordered by retail store managers; only 30% were ordered centrally. The retailer's transportation model was equally decentralised. About 80% of products were shipped directly from vendors to stores. The remaining 20% moved through a variety of distribution channels, including companyowned lumber (timber) handling facilities, import warehouses and centres known as 'carton DCs' that were designed to handle bulky items. In addition, a small percentage of orders moved through 1. With illustration, explain the concept of the supply chain management? 2. Explain how effective supply chain management has impacted on the profitability and performance of Home Depot. 3. Assess key risks in Home Depot's supply chain, including how they may impact on corporate performance. 4. Propose and justify objective measures of performance that could be applied by Home Depot operations in terms of people, finance, and customer satisfaction