This assignment requires the submission of a "reaction paper" by each individual student. After reviewing the reading materials relating to The Home Depot Supply Chain Innovation provided in Module 1

PSU #007

Revised 5/1/23

Home Depot's Supply Chain Innovation 1,2

Founded in 1978, the remarkable story of The Home Depot has many chapters. Although in earlier years this Atlanta-based home improvement giant recorded double- and even triple-digit annual growth, changing economic and market conditions forced the company to create and implement competencies in the area of supply chain management:

Based on net sales for fiscal 2022, The Home Depot, Inc. is the world’s largest home improvement retailer. Customers are offered a wide assortment of building materials, home improvement products, lawn and garden products, décor products, and facilities maintenance, repair and operations products. Also provided are a number of services, including home improvement installation services and tool and equipment rental. As of the end of fiscal 2022, The Home Depot operated 2,322 stores located throughout the U.S. (including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam), Canada, and Mexico. The Home Depot stores average approximately 104,000 square feet of enclosed space, with approximately 24,000 additional square feet of outside garden area. Individual stores are maintained via a network of distribution and fulfillment centers, as well as e-commerce websites in the U.S., Canada and Mexico.

The Home Depot serves two primary customer groups – consumers (including DYI and DIFM customers) and professional customers. The retail landscape has changed rapidly over the past several years, with customer expectations constantly evolving. In fiscal 2022, The Home Depot continued to operate with agility to meet the challenges created by a fluid domestic and global business environment, including supply chain disruptions, tight labor market conditions, and ongoing inflationary pressures. The company’s ability to operate successfully and meet the needs of its customers was due in significant part to investments over the past several years aimed at creating an interconnected, frictionless shopping experience that enables customers to seamlessly blend the digital and physical worlds. Going forward, the company plans to leverage the momentum of these investments and continue to invest in the business in support of the following goals:

Provide the best customer experience in home improvement;
Extend its position as the low-cost provider in home improvement; and
Be the most efficient investor of capital in home improvement.

The sections below provide some interesting background regarding The Home Depot and its supply chains. Please be sure to read the additional materials that are included in the reading assignment for this case study.

Early Years (1978-2008). During these formative years, The Home Depot had little in the way of a formal distribution network. Most merchandise was shipped from vendors and suppliers directly to the retailer's cavernous warehouse stores, which served as their own distribution centers. At an average of more than 100,000 square feet, the facilities were easily able to accommodate vast inventories of building materials and supplies. Combined with a very store-centric ordering and replenishment process, results included high transportation and inventory costs, and some issues with out-of-stock situations.

Rapid Deployment Centers (2007-2013). As a replacement to having most products shipped direct from suppliers to stores, and under the leadership of Mark Holifield, SVP Supply Chain, The Home Depot embarked on a massive supply chain transformation that included the building of 18 rapid deployment centers in North America. The purposes of these RDC’s were to receive most shipments coming from suppliers, and then to disseminate these items to retail stores in the company’s network. At the same time, the company adopted a far more centralized inventory management and replenishment model, which helped to create additional supply chain efficiencies. Overall, economies of scale have dramatically improved logistics costs both into and out of the RDC’s, and suppliers are able to better manage production runs.

Omni-Channel Capabilities (2014-2017). To address the growing demands of omni-channel retailing, The Home Depot announced in 2014 the addition of three e-Commerce distribution centers. Located in Georgia, Ohio and California, these facilities provided more rapid delivery for many shipments and additional capacity to carry large numbers of additional SKU’s.

“One Home Depot” (2018-present). To further realign its supply chain to a changing retail landscape, The Home Depot embarked in 2018 on a $1.2 billion plan to speed up delivery of goods to homes and job sites. As it became apparent that the rise of online shopping was resetting consumer expectations, plans were to add 150 distribution facilities across the U.S. to facilitate reaching 90% of the population in just one day or even less. These facilities were to include dozens of direct fulfillment centers to speed delivery of commonly-ordered products, as well as 100 local hubs where bulky items like patio furniture and appliances could be consolidated for direct shipments to customers.

The above enhancements to The Home Depot’s supply chain strategy included the building of four types of distribution centers to support the differing needs of its customers:

Flatbed delivery centers (35) – typically in major markets to handle most building materials
Market delivery centers (5-7) – cross-docks to handle local deliveries of products like appliances, doors, windows, and other larger and bulky items
Market delivery operations (100) – basically serve smaller markets and enable expansion of next-day delivery capabilities
Direct fulfillment centers (7) – significantly mechanized and automated to quickly turn around parcel orders.

Additionally, and to build out the capabilities of its direct-to-consumer supply chain, The Home Depot has introduced a number of interconnected customer offerings like Buy Online – Ship to Store, Buy Online – Deliver from Store, and Buy Online – Curbside Pickup. These initiatives are tangible evidence of the commitment at The Home Depot to realigning and transforming its supply chain in a dramatically-changing retail landscape.

A typical The Home Depot store stocks approximately 30,000 to 40,000 items during the year, including both national brand name and proprietary products. Online product offerings complement the stores by serving as an extended aisle, that is able to offer a significantly broader product assortment through our websites and mobile applications.

The merchandising organization is a key competitive advantage for The Home Depot, delivering product innovation, assortment and value, which reinforces its position as the product authority in home improvement. In fiscal 2022, investment priorities included merchandising resets in our stores to refine assortments, optimizing space productivity, introducing innovative new products to our customers, and improving visual merchandising to drive a better shopping experience. At the same time, we remain focused on offering everyday values in our stores and online. To help its merchandising organization keep pace with changing customer expectations and increasing desire for innovation, localization, and personalization, the company continues to invest in tools to better leverage data and drive a deeper level of collaboration with our supplier partners. As a result, there has been a continued focus on enhanced merchandising information technology tools to help: (1) build an interconnected shopping experience that is tailored to our customers’ shopping intent and location; (2) provide the best value in the market; and (3) optimize our product assortments. The merchandising team leverages technology and works closely with our inventory and supply chain teams, as well as supplier partners, to manage our assortments, drive innovation, and adjust inventory levels to respond to fluctuations in demand, which helped to navigate the challenges of continuing global supply chain disruption in fiscal 2022. As cost pressures have risen in several product categories in the current environment, our tools have helped our merchandising, finance and data analytics teams as they work with our supplier partners to manage these pressures.

An interesting figure is that half of its sales – about 45% – comes from home professionals, even though they make up less than 5% of its customer base. The overall experience at The Home Depot suggests that once something is developed for their contractor or professional business customers, it works very well for their DIY and DIFM customers as well. An overall priority at The Home Depot is the creation of strong and flexible supply chains to better serve its customers and consumers. For these reasons, the next phase of innovation and transformation for The Home Depot may accurately be referred to as “Agility, Fulfillment, and Customer Experience.”

(Author: C. John Langley Jr., Ph.D., Penn State University)

1 The content of this case has been adapted from materials available at: Josh Bond, “The Home Depot Builds an Omni-Channel Supply Chain,” Modern Materials Handling, www.mmh.com, February 1, 2015; Mike Hockett, “Home Depot to Spend $1.2B on 170 Distribution Facilities by 2023,” Industrial Distribution, www.inddist.com, June 12, 2018; Team Trefis and Great Speculations, “Why is Home Depot Making a Considerable Investment in its Supply Chain?,” Forbes, www.Forbes.com, June 13, 2018; Jennifer Smith, “Home Depot Sets $1.2 Billion Supply Chain Overhaul,” Forbes, www.Forbes.com, June 11, 2018; Dan Gilmore, “Home Depot and the Arc of Today’s Supply Chains, SupplyChainDigest, www.supplychaindigest.com, June 29, 2018, Melissa Repco, “Home Depot Wants to Speed Up Deliveries with New Distribution Centers as Pandemic Fuels Home Projects,” CNBC.com, August 4, 2020; Shefali Kapadia, “Home Depot Adds 3 Warehouses as DIY Demand Grows,” Supply Chain Dive, August 4, 2020; John Paul Hampstead, “The Home Depot’s Culture of Supply Chain Innovation,” FreightWaves, February 3, 2021; and Home Depot, Inc. 2023 10-K Filing to the SEC.

2 Efforts have been made to see that the details in this case are accurate. Also, the author has suggested several time frames in the write-up that are intended to help understand the evolution of supply chain strategies at The Home Depot. The time frames do not represent any official statements on behalf of The Home Depot, Inc., or members of its executive staff.