Supply Chain Management Home Depot

Home Depot and Management Tool

• Company background -- must include sales and employment data. Products or services provided. Size vs. major competition.

The Home Depot (NYSE: HD) is the world's largest home improvement chain and the fourth-largest retailer of home improvement and construction products and services. Founded in 1978, Home Depot has about 2,500 locations in each of the 50 states as well as in the 10 provinces of ten provinces of Canada and in Mexico and China. It also operates an online company. The company's headquarters are in Cobb County, Georgia, in Greater Atlanta and its CEO is Francis Blake.

Home Depot targets the do-it-yourself (DIY) and professional markets with its selection of some 40,000 items, including lumber, flooring, plumbing supplies, garden products, tools, paint, and appliances. Home Depot also offers installation services for carpeting, cabinetry, and other products. (Hoover.com)

According to Forbes.com:

The Home Depot stores sell an assortment of building materials, home improvement and lawn and garden products and provide a number of services. The Home Depot stores average approximately 105,000 square feet of enclosed space, with approximately 24,000 additional square feet of outside garden area. & #8230; The Home Depot stores serve three primary customer groups: -It-Yourself (D-I-Y) Customers, Do-It-For-Me (D-I-F-M) customers and Professional Customers. In January 2012, the Company acquired Redbeacon.

Home Depot's top three competitors are Lowe, Menards, and True Value Company, but Home Depot is actually the largest home improvement retailer in the United States, according to the U.S. Securities and Exchange Commission. As of 2013, Home Depot employs 189,390 employees and possesses a total of $75,614 in sales. (Forbes.com)

Hoovers shows the following ratings for Home Depot:

#35 in FORTUNE 500 (May 2012)

S&P 500 (December 31, 2012)

Dow Jones Industrials

#78 in FT Global 500 (July 2012)

#35 in FORTUNE 1000 (May 2012)

Forbes (2013) listed it as the 48th most powerful brand in the world (Forbes.com )

Home Depot suffered, as many companies did, during the recession and housing crisis in the U.S. However, it managed to retain its footing by focusing on its core businesses and exiting China.

• Conditions that lead to selection of Operations Management tool. What were the conditions in the company that lead to the decision to select and implement the management tool?

Home Depot suffered, as many companies did, during the recession and housing crisis in the U.S. Aiming to get beyond that and to maintain its footing, Home Depot determined to focus on their core business. That meant ensuring that amendments and improvements would be made in the operations management realm.

In 2009, Home Depot frightened at its situation, evaluated its circumstance and had its executive management team tell analysts and investors that their long-range goal was to consistently deliver operating margins of 10% and return on investment capital of 15%. To that end, the company determined to make immense changes in its megalithic business - changes that were intended to penetrate every single nook of its operation and that were intended, too, to reverses the competitive disadvantages in Home Depot's customer service, supply-chain management, information technology, and store productivity. Optimism in 2009 was such that with these changes in place, HD's executive team predicted increase in revenues from its deep slump of 26% up to 7%, or by 20% to 26% on an adjusted basis.

Wanting to fissure its mammoth store closer together so that all could work in tandem and achieve faster and superior results as well as superb communication, Blake called for all of HDs moving parts "reading from the same script," which, in essence, meant tighter integration between parts of the company so that they could raise sales from the $270 in 2009 to a hoped- for $340 and $350. At the same time, HD planned to reduce operating expenses to around 25% of annual revenue (Forbes.com).

Analysis of the company's operation showed too that many customers were not receiving sufficient attention or assistance:

To tackle the perception that Home Depot workers are always too busy to help customers, the company is spending $60 million on hand-held devices that will help workers check on the spot if something is in stock. Marvin Ellison, a former Target Corp. executive who is Home Depot's executive vice president of U.S. stores, conceded there was no good reason it took so long to devise the devices, which replace consoles resembling EKG heart machines that workers would constantly leave customers to go use. (Lariviere, 2010)

To deal with that point, HD therefore focused on customer training for their employees, aside from which they also rolled out a new training program for associates in its installed sales program, which they incorporated into their merchandising and store operations departments.

The recession forced Home Depot to exit its Chinese market as well as its Expo Design Center business and compelled it to close other ancillary specialty outlets. To compensate, HD obsessed itself with perfecting its core businesses making sure that gaps in these were closed and that service was improved so that customer interest would grow and new customers be attracted to their existent stores. Compelled to downsize, HD planned instead to focus on nurturing its original retail format making its big-box stores more productive and simplifying their operations with less corporate protocols and bureaucracy. As means to that end, HD introduced software tools that measured performance, forecast product needs, and imposed greater discipline on the company's operations. The objective of all of this was to "allow for the consistent delivery of U.S. gross margins." (Builder, 2009).

Their Canadian division too experimented with a new Enterprise Resource Planning (ERP) system, called SAP (i.e. Systems, Applications, and Products in Data processing), that was meant to analyze and fine-tune each of the store's floor-plans with the aim being to improve inventory management. Part of the reason for HDs choosing this ERP system was HDs recognition that some of their departments needed organization. Until 2008, for instance, "neither able to handle domestic and imported merchandise in the same distribution center nor price its clearance inventory by store" (Builder, 2009)

In that same year, HD too focused on customer training for their employees, aside from which it also rolled out a new training program for associates in its installed sales program, which they incorporated into their merchandising and store operations departments.

• When did the company implement the management tool?

The Canadian company implemented the management tool in 2009. Compelled to downsize, HD planned instead to focus on nurturing its original retail format making its big-box stores more productive and simplifying their operations with less corporate protocols and bureaucracy. As means to that end, HD introduced software tools that measured performance, forecast product needs, and imposed greater discipline on the company's operations. In 2009 too, the company consolidates the operations and management of its lumber/bulk and stocking warehouses. Its proposition was that by running more of its inventory through its distribution channel, it could achieve transportation savings that would leverage annual gross margins by an approximate 0.4% to 0.8%. In fact, the company was intent on revamping its supply chain. Lariviere (2010) reported that: "a network of "rapid deployment" warehouse centers being completed this year will combine shipments, trim costs and cut truck trips to stores by up to 50%..."

In 2012, the Company turned to a workforce management tool in order to alleviate their labor-intensive scheduling. What this meant in essence was that the company, employing close to 300,000 workers had a daunting task in organizing and delegating tasks for these workers as well as monitoring quality completion of these tasks. The original forecasting and scheduling system was built on a 1990 model, and Chris Duffey, VP of operations and strategy at HD was intent on remodeling it. The system had become onerous and wasteful with too many people employed in planning and supervising it. HD had gone through this recession intent on reducing coasts and downsizing wherever possible. This was one archaic system that certainly needed some lean management tools. Secondly, the manual scheduling process was also expensive and thirdly, managers failed to improve the work schedule from the customer's perspective leaving many gaps and much chaos in the system.

Aside from gaps in the demand system, the program too was not integrated with HDs payroll leaving store managers unsure of the financial implications of the schedules that they were posting per week.

Finally -- and one last determination for the change -- was the unwieldiness of the system. Employees were unsure of their tasks. They had to either drive down to the store to see it, or ask an associate to read their task over the phone. This was clumsy and time-consuming (Harris, 2012).

In 2012, Home Depot launched focus and discussion groups for change and introduced Empower WFM first testing it among eight vendors (Integrated solutions for retailers (2012)).

• What were the results of implementation - Document cost savings, productivity improvement, workforce reduction etc.

The IT program Empower WFM benefitted the company in the following ways:

1. It gave the company an extra 15 hours per week which helped them schedule creation.

2. It improved the quality of schedules in the company in that store managers more effectively used the skills of their colleagues and employees across diverse departments

3. Employees could now see their jobs by logging into their system form home. This enabled them to do their work faster and better without wasting time. It, consequently, also saved the company money and gave customers less irritation.

Home Depot's new strategy proved successful economically too. At the end of 2011, Home Depot had earned $70.4 billion in revenue, up 3.5% from 2010. As of October 2012, a share of Home Depot costs more than $60, an increase of nearly 70% from the same time last year.

Blake had replaced Robert Nardelli in 2007. Nardelli had focused on expansion and slashing employee benefits. Blake, on the other hand, cut costs without destroying morale and set up improving customer service and reversing expansion in order to focus on key business.

"Frank looked at the world and said, 'We're fully stored, why we don't focus on improving the existing stores that we have rather than growing for growth's sake?'" says Gary Balter, an analyst who covers Home Depot for Credit Suisse. Blake saw, he says, that growing to placate Wall Street didn't make good business sense. (Dubois, S. (2012))

In 2012, predictions were looking up for the company and their profits were on an upward slope as the following graph shows:

In fact, at the end of 2012, Forbes -- one site that reposted this graph, noted that "Home Depot trades well above its 100 and 200-day moving average, a bullish technical indicator." (Forbes.com (2012))

Home Depot had come a long way since 2008, and Forbes considered the company to be a safe investment.

The company's growth can be seen in the various accolades that it won since 2008 (Forbes.com)

It was #35 in FORTUNE 500 (May 2012); #78 in FT Global 500 (July 2012); and #35 in FORTUNE 1000 (May 2012). Forbes (2013) listed it as the 48th most powerful brand in the world (Forbes.com, 2013)

At the end of 2012, Home Depot too had profited from Hurricane Irene which together with its management system allowed it to repurchase back $700 million a total of $4 billion by the end of that year.

Moreover, the U.S. housing market, an impediment to the company at one point, was now an encouragement towards growth since rising sales pushed down the stock of unsold properties on the market, lifting prices and giving builders more confidence to take on new projects. This was the news in 2012, and the trend in 2013 seems to be reiterated growth in the same direction.

Home Depot's earnings by the end of 2012 had BEEN 74 cents per share. Sales rose nearly 5% to $18.13 billion, topping analysts' estimates of $17.93 billion whilst sales globally increased 4.2% including a 4.3% rise in the United States.

Appraisal was optimistic.

Edward Jones analyst Robin Diedrich, for instance, concluded that: "Things are going pretty well for them; with sales remaining strong & #8230; The stock has done extremely well and trades at quite a premium to the rest of retail." (Reuters.com (Tue Nov 13, 2012))

Much of this was the result of their improved customer service and management tool. Home Depot's better pricing and enhanced customer service boosted them above Lowe's. This was the first time in more than 13 quarters where Lowe and HD had run neck-to neck together (ibid.)

• Future of the company -- What has the successful implementation allowed the company to do?

At the start of 2013, the company employed 189,390 employees. Its latest news has been that due to its booming business, it plans to employ 80,000 more associates for its predicted busy Spring season (Home Depot (2013) News Releases.). HD apparently has its system back on track and has managed to not only tidy their concerns but to also improve them and win over customers by so doing. Their ERP system has been boosting to their business.

In 2012, Home Depot executive management told Reuters that "We believe we're on a path to recovery. We're not there, but we're on a path," The path seems to be wending ever clearer in the future.