Using Value Chain Analysis to Evaluate Lowes Supply Chain

Lowe's Supply Chain Integration Lowe's Companies. Inc. (NYSE: LOW) is headquartered in Mooresville, North Carolina and currently employs approximately 262,000 people as of January 31, 2014, making it one of the largest home improvement retailers in North America (Lowe's Investor Relations, 2014). The company is renowned for its enterprise IT expertise, including integration of a large-scale SAP Enterprise Resource Planning (ERP) system throughout its globally-based supply chain (Songini, 2002).

For Lowe's, supply chain integration is essential to the successful operation of their business model, which includes home decorating products, maintenance and repair products and supplies and an extensive supply chain that provides the foundation for the company to grow its market share in the Do-It-Yourself (DIY) consumer market segment. Lowe's has found that integrating their supply chain management and execution systems across the many geographies they source from, in conjunction with integrating to the centralized ERP system, is essential to attain economies of scale (Holley, 2002).

Supply Chain Planning and Integration at Lowe's With a customer base that is as diverse and broad as Home Depot, Lowe's must concentrate continually on managing its suppliers to the highest possible quality standards while orchestrating them to deliver products on time or early. This is essential to Lowe's profitability as they generate on average over 60% of new revenue from new product introductions (Lowe's Investor Relations, 2014).

It is well-known within Lowe's that there is a heavy reliance on the AMR Research (now Gartner) Hierarchy of Supply Chain Metrics (AMR Research, 2004) used for evaluating overall supply chain performance, including the accuracy and velocity of transactions and their contribution to gross profit contribution on a per unit and product group level (Lowe's Investor Relations, 2014). Lowe's relies on the analytics that track supply chain integration and logistics performance to see how they each contribute to new product introduction success rates and the resultant impact on profitability (Lowe's Investor Relations, 2014).

An analysis of Lowe's financial statements, 10Ks and 10Qs over the last decade provides a glimpse into how the company is managing its supply chain integration performance today. Table 1 provides an analysis of Lowe's Inc. Metrics of Company Performance Influenced by Supply Chain Performance. Lowe's concentrates on inventory-specific metrics as a barometer of supply chain transaction accuracy and velocity attained over time (Lowe's Investor Relations, 2014). The company also benchmarks supply chain performance using the Perfect Order metric as defined by AMR research prior to that firms' acquisition by Gartner.

Lowe's Supply Chain Integration: A Value Chain Analysis In order to compete effectively against Wal-Mart and other large-scale big-box retailers attempting to gain entry into the DIY market, Lowe's has had to concentrate on streamlining its supply chain through advanced technologies including RFID, Vendor Managed Inventory and real-time integration of their ERP system and supplier's sourcing, procurement and supply quality management systems (Sampson, 2008).

Lowe's is attempting to further streamline their global supply chain through the use of Collaborative Planning, Forecasting and Replenishment (CPFR), Vendor Managed Inventory (VMI) to reduce costs and more equitably spread the risk of inventory with suppliers, and initial investments in Radio Frequency Identification technologies (Lowe's Investor Relations, 2014). Like Walmart, Lowe's is concentrating its IT investments in the areas of analytics and Business Intelligence (BI) (Kumar, 2007). The following figure illustrates the supply chain integration strategies Lowe's as.