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Transcript of home depot
Mark HolifieldSVP – Supply Chain
Supply Chain Transformation
2008Investor & Analyst Conference
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Supply Chain Scorecard
2007 2008Improve ProductAvailability
Increase CentralDistribution
Improve Inventory Management
Develop Distribution Network Model
Implemented improved merchandise financial planning
External and internal measuresindicate continued progress
Migration to optimal solution has begun
Have 3 operational RDCs
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Supply Chain
Why is Supply Chain so important?Ensure a high in-stock level Optimize Inventory ManagementReduce Supply Chain costs
What does a good Supply Chain do?Simplifies store operations = Better customer serviceImproves speed to market = More product excitementBetter inventory flow and less clutter = Better shopping experienceFocused stocking tactics = Differentiated customer strategies (job lot quantities for Pros)
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Retailers: Out-of-Stocks
The solution lies in addressing common root causes:
In the store, not on the shelf
Insufficient ordering and poor forecasting
Poor inventory accuracy
Late or insufficiently filled purchase orders - #1 root cause at HD
Leading studies indicate that a typical retailer loses ~4% of sales from OOS
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Inventory Performance
HD’s Inventory Performance Has Been Deteriorating…
…but Every 1/10th Improvement in turns ~$150 Million in Cash
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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Inve
ntor
y Tu
rnov
er
$32
$34
$36
$38
$40
$42
$44
$46
$48
Avg
Ann
ual S
ales
per
Sto
re
Inventory Turnover Avg Annual Sales Per Store
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DomesticVendors
DomesticVendors
Direct to Store
Sources Distribution Channels
Import DCs
Transit Facilities
Carton DCs
Lumber DCs
~ 20% COGS
ImportVendors
Stores
2007 DC Network
~ 20% COGS
~ 60% COGS
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Optimal Flow Distribution Network
Direct To Store
Rapid Deployment
Center
Area Stocking Center
(“Stock & Pick”)
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Direct to Store
Sources Distribution Channels
Stocking DCs
RDCs
Lumber DCs
Stores
Future DC Network
Vendors
Vendors
~ 75% COGS
~ 25% COGS
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RDC Concept of Operations
THD Store demand is forecasted for all stores
serviced by a RDC …
… and aggregated for all stores serviced by that RDC. A single PO is sent to the Vendor.
The Vendor picks the bulk RDC-level order,
applies a standardized label to the pallet with product information …
Product is shipped from the Vendor to the RDC
… pallet standardized labels are scanned and
product is detail received against the Vendor’s
shipping order
… and sends an electronic shipping notice to the RDC
At the RDC, product is physically unloaded…
… and sorted to the desired store location
RDC Will Simplify & Speed Order Processing RDC Will Simplify & Speed Order Processing
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Pre-Allocated Last minute allocation
Partial Truckload / Less than Truckload (LTL) Full Truckload
1 PO per store(100 stores = 100 POs)
Bulk pick
RDC vs. Transit Facilities
VendorMinimums
No VendorMinimums
Store pick
1 PO per RDC(100 stores = 1 PO)
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Why Start with RDC?
Immediate, scalable solution to aggregate orders and improve in-stock in our stores
Biggest efficiency and cost out – 60% of the network value is derived from the RDCs
Low capital investment – Average RDC cost ~$10M in leasehold improvements and technology
Simplify operations
Low cost operations
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Project to Date Accomplishments
Rolled out 3 RDCs: Georgia, Illinois, Texas
Each RDC services ~100 stores
Have real estate locations for remaining 5 RDCs in 2008
% of COGS for stores serviced by an RDC
On-Boarding Vendors
2008 Target
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08
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Long-term Benefits from Supply Chain
Gross Margin Benefits (Basis Points)
~20-30
~30-40
2011 Post 2011
Expecting 1 Full Inventory Turn = $1.5 Billion CashExpecting 1 Full Inventory Turn = $1.5 Billion Cash
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Benefits of End State Supply Chain
Simplifies store operations
Improved speed to market
Better inventory turn, lower in-store inventories
Differentiated customer experience