The Home Depot’s supply chain pivot

Meeting the changing needs of DIY and professional customers

In 2017, The Home Depot announced a $1.2 billion supply chain investment. The retailer is expanding its distribution network through the construction of approximately 150 new supply chain facilities nationwide. The goal? To boost the percentage of the U.S. population it can serve with same-day and next-day delivery and better meet the changing needs of both do-it-yourself and professional customers.

The company’s efforts appear to be having an impact: Sales in the second quarter of 2020 jumped nearly 24 percent from the same period a year earlier.

NRF spoke with Stephanie Smith, senior vice president of supply chain with the Atlanta-based retailer, about the motivation behind the strategy, how the company is executing it and the results so far.

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Can you describe the drivers behind this strategy?

We see customer expectations rising, as they expect to shop whenever, however and wherever they want, whether they’re buying drill bits or lumber or scheduling an appliance installation. Our goal is to build the capabilities so we can offer same- or next-day delivery to 90 percent of the U.S. population. To get there, we’re building out our network across 150 markets, and developing a variety of formats for both our DIY and professional customers. We feel supply chain is the foundation to meeting customers’ expectations.

How are you changing The Home Depot’s supply chain strategy?

We’re building four types of distribution centers to support the differing needs of our customers.

Flatbed delivery centers: We’ll have about 35 of these across the country in major markets, ranging from about 300,000 to 800,000 square feet, and capable of handling most building materials. They’ll have lanes through the middle of the facilities, so drivers can pull their flatbed trucks right in. They’re typically built on rail lines, so they can handle both truck and rail products, like lumber and drywall. These centers will be especially impactful for our professional customers, including contractors and tradespeople, who make up 4 percent of our customer base but about 45 percent of sales.

Market delivery centers: These will include five to seven cross-docks to handle local deliveries of products like appliances, doors, windows and other items that are larger and bulky. We’ll build these in our top 20 markets and use them to execute a hub-and-spoke delivery model.

Market delivery operations: We’ll build about 100 of these in smaller markets. They’ll also handle larger items and will incorporate small cross-docks. This will enable us to extend next- day delivery to more of the country.

Direct fulfillment centers: These will range from 750,000 to 1.6 million square feet and use mechanization and automation to quickly turn around parcel orders. The Home Depot currently has four of these, supporting about half the U.S. population. We’ll build another two in the next 12 months, ultimately reaching a total of seven.

Will you continue to support your retail stores?

Yes. Customers are interacting in stores, online and through mobile apps — what we call interconnected retail. More traffic in our stores leads to more traffic online and more traffic online leads to more traffic in our stores. We’re opening three new stores this year, including one that’s a rebuild as the result of a tornado.

We think we’ll continue to see growth in both. For instance, digital sales jumped 100 percent in the second quarter of 2020, but more than 50 percent of buyers picked up their orders in a store.

How has the COVID-19 pandemic impacted The Home Depot’s strategy?

We’ve seen customers taking us in this direction — with greater delivery capabilities and flexibility — for a long time. COVID-19 simply underscored the need for this shift, as delivery is growing faster than anyone previously thought.

It also showed how we’re on the right track. Because we had a foundation in place, it was easier to pivot. For instance, with the growth in ecommerce orders, we needed to shift a market delivery center for the Chicago area to handle direct fulfillment of online orders. We were well positioned to pivot and could meet this need within three weeks.

What are keys to success in making this kind of enterprise-wide change?

Start from the customer and work back. Look at the existing customer experience and how you can improve it. One place we started with was with the MDOs. We looked at the end-to-end customer experience, making sure every experience was the best possible. When we identified exceptions, we’d work back and decide how to fix each one. We’re seeing improved customer satisfaction and on-time delivery.

What sort of reception has your new strategy received?

We say that in supply chain, our goal is to offer the fastest, most reliable delivery across all channels, and for every product. This is where customers are taking us. It’s been met with a lot of enthusiasm.

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