This Week on SCDigest:
Aggressive SCM Transformation at Home Depot
Supply Chain Graphic of the Week, plus more Supply Chain News Bites
SCDigest On-Target e-Magazine
From RetailWire - How to Forecast When History is No Longer Relevant
Expert Insight - Daily Jab - A.H. Schreiber Story Shows Risks to Vendors from Changing Retail Labeling Requirements
Expert Insight - Guest Column by Mona McFadden, RedPrairie - What if Your Transportation Gears Don't Mesh
This Week on "Distribution Digest"
Your Supply Chain Questions Answered! This Week's Question - How Can We Calculate the Potential Throughput of our Distribution Center?
Trivia  Supply Chain Stock Index  Reader Feedback

Become a Sponsor
  Past Newsletter Archives June 11, 2009 - Supply Chain Digest Newsletter

Featured Sponsor:

*** On-Demand Videocasts***

Why the Time is Right for Labor Management Systems

Learn how to increase labor productivity, avoid pitfalls, evaluate vendors, and review how others have received ROI using an LMS

Collaborative Flowcasting: Creating Truly Demand Driven Supply Chains

Leverage Your Existing Wireless Networks to Do More and Reduce Operating Costs

This Week's Supply Chain News Bites
Only from SCDigest
Supply Chain Graphic of the Week: Determining the ROI for Labor Management Systems
This Week's Supply Chain by the Numbers - Inventory Optimization Reduction Potential, Proven Oil Reserves Decline, Flowthrough DC Savings, ATKearney Procurement Analysis


Wall Street’s major averages closed out last week on an up note, and with one exception, our Supply Chain and Logistics stock index followed along to the upbeat tune.

In the software group, Ariba climbed 9.3%, but is still down 31.1% over last year’s mark.  In the hardware group, both Intermec and Zebra were up (8.3% and 4.8%, respectively).  In the transportation and logistics group, it was a good week for the rail industry as Norfolk Southern was up 9.4%, followed closely by Union Pacific (up 9.2%).

See Full Stock Report

Each Week:

Global Supply Chain
Trends and Issues
BrainTrust Panel Discussion Question

How to Forecast When History is No Longer Relevant


Daily Jab

by Dan Gilmore, Editor, SCDigest

A. H. Schreiber Story Shows Risks to Vendors from Changing Retail Labeling Requirements

One Printer-Applicator Works Just Fine for UCC128 Labeling - Until JCPenney asks for Label on the Top


Guest Column

by Mona McFadden, RedPrairie

What if Your Transportation Gears Don't Mesh?

You Need Many Processes to Work Seamlessly to Achieve Transportation Excellence


Holste's Blog: Three Inexpensive Ways to Get More Performance Out Of Your Current Material Handling System

Top Story: Considering the Options for Engineered Standards Development

Video: New Retail Label Compliance Requirements Worrisome?

Visit Distribution Digest



Why does the supply chain management industry owe a debt to F. W. Harris for his published work in 1913?
Click to find the answer below
Have supply chain or logistics-related questions you need answered?
Ask our panel of experts.
Share your insight!

Featured Question
and Answer:

How Can We Calculate the Potential Throughput of our Distribution Center?


Follow us now at

Aggressive SCM Transformation at Home Depot

How do you rapidly transform a supply chain culture and pack 10 years worth of system, network and process changes into just three?


That’s exactly what Home Depot is in the process of doing, and so far the effort is working just fine.


In April, Home Depot’s public relations group reached out to SCDigest to see if we were interested in better understanding the massive transformation the company was making in its supply chain. The general story is pretty well known, and we have reported on it ourselves several times, from when Mark Holifield, Sr. Vice President of Supply Chain for the retail giant, made a presentation unveiling the strategy in Q1 2007 as part of the company’s quarterly earnings report.

Gilmore Says:


"If Home Depot can get that inventory turn number up by just 1, from 4 to 5, it means $1 billion in annual cash flow improvement."

What do you say?

Send us
your Feedback here

I subsequently sat down with Mark once in Atlanta and, then again, by phone a couple of weeks ago to dig into the details.


Interesting and related side note: I was first introduced to Mark when he had a similar role at Office Depot.  He wrote a feedback letter on my column on “The 50% problem,” which, in quick summary, argues that most companies believe their performance is better than it is. Holifield agreed, and sent a link to a magazine article supporting the same principle. I intersected with him a few times after that at the Georgia Tech Supply Chain Executive Forum.


That feedback letter is related, because Holifield was very frank about Home Depot’s supply chain position in 2007.


“We knew we were behind, and the supply chain was a competitive disadvantage for Home Depot,” Holifield told me. “We looked at how quickly we could eliminate that gap and ultimately make the supply chain a true competitive advantage for us.”


Home Depot’s challenges, as is often the case, in general resulted from a supply chain that was built to fit one mission and set of realities, but which hadn’t evolved as Home Depot’s world had changed.


At the beginning and middle of Home Depot’s massive growth, stores often did as much as $80 million in sales per location. Now, as a result of store expansion and competition, stores may do $40 million in sales. That’s still a giant number, but one that changes the inventory dynamics substantially.


The other factor was that the focus on rapid growth in the store network ultimately slowed, as it inevitably must for all retailers. That means the focus has to evolve, at least in part, from expansion to execution – and that meant the supply chain model had to change.


“About 75 percent of our inventory two years ago was delivered direct to store from suppliers,” Holifield says. That included about 60 percent truly direct to store, and then another 15-20% through LTL-type pool points that operated much like direct store delivery. Only 20% or so went through Home Depot DCs.


Combine that with a very store-centric ordering and replenishment process, and the results were high transportation and inventory costs, and some issues with out-of-stocks.


“The rumor when I got here was that 37,000 people at Home Depot could place orders to send inventory to the stores, and I think that was about right,” Holifield says.


So, plans for a massive transformation. First, a network optimization study, performed in just a few months using a commercial tool but with just in-house talent.


That study clearly showed the opportunity to rethink Home Depot’s massive network, which even with all the direct store delivery included dozens of facilities for the LTL pooling mentioned above, lumber DCs, import warehouses, and more.


“For a company with 75 percent direct store delivery, we sure had a big logistics infrastructure,” Holifield says.


The analysis showed the opportunity to “flip the ratio totally on its head” – move to a DC-centric model in which some 75 percent of goods would be shipped to stores through a new generation of flow-through DCs, or what Home Depot calls “Rapid Deployment Centers” (RDCs).


Of course, there is nothing new about flow-through in retail distribution, although unlike most, these RDCs do nothing but flow-through. A relatively small amount of non-flow through replenishment will be performed at some of the existing “carton DCs” that had been in place for some time.


“We were late, but I think we have some last mover advantage, leveraging today’s technology, to actually do some leap-frogging,” Holifield told me.


In parallel, the company is moving to a much more centralized inventory management and replenishment model, with some 70% of inventory being handled that way, versus the de-centralized model of the past.


The real story, however, is the speed and urgency with which this program has been tackled.


“It’s the most aggressive supply chain transformation program I have ever seen,” Holifield says. “Fortunately, we have some tremendous assets here at Home Depot, some very talented people, and we now have the real drive to make this happen.”


From one pilot RDC in 2007 to work out the details, the company has now rolled out six in the past 15 months, the latest one just recently in Valdosta, GA. Incredibly, the goal is to commission some 14 more RDCs, or about 20 in total, by the end of 2010, serving 100% of Home Depot’s North American stores.


That is quite a pace, facilitated by three full-time teams working on the roll-outs, which are of course all in various stages.


“I tell people we are looking to hire that if you are interested in being an RFID leader or use the latest wiz-bang technology, you aren’t going to find it here,” Holifield says. “This is a place you are going to learn about making a radical supply chain transformation in a huge, established company, with a culture very store-centric, in a way that services stores well, and to manage a big time growth spurt in supply chain thinking and execution in very short time. You can apply that to any business.”


The payoff will be huge. First, Home Depot’s inventory turns right now are about 4 per year, largely due to the massive inventories each store needs. Some 70% of items average less than one sale per store per week.


“You might have some consultant say “Cut those SKUs,” but they don’t understand our mission is to be in stock in every little part you need to complete your project, and if we get to a mass merchant view of inventory, we would have lost that mission.”


The challenge is to keep that strategy, but do it much more efficiently. If Home Depot can get that inventory turn number up by just 1, from 4 to 5, it means $1 billion in annual cash flow improvement. That’s a big number even for a company with some $70 billion in annual sales. However, the tough economy, which has been even tougher on home improvement retailers, isn’t helping.


“I can tell you we will get there [inventory turn improvement], I just can’t tell you when yet,” Holifield says, because of the uncertainties on the economy.


As always, the cultural change is the hardest part of the transformation. Executive management and the board have been exceptionally supportive, Holifield says. “I had a real mandate to make substantial supply chain improvements.”


As for the troops, “It was a constant battle early on. You win one heart and one mind at a time,” Holifield added. The key is showing results, especially to the stores. “When you demonstrate you can reduce out-of-stocks while improving inventory turns at the same time, you make believers,” he says.


In fact, Holifield believes “Home Depot is really on its way to becoming “a supply chain company,” which is a big shift for us,” he says. “Now, we are reaching parity, but we are confident we can move to being truly advantaged with our supply chain.”


Any reaction to the Home Depot story? What are the risks from this type of rapid transformation and network change? What does it mean to become a “supply chain company?” Let us know your thoughts at the Feedback button below.

Let us know your thoughts.


Web Page/Printable Version of Column


Do you use an RSS reader? Do you have a MyYahoo! or personalized Google page?

For these and more you can have SCDigest delivered right to your personal pages, all week long.

You can subscribe to our RSS feeds in two ways:

  1. Copy our RSS link into your RSS reader - it's easy!

  2. Click on a button below to quickly add it to your favorite readers.

Catching up as usual. We received several good letters on Materials Handling Editor Cliff Holste’s column on the impact of a distribution center packed with inventory on DC productivity. That includes our Feedback of the Week from Tom Welden, a former VP of Distribution recently caught in the downsizing thing, who offers his excellent perspective in addressing the problem.


You will find several other letters on this topic, a couple on the violence in Mexico that may threaten its position as a sourcing location, and one on the potential for Machine to Machine (M2M) communications.

Feedback of the Week – On DC Inventory Levels and Productivity:


Excellent article.  It’s an issue that the C-level executives and merchandising staff need to understand better.

Let me first say that I agree with Fred Kimball’s comment that outside storage options will most likely result in increased costs.  My old team and I discovered this was not the best solution for us. Therefore, we created a separate type of storage in which we kept high-volume product.  And I am not speaking of open stock or pallet storage. This was single carton handling by drivers working on order pickers in storage racks ~28 feet high.


Our carton storage inventory fluctuated anywhere from 13,000-16,000 SKUs. We divided the carton storage section of our DC into random storage locations and fixed storage locations.  And while we sorted by certain categories in the random storage area, the merchandise in a specific location could be from one to twelve different SKU’s (about 4 on average).  However, in the fixed storage locations, each location was a single SKU.  And for added efficiency, we used 10-foot roller sections to make that storage area into a giant flow rack (10 levels ~28 feet high). The product would flow to the drivers when they picked the product.  Overflow product for the SKU’s stocked in the fixed locations was stored in the random locations.  We issued replenishment picks to re-stock the fixed locations after picking from them.  This wasn’t done, though, until the minimum on-hand was reached for a location.

If you are of the thinking that this didn’t help when overall inventory had our capacity in the 90+% range, you are incorrect. While the picking and stocking in the random storage area was impacted by the overall capacity push, the fixed location segment was not. And our goal was to keep the majority of the key item SKU’s stocked in the fixed locations. The picking productivity from that segment was almost double what it was in the random segment and it was never impacted by capacity.  For that reason we were able to keep the overall effects of the capacity push on our productivity somewhat minimized.

There are two considerations that I want to point out as possible drawbacks to other people that might consider this type of alternative. One is that the space needed for the fixed storage rack is almost twice what you need for traditional style pallet rack (which is what we used in our random storage area). The second consideration is that density in the flow style storage rack is less than the pallet style rack.  In our operation, though, we felt the trade-off was worth the benefits we would gain. 

While this design minimized the impact of excess inventory periods on our storage operation, I know it won’t work for everyone. I do believe, however, that it emphasizes the importance of continuously looking for ways to improve your operation.

As logisticians, we must constantly be thinking about what we can do to “eek” out even the tiniest bits of improvement in productivity.  Challenging economic times like these really emphasize this fact.


Tom Welden

Former VP of Distribution Operations

More On DC Inventory Levels and Productivity:


During a career in the automated material handling industry (Retrotech Inc., and others), I justified a number of concepts in ASRS based on that very state change that you identify. 


A key factor in how much productivity is affected is the SKU complexity ratio to increased inventory.  As you would imagine, increased SKUs really exacerbates the productivity problem. 


Another key justification issue was resulting damage.  Using an industry standard view such as WERC's, a median is about 1% of handled loads.  The activity you describe can push it over 2%.


While facilities with a WMS and good practices do not usually lose product under these conditions, some inventory discrepancies do show up with greater frequency (perhaps measured in tenths of % point).


Last, as congestion occurs, and layouts of the DC are set for activity-based zones, fork truck collisions are another often unmeasured cost of this condition.


While I do not anticipate the warehousing and distribution market to change its views overnight regarding ASRS and more automated warehousing, these kinds of conditions and statistics drove some of the European models that we have seen for years and which, with current trends for importing goods more common, the US may find this condition you so well cite as one that will be driving companies toward automated DCs, much as Europe has already done (roughly a 10X activity in this type of warehouse concept over the conventional - that's based on my memory of a 2002-3 statistic from the ASRS Manufacturers compared to MHIA statistics).


Thanks for posting this sometimes 'underthunk' problem.


Len DeWeerdt

LW Consulting, LLC

There has always been a relationship between capacity utilization and productivity.  The exact point will differ from warehouse operation to warehouse operation, and for what you have in storage or in production.  But in general, when you get to 85%, things start to run a little slower. Get beyond 90%, and it gets tough. 


The real measure is the amount of open capacity and the load that you have for the period.  If you have only 18,000 cube of open capacity and 12,000 of inbound cube, things will run slower, but not bad. But with 25,000 cube inbound, things get choked up, nowhere to put the inbound until you have a shipping drawdown.


This can be applied to any operation in a distribution center or manufacturing plant, even to smaller “cells” of the operation.  Expanding on the inbound idea, lets say you have capacity for 26 loads in a shift.  You get appointments for 21, not bad.  But then 4 loads show up late, 3 hours late.  Now the capacity buffer is gone, and your productivity for the day is dumped because you had the labor to work the loads, but the loads were late.


David K. Schneider


David K Schneider & Company, LLC

On Mexican Violence and Sourcing:


Guess your risk perspective depends on whether you’re a victim of the violence.  To broadly state that the U.S. has a bigger drug problem than Mexico seems rather Pollyannic in the context of the article’s theme. 


Also, there’s no mention of the retaliation tariffs put in place for the legislative ceasing of the D.O.T.’s trial to allow Mexican truckers to operate outside of the border zones.  Unfortunately, the border towns with the most violence are the major shipment crossing  points, are they not?


Glenn Godbeem


While business opportunities are abundant, that does not change the inherent risks of travel in a very dangerous corner of the world.


We buy from manufacturers in Mexico, we ship/sell back to Mexico for use in Mexico across a variety of industries. Many of our business dealings are in communities with private armies guarding businesses, warehouses, and manufacturing locations. Many inbound materials are unloaded under armed guard for fear of hijacking/



Even for middle managers, travel is by private car (not limo) only, no taxi service, no rental cars and accompanied by local citizen/national 100% of time.


Hotel dining only, no evenings on the streets.


Quite sad compared to the condition 20 years ago.


Please withhold name.


Name withheld by request

Director of Distribution

Wholesale Distribution Company

Q. Why does the supply chain management industry owe a debt to F. W. Harris for his published work in 1913?
A. He invented the basic formula for the Economic Order Quantity (EOQ).