Last Friday, Mark Holifield, Senior VP of Supply Chain for Home Depot, spoke at Smith’s Supply Chain Forum and Industry Day, which was organized by the MBA’s Supply Chain and Operations Club, the undergrad’s Supply Chain Management Society.
If you didn’t make it then you really missed out, but here’s a nice summary with some of my thoughts.
Holifield gave an engaging talk about Home Depot’s transformation from its high growth phase to its maturation. Holifield shared that business development used to be driven by building new stores and capturing new market share. With almost 2,200 retail stores across the United States, Home Depot transformed the home improvement and construction industry in 25 years (it was only founded in 1978!).
Engineering Supply Chain Transformation
Once they had penetrated all of their markets, the company turned its attention toward improving productivity, mostly through supply chain management. Home Depot’s strategy was based upon four factors:
- Improve In-Stock Inventory (studies of the Fast Moving Consumer Good industry show that retailers lose 4% of sales to being out of stock)
- Improve Inventory Efficiency and improve Cash Flow
- Decrease Logistics costs
- Focus on providing service and delivery to retail stores
Home Depot developed an optimal flow network of distribution centers and developed Rapid Deployment Centers to handle goods whose demand could be most easily predicted:
- Direct to Store (traditional means of distribution; handled 23% of COGS, the remainder handeled by the three new centers)
- Rapid Deployment Centers (goods with predictible supply and demand, sent with full truck loads)
- Stock and Pick Distribution Centers (goods with unpredictble supply and demand, full truck loads not required)
- Bulk/Lumber Distribution Centers
Home Depot’s initiative has paid off so far. From 2001-2o09, it was faced with negative growth in inventory turnover (i.e. higher inventory turnover is better because the faster you can sell your inventory, the faster it gets turned into cash). That inventory turnover began to increase during recession is all the more impressive because the firm would have to drop its inventory levels faster than its sales were dropping (InvTurnover = Inventory/Sales).
Managing Change / Managing Culture
Holifield said that one of the most difficult aspects of this internal transformation was adapting the new technology and processes to the old culture. Admitting that he mistakenly underestimated how important the cultural shift would be for Home Depot workers, he created a direct report position to provide change leadership within the firm. The person tapped to be the first VP of Integration and Change was a long time Home Depot employee who had moved up from the retail floor and had worked in almost every retail and distribution position in the firm.
What I appreciated the most about his talk was his description of how to handle change. He said that large scale improvements require People, Technology, and Processes to change simultaneously. People have to transform as much as the mechanical systems that were employed in order to get them used to new methods of replenishing stock or handling goods. Noting that a system moves only as fast as its slowest part, Holifield said that it was important to not ramp up technology until people are up to the task.
I Need a Stamp like This….
While the talk was informative overall, the most humerous part, which also gave great insight into the company, was Holifield’s recollection that retail store managers were given stamps that read “BULLSHIT.” When corporate sent directives that managers knew would be impractical, they stamped the papers and sent them back for review.
Supply Chain Industry Day
After Holifield’s talk, Smith students talked with recruiters from 27 firms, including DuPont, Hilti, John Snow, Lockheed Martin, Target, and Unilever. It was a great opportunity to look for internships.