Home Depot: Redefining How to Manage Resources and Inventory

In an effort to match the rapidly increasing trends in e-commerce, Home Depot is taking an entirely new stance on inventory. Home Depot’s planning of resources has changed from days of inventory in stock, instead of weeks of inventory in stock. More specifically, Home Depot will be changing their typical inventory plan from restocking five trucks twice a week to two trucks five times a week. Such inventory will be placed on lower shelves where customers can see the products at eye level.

Now, I know what you’re thinking – this new style on planning resources may create unnecessary ordering costs for them if they order new products daily. Home Depot, however, examined their supply chain thoroughly and determined such a change would create higher costs savings. While there may be higher ordering costs for them, Home Depot’s new strategy eliminates the need for employees to store products on the top shelves with forklifts and ladders. This singular process, according to Home Depot, is the most expensive and dangerous part of the job. Keeping inventory on the lower shelves, frankly, saves plenty of time and holding costs that make the higher ordering costs worth it.

Furthermore, Home Depot has been implementing “Project Sync” since 2016 in order to develop a steadier flow of deliveries into the sorting centers, create leaner inventories, and have in-store employees more efficiently use their time.

All of these strategies are meant for to net Home Depot a growth rate of 15% by the end of 2018 – an extremely lofty task. And although these strategies sound effective at first glance, there are some risks associated with it. First, Home Depot is assuming demand will be high for the time being, given that the housing market is continuing to rebound. This is a fair assumption, but as time goes on it could lead to problems with too much inventory as demand declines. In this case, Home Depot may be forced to use the top shelves even if they do not want to.

Another possible risk, assuming demand does remain high, is that Home Depot will have plenty of warehouse space with no goods stored in them. For those who have been in a Home Depot store, the facility is a large, large warehouse that most likely has a high cost. Leaving a store mostly empty with such quick inventory changes would be limiting the warehouses overall utilization rate. Home Depot may not need all of the space that they initially bought in their retail stores.

Home Depot must consistently think outside the box if they wish to stay ahead of companies like Lowe’s or even Amazon. So far, the strategies they have engaged in through their supply chain have been efficient and cost effective.

With that said, my questions for you are as follows: if you were a manager, would you continue this strategy as is, modify it, or scratch the plan entirely? Should more companies consider moving towards an inventory strategy like Home Depot, or are they a special case?

 

https://www.wsj.com/articles/retailers-rethink-inventory-strategies-1467062280

https://www.barrons.com/articles/home-depot-the-relentless-pursuit-of-1491591501

7 thoughts on “Home Depot: Redefining How to Manage Resources and Inventory

  • April 3, 2018 at 8:03 pm
    Permalink

    From this article, it was enlightening to see how Home Depot is changing its inventory strategy. The company is increasing their restocking shipments by 2.5 percent and is still able to decrease overall costs. At first glance, it is hard to see that costs would actually decrease from this. But, it makes sense that because of this increase in inventory shipments, holding costs would be reduced from excess inventory. Home Depot is also reducing costs associated with employees having to move and manage the inventory around the store, especially when the inventory is only accessible with forklifts.
    With this process change, one can see how Home Depot is ultimately bettering the customer experience. The store will feel less packed with inventory and there will be more space for customers to move around. I remember being in a Home Depot and feeling completely overwhelmed by the excess amount of inventory that the store holds. This change goes to show that Home Depot is not only trying to reduce costs, they are trying to increase customer satisfaction as well.
    I believe that it is a good idea for Home Depot to implement this new inventory management system in their stores. I looked further into how Home Depot has been bettering their logistics strategy and more efficiently planning their resources. In an article by Forbes, Home Depot is “focusing on an integrated channel strategy”. The company used to have separate logistics management departments in every store, rather being centralized. Having separate departments for logistics management was costly and with the help of their technology (erp system) these costs have been reduced. Home Depot can be very successful in this new venture, as they are dedicated to decreasing efficiencies throughout their entire supply chain and bettering the customer experience.

    https://www.forbes.com/sites/greatspeculations/2017/02/15/heres-how-home-depots-e-commerce-strategy-is-driving-growth/#3490da949b62

  • April 4, 2018 at 4:45 pm
    Permalink

    I kind of like that Home Depot made safety a priority, or at least a bonus reason to changing how they plan their inventory and resources. In addition, Home Depot could use this as a public relations or internal communications bonus when explaining the change to staff. Anything like this that sets a company apart in how it treats and values its employees is a plus in maintaining a strong company culture. I do share the same concern that the assumption that demand will remain high is risky. Especially with the availability of services to hire for home repair and online ordering, having a large physical inventory could prove to be problematic. There might be a middle ground that Home Depot can forecast and calculate once this new model is in place for a few weeks. I’m also a bit confused about what Home Depot will end up doing with the large height each store has, since there will no longer be enough inventory to store products from floor to ceiling. Maybe this becomes another way to cut costs by moving to a smaller, more appropriate storefront.

  • April 4, 2018 at 5:22 pm
    Permalink

    After reading this article and doing some further research on typical home good store inventory processes, I find Home Depot’s new inventory system quite perplexing. With a significant amount of warehouses across the nation, which provide serious space for inventory stock that does not depreciate and just sits until purchased, Home Depot has already invested serious capital into their inventory system. As Home Depot increases the speed of their restocking processes, I cannot find it fathomable that their costs go down. The company has an incredible amount of inventory space already attained so the holding costs should not be too high. By shipping in products at such a heightened rate, I feel that there must be added costs to the inventory process as the products will not be retailed and purchased by consumers on a consistent level. Instead, I believe the company should implement the just in time inventory method. There will always be enough space in the abundant number of stores and warehouses operated by Home Depot. Thus, by maintaining whatever constant stock of products the manger wants in a store, the store would just have to order new products when it recognizes a pattern of demand rather than multiple times a week. With this process initiated, I think Home Depot will operate more fluidly and cost-effectively. Still, I of course am not in the spot to fully appreciate Home Depot’s financials, so this plan may not be the best option.

  • April 4, 2018 at 7:31 pm
    Permalink

    I would definitely continue with this strategy. It seems like Home Depot is in the early stages of this supply chain initiative and if I were the manager I would give it time to pan out and see how successful or unsuccessful the new design would be. I think it is a really smart idea for Home Depot because the many levels of shelving get lost within the store and most customers don’t even recognize the inventory sitting there. Although they will have a higher ordering cost, less inventory like you said eliminates safety issues, time inefficiency that can be correlated with delays, etc. In the long run, I believe the overall return will be worth it.
    On the topic of empty space within the warehouse, I am wondering if Home Depot maybe has a renovation/redesign in mind for their stores. Maybe they are looking to rebrand their “Large, warehouse” feel into something more accessible and modern. Simplicity and ease are two of the greatest trends we are seeing across the market, with businesses providing tools and services that make purchasing stress free and efficient. With more space also come the ability to sell different products. Home Depot has more room to offer a wider variety of products or use the space for advertising and marketing of the existing goods.

    http://smallbusiness.chron.com/advantages-low-inventory-levels-15997.html

  • April 4, 2018 at 9:06 pm
    Permalink

    The phrase “eye level is buy level” is commonly associated with the idea of product placement and visual marketing in brick and mortar stores. About one third of purchases in stores were not pre-planned so it’s extremely important to get products into the eyesight of customers in order to sell them. Being able to keep more of their inventory at eye level will likely be an important visual marketing technique for Home Depot and hopefully in it makes a positive impact on demand and purchases in their stores. Of course, often times customers that come into Home Depot are more likely to have a specific set of needs that they have for a specific project or job for home improvement, so extra purchases may not increase dramatically but there are still some other benefits. Like Brandon mentioned above there are increased safety benefits for employees, some decreased storage costs, plus a lot more convenience for customers who may not have to call for employee assistance to get some materials now. I think a great benefit of switching to this strategy of more orders of smaller amounts will be a great way to implement the eye level strategy since huge orders require more space on shelves and therefore less convenience and eye level products. I think this strategy could increase convenience for employees and customers alike but increased order management will certainly be required to manage more orders per week.

    https://traxretail.com/2017/11/22/eye-level-buy-level-importance-store-product-placement/

  • April 4, 2018 at 9:07 pm
    Permalink

    Interesting point, Brandon. Flipping Home Depot’s inventory and a quicker rate to create shallow shelf space and more product directly at the customer’s eye is a good idea. As a kid, I remember walking into a Home Depot or Lowe’s and being over helmed by the amount of inventory and the height and depth of the shelves. Of course, I wasn’t purchasing any material, but that idea of massive, almost scary shelf space lingers in my head.

    Technically speaking, this idea is better financially in the long run. As you mentioned, it will take less time and staffing to shelf goods on the floor and it will eliminate the danger of operating machinery and climbing ladders. This will also create a better flow of inventory. By having inventory trucks coming in and out more, the inventory will be out of stock less and closer to the consumer’s eye. I think this model will cost more in the short term but, ultimately, benefit, Home Depot in the long run.

  • April 5, 2018 at 8:36 am
    Permalink

    I have always been curious of Home Depot’s inventory management. Whenever I go to one of their stores, the area is always packed with a wide variety of products. In addition, they never have a shortage of one product it seems like. I have always wondered to myself “how long has this piece of inventory been sitting on this shelf.” For some pieces of inventory, it looks like it has been sitting there forever. As a matter of fact, I sometimes see dust on the top of inventory. This cannot be a good sign; I feel that this is a sign of mismanagement of inventory or inefficiency.

    Therefore, after reading this blog post, I am happy to learn that Home Depot has intensively analyzed their processes and is looking to adapt and develop their resource management. This is certainly a necessary and important move by Home Depot, for it is a huge brick and mortar business. As e-commerce emerges and becomes more powerful, it is extremely important for brick and mortar retail stores to adapt and advance. If they continue to run their processes in the same old way, they will fail and go bankrupt similar to Toys R Us.

    To answer your question, Brandon, I absolutely think that Home Depot should move on with their new changes to planning resources. I do not think they would like the result if they continued to perform in their old ways. As for other companies, I think that it is important that they continue to analyze the market and their firm. Home Depot’s solution may not be the best for another firm, or it may; it is key to consider all factors and form a process/solution that will benefit one’s particular firm.

Comments are closed.

css.php