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?