Tuesday, December 17, 2013

Home Depot invests in its supply chain and same day shipping

Over the past several years, Home Depot has greatly improved on its supply chain so its latest announcement to invest $300m in supply chain and technology did not come as much of a surprise. However, perhaps what was a surprise, and a welcomed one at that, is its overdue need to focus on online retailing.

According to the company, it plans to overhaul its warehouse technology systems, open three new fulfillment centers in California, Georgia and Ohio over the next two years and focus more on online services including same day shipping.

In fact, the company wants to offer same day shipping for orders placed by 5 p.m. Customers will be able to receive real-time delivery updates via their mobile phones and choose from 100,000 items.

The retailer also plans to begin fulfilling online orders from within its stores. Combined with its planned fulfillment centers, it will  enable the company to deliver 90% of customers' parcel orders within two days using economical ground service. According to Home Depot, these centers are geographically positioned to leveraged parcel freight carriers' networks.

This latest announcement comes as the company reported an 8.5% increase in gross profit for the quarter ending November 5. The Chief Finance Officer credited a faster and cheaper supply chain for the reason the company’s gross margins rose for the quarter.
Indeed, for the past few years, Home Depot has built a nationwide network of what it calls “rapid deployment” facilities designed to serve as a more centralized inventory management and replenishment model. The combination of these rapid deployment facilities with the three new fulfillment centers which will serve its online sales business is expected to lower transportation costs and allow the company to deliver online orders to consumers, contractors and stores faster and uniformly.

While it appears Home Depot may be getting a late start in including ecommerce as part of its growth strategy, in 2012, online sales already represented 2.4% of the company’s net sales of $74.8bn.

What about its main US competitor, Lowe’s? It appears Lowe’s may have gotten a head start on Home Depot in regards to online retailing. In 2010, it introduced an online distribution program it called “flexible fulfillment” to expedite order processing and shipping. With “flexible fulfillment”, orders placed online are shipped one of three ways to the shopper: from the warehouse, the closest Lowe’s store with the available inventory or directly from a supplier’s regional distribution center. However, it may find itself playing catch up to Home Depot soon.