{"id":26177,"date":"2017-11-15T21:55:26","date_gmt":"2017-11-16T02:55:26","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/digitalization-enabling-a-home-depot-run-in-ecommerce-fulfillment\/"},"modified":"2017-11-15T22:02:34","modified_gmt":"2017-11-16T03:02:34","slug":"digitalization-enabling-a-home-depot-run-in-ecommerce-fulfillment","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/digitalization-enabling-a-home-depot-run-in-ecommerce-fulfillment\/","title":{"rendered":"Digitalization: Enabling A Home (Depot) Run in eCommerce Fulfillment"},"content":{"rendered":"<p><strong>Megatrend: Context and Relevance<\/strong><\/p>\n<p>It\u2019s no secret that customers are shopping more online. The Home Depot is both experiencing and driving this shift in its business: online represents over 6% of net sales, and the channel\u2019s 23% year-over-year growth rate greatly outpaces its 6% net sales growth.<a href=\"#_ftn1\" name=\"_ftnref1\">[1]<\/a> This shift creates both opportunities and challenges for retailers, such as how supply chains should best adjust to serve consumers in the context of this disruption.<\/p>\n<p>Firms have several options. Retailers can leverage their store networks, either for deliveries to customers or for in-store pick-up by customers. To do this, stores must have adequate supply of products and know where those products are, particularly given that stores carry less inventory than warehouses and much of that inventory is already available to shoppers to buy or move.<a href=\"#_ftn2\" name=\"_ftnref2\">[2]<\/a>\u00a0 Another approach is for retailers to deliver directly from their distribution centers. Although this may be beneficial from a forecasting or inventory management perspective, delivery may come with shipping costs and can take longer than in-store fulfillment.<a href=\"#_ftn3\" name=\"_ftnref3\">[3]<\/a> Further, these options influence more than just distribution costs, as customers tend to buy more when they visit a physical store than when they shop online.<a href=\"#_ftn4\" name=\"_ftnref4\">[4]<\/a><\/p>\n<p>Trends toward digitalization of supply chains, such as improving availability of information and increasing speed, can enable firms to better manage increasing customer expectations and order complexity.<a href=\"#_ftn5\" name=\"_ftnref5\">[5]<\/a> The Home Depot has and is leveraging these trends to improve inventory visibility and stock levels in stores, build and effectively deploy specialized warehouses, and improve its integration with suppliers. In doing so, it is able to serve customers along <em>each<\/em>, not just one, of these options.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>Management Actions<\/strong><\/p>\n<p><u>Inventory Transparency and Supply Chain Responsiveness<\/u><\/p>\n<p>The Home Depot uses its stores both for pick-up and delivery, establishing both Buy Online, Pick-up In Store and Buy Online, Deliver From Store across its US store network.<a href=\"#_ftn6\" name=\"_ftnref6\">[6]<\/a> To achieve this, the company has centralized its inventory and replenishment functions, ensuring that stock levels are understood and maintained, and that products get to stores rapidly.<a href=\"#_ftn7\" name=\"_ftnref7\">[7]<\/a> The firm also makes its detailed inventory information, including store availability and location within stores, readily available to both store staff and customers.<a href=\"#_ftn8\" name=\"_ftnref8\">[8]<\/a> As a result, the organization has been successful at keeping its stores relevant: around 45% of the retailer\u2019s online sales are picked up, and 85% of returns are conducted, in stores.<a href=\"#_ftn9\" name=\"_ftnref9\">[9]<\/a><\/p>\n<p><u>Targeted Enhancements for Speed<\/u><\/p>\n<p>To enable order fulfillment through both stores and distribution centers, The Home Depot has taken an integrated view of its inventory and transportation assets.<a href=\"#_ftn10\" name=\"_ftnref10\">[10]<\/a> While a typical store at The Home Depot holds 35,000 SKUs, the retailer also offers two-day delivery for 100,000 products through its three new Direct Fulfillment Centers, shipping orders to customers on the day they are received.<a href=\"#_ftn11\" name=\"_ftnref11\">[11]<\/a> This has also come with meaningful investments in information technology and staffing.<a href=\"#_ftn12\" name=\"_ftnref12\">[12]<\/a> This approach allows The Home Depot to take a holistic approach when fulfilling online orders.<\/p>\n<p><u>Further Supply Chain Integration<\/u><\/p>\n<p>Looking ahead, while the business continues to grow its online presence and fulfillment offering, it is also working to improve integration along its supply chain. The Home Depot is undertaking a project to enhance collaboration with its suppliers and transportation providers to improve planning and scheduling, and reduce lead times.<a href=\"#_ftn13\" name=\"_ftnref13\">[13]<\/a> This is intended to continue enhancing stock levels in stores, serving both in-store and online customers.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>Potential Other Steps<\/strong><\/p>\n<p>One of The Home Depot\u2019s areas of focus has been to add capacity by building Direct Fulfillment Centers to service online orders. Over time, however, the share of online sales is likely to continue to shift. As a result, the organization may require further capacity, either by building new facilities or by converting existing assets. Given the pace of online growth, developing approaches in advance to quickly and efficiently address future shifts could be beneficial.<\/p>\n<p>Second, The Home Depot has been deliberate in enabling all of its US stores to serve its eCommerce customers (both in terms of pick-up and delivery). However, these investments likely come with meaningful costs in terms of staff training and staffing levels. Over time, The Home Depot may wish to consider whether all stores truly require this feature given the associated costs, particularly as it considers how this program could be rolled out internationally.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>Discussion Questions<\/strong><\/p>\n<p>How can retailers best improve flexibility or speed in existing supply chains to facilitate, or even drive, this ongoing consumer shift?<\/p>\n<p>How does the role of stores change as they are increasingly used for pick-ups or deliveries of online orders? How could that change affect the rest of supply chains, including distribution centers?<\/p>\n<p>(757 words)<\/p>\n<p>&nbsp;<\/p>\n<p><strong>Footnotes<\/strong><\/p>\n<p><a href=\"#_ftnref1\" name=\"_ftn1\">[1]<\/a> The Home Depot, Inc., July 30, 2017 Form 10-Q (filed August 15, 2017), via The Home Depot, accessed November 2017.<\/p>\n<p><a href=\"#_ftnref2\" name=\"_ftn2\">[2]<\/a> Loretta Chao, \u201cHome Depot Touts Use of Stores for Online Fulfillment,\u201d The Wall Street Journal, August 18, 2016, https:\/\/www.wsj.com\/articles\/home-depot-touts-use-of-stores-for-online-fulfillment-1471550919, accessed November 2017.<\/p>\n<p><a href=\"#_ftnref3\" name=\"_ftn3\">[3]<\/a> David R. Bell, Santiago Gallino and Antonio Moreno, \u201cHow to Win in an Omnichannel World,\u201d <em>MIT Sloan Management Review<\/em> 56, no. 1 (Fall 2014): 48.<\/p>\n<p><a href=\"#_ftnref4\" name=\"_ftn4\">[4]<\/a> \u201cHow to Make the Most of Omnichannel Retailing,\u201d Marketing, <em>性视界 Business Review<\/em> 94, no 7\/8 (July-August 2016): 22-23.<\/p>\n<p><a href=\"#_ftnref5\" name=\"_ftn5\">[5]<\/a> Alicke, K., D. Rexhausen, and A. Seyfert, \u201cSupply Chain 4.0 in consumer goods,\u201d <em>McKinsey &amp;\u00a0<\/em><em>Company<\/em>, April 2017.<\/p>\n<p><a href=\"#_ftnref6\" name=\"_ftn6\">[6]<\/a> The Home Depot Inc., 2016 Annual Report, p. 13, http:\/\/ir.homedepot.com\/~\/media\/Files\/H\/HomeDepot-IR\/reports-and-presentations\/annual-reports\/annual-report-2016.pdf, accessed November 2017.<\/p>\n<p><a href=\"#_ftnref7\" name=\"_ftn7\">[7]<\/a> Josh Bond, \u201cThe Home Depot builds an omni-channel supply chain,\u201d <em>Modern Materials Handling<\/em>, February 1, 2015, <a href=\"http:\/\/www.mmh.com\/article\/the_home_depot_builds_an_omni_channel_supply_chain\">http:\/\/www.mmh.com\/article\/the_home_depot_builds_an_omni_channel_supply_chain<\/a>, accessed November 2017.<\/p>\n<p><a href=\"#_ftnref8\" name=\"_ftn8\">[8]<\/a> The Home Depot Inc., 2016 Annual Report, p. 13, http:\/\/ir.homedepot.com\/~\/media\/Files\/H\/HomeDepot-IR\/reports-and-presentations\/annual-reports\/annual-report-2016.pdf, accessed November 2017.<\/p>\n<p><a href=\"#_ftnref9\" name=\"_ftn9\">[9]<\/a> Craig Menear, Chairman, CEO &amp; President, The Home Depot, remarks made during Q3 2017 Home Depot Earnings Call, Call, November 14, 2017. From transcript provided by The Home Depot, http:\/\/ir.homedepot.com\/~\/media\/Files\/H\/HomeDepot-IR\/HD%203Q17%20Final%20Transcript.pdf, accessed November 2017.<\/p>\n<p><a href=\"#_ftnref10\" name=\"_ftn10\">[10]<\/a> Vaugh Highfield, \u201cThe Home Depot\u2019s Mark Holifield on Fulfilling Customer Needs,\u201d YouTube, uploaded July 23, 2014, https:\/\/www.youtube.com\/watch?v=2XgUOWnCD2Y, accessed November 2017.<\/p>\n<p><a href=\"#_ftnref11\" name=\"_ftn11\">[11]<\/a> \u201cThe Home Depot Opens Direct Fulfillment Center to Support Online Business,\u201d The Home Depot press release (Atlanta, GA, February 10, 2014).<\/p>\n<p><a href=\"#_ftnref12\" name=\"_ftn12\">[12]<\/a> \u201cThe Home Depot Opens Third and Largest Direct Fulfillment Center,\u201d The Home Depot press release (Atlanta, GA, September 18, 2015).<\/p>\n<p><a href=\"#_ftnref13\" name=\"_ftn13\">[13]<\/a> The Home Depot Inc., 2016 Annual Report, p. 15, http:\/\/ir.homedepot.com\/~\/media\/Files\/H\/HomeDepot-IR\/reports-and-presentations\/annual-reports\/annual-report-2016.pdf, accessed November 2017.<\/p>\n<p>Photo source: School Photo Project (http:\/\/www.schoolphotoproject.com\/logos-brands\/home-depot-logo1.html)<\/p>\n","protected":false},"excerpt":{"rendered":"<p>How supply chain enhancements enable The Home Depot to better serve its online customers.<\/p>\n","protected":false},"author":10426,"featured_media":26178,"comment_status":"open","ping_status":"closed","template":"","categories":[2123],"class_list":["post-26177","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-digitalization","hck-taxonomy-organization-home-depot","hck-taxonomy-industry-retail","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - 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