Supply chain becomes key to efficiency

Supply chain. Logistics. I know, they’re words that sound arcane or boring or both.

Craig Menear

Craig Menear

But before you roll your eyes and move on to the next article, please realize how important they’re becoming in the business world.

That was made clear to me recently by three unrelated events.

First, when I was interviewing Dr. Helene Gayle, chief of CARE, I did not expect to get into a discussion about logistics. But she talked about the importance of developing an efficient supply-chain system so CARE can get disaster relief to calamity-stricken areas as quickly as possible.

What’s more, the Metro Atlanta Chamber of Commerce is targeting logistics as a key growth engine. That’s partially because of the local expertise of companies like UPS, Home Depot and Manhattan Associates, and our position as an airport, rail and trucking hub.

Finally, my 20-year-old son, a junior in college, is taking a required supply-chain course this semester. He can’t get a business degree without it.

What gives?

To find out, I talked with Craig Menear, head of merchandising and supply chain at Home Depot.

“Supply chain is how you drive the effective flow of product, so you get the right product in the right place at the right time,” Menear said. “It can drive enormous efficiency or inefficiency in retail or manufacturing, and have a big impact on working capital.”

For a retailer, Menear said, working capital is deployed to stock shelves and for a manufacturer, it’s used to buy materials to make goods. Inefficiency means lots of money gets squandered.

“Supply chain’s importance has grown as companies look to drive the cost of operations down and the return on capital up,” Menear, 52, said.

One of those companies is Home Depot. The world’s largest home-improvement retailer is in the middle of fixing what became an inefficient supply chain system as the company grew. Instead of having manufacturers or suppliers deliver their products to each individual store, the company is spending $260 million to open 20 Rapid Deployment Centers throughout the country.

The suppliers ship goods to these so-called RDCs and then these centers deliver them to each store, improving the inventory situation. Unlike how it worked previously, there are no minimum requirements from suppliers before a store can place orders because the RDCs are ordering for many stores. Before, either a store had to order unneeded inventory, tieing up cash, or go without.

“Customer service starts with in-stock,” Menear said. “You can have the best location and the best associates in the world. But if they don’t have the product, they disappoint the customer. … Customers are time-starved.”

The RDCs also reduce the time it takes for a store to re-stock shelves. And Home Depot’s overall transportation costs are reduced because its trucks are more efficiently organized at the RDCs to carry more goods.

“We’re flowing much more effective cubic feet inside the trucks,” Menear said.

All told, Menear said the RDC investment will improve gross profit margins by 20 basis points to 40 basis points — and take $1 billion of unneeded inventory out of the system when all the centers are up and running next year.

“This business environment has forced everybody to become more efficient,” Menear said.

Now I understand.

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6 comments Add your comment

JJCB

November 24th, 2009
6:31 am

The RDCs of Home Depot that are being referenced here sound an awful lot like what WalMart has done for many years, making them one of the best models of efficiency in supply chain and logistics in any retail environment. No wonder they can keep prices lower. And in this economy, it’s all about being as lean as possible.

Joseph Allison

November 24th, 2009
11:30 am

Enter your comments here Having been a Shipping Manager in a Proprietary Environment, lumping all Logistics into the single basket of Manhattan Associates (food service) might not be an accurate representation.

Will Haraway

November 24th, 2009
3:31 pm

Actually, Manhattan Associates (www.manh.com) is a global supply chain optimization provider with more than 1,200 customers in industries including retail, consumer packaged goods, life sciences, third-party logistics,electronics and food/grocery providers. We are proud to be a part of Atlanta’s strong supply chain community! Thanks to Henry for the great article.

BC

November 24th, 2009
4:53 pm

If you are interested in supply chain efficiency, check out the Georgia Tech Supply Chain & Logistics Institute (SCL)- http://www.scl.gatech.edu – which has been a world leaders across a broad range of supply chain and logistics domains for the last 30 years. SCL is considered the largest supply chain and logistics research and education program in the world and has worked with a wide range of industry partners including CARE, Home Depot, Manhattan Associates to name a few. SCL is a unit of the H. Milton Stewart School of Industrial and Systems Engineering and provides global leadership for research and eduction in the application of scientific principles to optimize the design and integration of supply chain strategy, infrastructure, processes, and technology.

Jason

November 24th, 2009
6:43 pm

Say it sounds like Walmart but the difference with the Home Depot RDC is that it doesn’t warehouse any of their products. Products comes in, processed to stores and out within 2/3 days. I pretty impressed with what the Home Depot RDC’s is doing.

Bettieclaire

May 18th, 2010
3:09 am

I liked your post. Keep posting interesting matters here. We are proud to be a part of Atlanta’s strong supply chain community! Thanks to Henry for the great article. Thanks for all your great posts.

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