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