Supply Chain News: Home Depot Integrates Its Two Supply Chain Networks to Address Order On-Line, Pick Up In Store
Items are Shipped from Three Fulfillment Centers to Existing Cross Dock Networks, Merged with Regular Merchandise Headed to Stores
SCDigest Editorial Staff
In recent weeks, retail giant Home Depot was in the news for opening its third fulfillment center, a massive 1.6 million square foot facility in the Toledo, OH area built to serve its ecommerce customers.Adding to its network of two other fulfillment facilities, one near its headquarters in Atlanta and one on the West Coast, Home Depot says it now has the capability to deliver to some 90% of the US population in two days without express shipping.
A number of years back, Home Depot was also very much in the news, as it embarked on an ambitious strategy to transform its logistics network. Throughout its history, Home Depot had used primarily a direct to store (DTS) sourcing model, in which individual retail locations (some 2200 stores) placed their own orders for merchandise, with vendor shipping directly to a store rather than a retail distribution center (there were some exceptions, such as some bulk goods and lumber, which did flow through Home Depot DCs.There were a number of challenges with this model, including high transportation costs due to many LTL or even parcel shipments to the stores, near constant and often disruptive receiving activities at the stores, lack of procurement leverage, and higher than needed store inventories, as the stores might be required by the vendor to order a full carton when only a few items were really needed on the shelf.
Under then new VP of Supply Chain Mark Holifield, Home Depot revamped this strategy starting in 2007, ultimately building almost 20 new Rapid Deployment Centers that operate as flow through facilities, with vendors shipping larger quantities of items to the RDCs, which then either cross dock the goods or break them down into smaller units for store replenishment. The goals, largely achieved, were to reduce inventory costs and improve turns, reduce transportation costs, and improve customer service. The vast preponderance of store orders now are routed through the RDCs, almost completing flipping the order mix versus what it was before the effort. (See Home Depot Makes Progress on Ambitious Supply Chain Transformation.)
So, Home Depot now has this high performance RDC network, and a modern new network of three DCs for ecommerce fulfillment each doing its own thing. Clear enough, right?When customers order on-line for home delivery, the path is straight forward enough. The Home Depot fulfillment centers pick, pack and ship those order, generally using traditional parcel carriers for delivery. But what if a customer want to order on-line and pick up in store, for an item only carried in the fulfillment DCs? This question is tricky, as there are no shipping charges for the order on-line, pick up in store service.
Well, as usual in supply chain, it's not quite that simple. Home Depot carries an impressive 35,000 or so SKUs at its retail stores, but it turns out that is just a fraction of the more than 100,000 often slower moving items it carries on-line and stocks in the fulfillment centers. This of course allows Home Depot to carrying a much wider selection of products available from the on-line channel without burdening stores with items that may sell slowly or for which they simply do not have room on the shelf.
(Distribution/Materials Handling Story Continues Below )
|Home Depot could ship those items from fulfillment centers directly to the stores where the orders are to be picked up, but that would involve costly parcel or LTL shipments, with no offsetting shipping fees from the customer. And Home Depot has trucks going from its RDCs with the cross docked inventories virtually every day, where these on-line orders could ride for free.|
The answer, it turned out, was a sophisticated process in which those pick up in store orders are picked and if possible packed at the fulfillment centers, shipped in line haul trucks to the right RDC, then cross docked onto the truck heading to a particular store for the customer pick up.
That is according to Charlie Armstrong, a former Home Depot supply chain executive who recently left the company after more than seven years, where he was heavily involved in building out both the RDC and fulfillment networks for the company. Armstrong, a partner at Orion Advisors Group, made his comments at this week's MHI annual conference in Ponte Vedra Beach, Florida, during a panel discussion on omnichannel fulfillment.
Armstrong says the process works like this. On-line orders are picked at the fulfilment centers and directed to packing areas serving outbound doors with the linehaul trucks headed to the appropriate RDC. If the item can be packed in a traditional box, it is, but if not (say some type of large garden tool), it nonetheless receives a unique identifier bar code as with the boxed goods so that they can be tracked throughout the rest of the logistics process.
In addition, Armstrong says a simple but effective tool is used to identify these store pick up items â€“ they are partially wrapped in colored tape that identifies them as being associated with this type of order.
The items are scanned as they are loaded into the truck trailer. Consider that each RDC serves about 100 retail stores, so that many ecommerce orders are likely to be loaded onto the linehaul truck. But Armstrong said that even if the trailer is only partially full, the relatively low cost linehaul move from the fulfillment center to the RDC will generally still be far less expensive then sending them direct to the store by parcel or LTL.
The RDCs have visibility into what trucks and what items are coming their way, and schedule the store deliveries considering this new type of inventory they previously did not have to plan for.
The trucks from the DC arrive, and the items unloaded. They are scanned again to confirm delivery to the RDC, and if conveyable may be placed on an RDC conveyor system and sent to the right outbound door, or manually moved to the door if non-conveyable (a few RDCs are also not yet automated).
The goods are of course then scanned on to the truck, with alert systems to notify RDC personnel if an item that is supposed to be on that truck headed for a store is not year scanned onto the trailer.
Armstrong said the store pick up items are not segregated on the truck headed to the store. Once ithe trailer arrives at the store and is unloaded, the colored tape tells receivers that they need to place those items in a special holding area of the backroom, where again they are scanned to confirm the receipt. Armstrong said processes are being developed at Home Depot to move these pick-up items to an area at the front of the store upon receipt.
So all told a pretty neat process to leverage both of Home Depot's networks to move goods to store for customer pick up that not only reduces transportation costs, but generally gets the product to the store faster than it would arrive if shipped parcel LTL from the fulfillment center, in a win for both Home Depot and its customers.
Thursday, October 8, 2015
HOME DEPOT, SUPPLY CHAIN DUALITY FOR BRICKS AND CLICKS
It looks like Home Depot recognizes and utilizes supply chain duality for its retail and e-commerce sales. No one size fits all.