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OM in the News: Home Depot’s $1.2 Billion Supply-Chain Overhaul

June 16, 2018

Home Depot plans to spend $1.2 billion over the next five years to speed up delivery of goods to homes and job sites as the rise of online shopping resets consumer expectations, reports The Wall Street Journal (June 12, 2018). The home improvement retailer will add 170 distribution facilities across the U.S. so that it can reach 90% of the U.S. population in one day or less. The new sites will include dozens of direct fulfillment centers for next-day or same-day delivery of commonly ordered products, as well as 100 local hubs where bulky items like patio furniture and appliances will be consolidated for direct shipment to customers.

The retailer is realigning its supply chain to a changing retail landscape. Customers “expect delivery to be free, they expect it to be timely,” said a company exec. “Sometimes they want it fast, and are willing to pay for that. Sometimes they want it free, and they’re willing to wait for it. We need to have the right options there.”

The push comes as Home Depot is trying to tamp down transportation costs and improve inventory management as it tries to more closely integrate its growing online business with its network of about 2,280 brick-and-mortar stores. Online orders accounted for 6.7% of the retailer’s $100 billion in sales last year, but the digital revenues expanded 21% from the year before. About 45% of online orders are picked up inside stores, and the company is rolling out self-service lockers at the front of some stores to speed up order retrieval.

Shoppers accustomed to 2-day delivery from online retailers like Amazon are increasingly making buying decisions based on convenience factors. That’s pushing retailers to reshape distribution networks that were originally designed to ship pallet-loads of goods from warehouses to stores. They are turning to tactics such as drop-shipping, where suppliers ship online orders directly to customers, and opening warehouses closer to customers. The company is also testing the use of cars and vans for lower-cost delivery of smaller orders, and expanding its network of flatbed trucks that can deliver loads of concrete and other building materials to professional customers..

Classroom discussion questions:
1. What are the key OM issues Home Depot is facing in this article?

2. How does Home Depot’s approach to customer delivery and pickup compare to that of Amazon?

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