LAKE PARK, Ga. —An automated, mechanized distribution center is an amazing spectacle. Products whiz around elaborate conveyor belts at 450 ft. per minute, as if each package had a mind of its own. Thanks to precision placement of laser scanners, sorting shoes will perfectly time their push across the conveyor, gently nudging the right product to the right chute, and hence, the right store.
When watched from above, the entire system takes on a kind of artificial intelligence.
That’s the way it looked at The Home Depot’s Rapid Deployment Center in Lake Park, Ga., one of soon-to-be 19 RDCs that plays a crucial role in the company’s so-called Supply Chain Transformation.
“There are lots of things happening all at the same time,” said Chris Falcon, general manager of the Lake Park RDC. “There’s no storage here. Nothing stays. Everything flows through the building real quickly. Our intention is to provide service and product to our customers just as fast as we can.”
A Home Channel News editor asked Falcon what happens if the conveyor doesn’t go at exactly 450—say 445 or 455 ft. per minute. The manager wasn’t amused by the idea of an inexact pace.
“There is no variance,” he said. “It’s 450.”
Falcon’s precision-oriented and sparkly clean facility was the first mechanized RDC in the Home Depot system. But more than that, it represents a break from the old days of “warehouse home center,” where the home center is also the warehouse. That older model could only take Home Depot so far, executives have repeated. But now, as the company expects to complete its mission of opening 19 RDCs by the end of fiscal 2010, it’s looking to capture some advantages in efficiency, in costs and gross margins, but also in customer service.
When the 19 RDCs are finally all up and running, the system will provide coverage of 100% of U.S.-based stores.
In the company’s most recent earnings conference call, Home Depot executive VP U.S. stores Marvin Ellison explained the connection between the Lake Park facility and the retail stores. Ellison is a longtime proponent of simplifying processes and eliminating unnecessary tasks of store employees, and the RDC model delivers results on that front.
“From a store operation perspective, 80% of the product that we order from an RDC goes directly to the shelf,” he said. “That’s a big deal.”
In the old store-as-warehouse model, the product flowed from the receiving area of the store to the overhead racks and had to be taken down to the shelf, often as entire aisles were cordoned off from customers.
“Now, 80% straight to the shelves means you have more time to serve customers and more ability to use payroll from a more productive perspective,” Ellison added.
The three key deliverables to the RDC network are improvements in products in-stock, inventory productivity and logistics efficiency and effectiveness.
The man who’s in charge of the effort to realize those benefits and reshape the company’s supply chain is Mark Holifield, senior VP supply chain for Home Depot. ( See Q&A )While he can point to measurable improvements in the company’s logistics metrics as a result of the RDCs and looks for more improvements with 100% penetration at the end of the fiscal year, he cautions against a finish-line mentality.
“The RDCs are the biggest, most visible component of the transformation,” he told Home Channel News. “It’s what everybody has focused on because it’s 19 buildings coming out of the ground and getting operating. But there is a whole lot more to the supply chain transformation than the RDCs.”
For instance, inventory management is a completely different ball game today, compared with just four years ago.
“The big transformation there has been centralizing replenishment,” Holifield said. “Stores had control of the ordering for 80% of the SKUs when I joined the company. Today, it’s flipped, and 80% is managed centrally.”
He describes that transformation as a huge cultural shift that came about by applying technology and techniques to allow it to happen.
Improvements are following.
The company’s in-stocks are at record highs, according to the company. The year 2009 marked the first year that Home Depot’s inventory turns were up year over year since 2001. The company doesn’t talk publicly about logistics costs, but he described those costs as decreasing as efficiencies increase.
But the biggest win is yet to come, according to CEO Frank Blake, who expressed pleasure with how the RDCs are impacting stores during the company’s most recent conference call.
“We bleed orange as much as the store associates who we support.”—CHRIS FALCON, general manager, Lake Park RDC
“The build of the physical assets will be over by the end of this year,” Blake said. “But truly that’s the start of the overall process because you have to ramp up the amount of product that’s going through the RDC, and there are continual improvements. We’re not the starting line, but we’re early on into the race.”
In the meantime, the Lake Park RDC has become what Holifield joked was a new tourist destination in southern Georgia, attracting multiple corporate executives, all the pertinent Wall Street analysts and even a film crew from the History Channel.
“Our very existence signifies a transformation in the supply chain for Home Depot,” said Falcon. “We’re really excited to be part of that. The building here in Lake Park was the first mechanized site in the RDC model, so we got a chance to be out on the front edge of the transformation.”