InformationWeek
Defining The Business Value Of Technology
November 9, 1998
Killer Supply Chains
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Eastman concedes that there's much more to do to bolster its supply chain. But even now, the company illustrates a fundamental rule of supply-chain management systems: Before you put the software in place, make sure the principles underpinning it are sound.
The Home Depot
For most retailers, one of the trickiest links in the supply chain is moving goods from the supplier to the warehouse, then on to the store. The Home Depot Inc. has found a simple way around that problem: Remove it.
The Atlanta-based building supplies retailer now moves 85% of its merchandise--nearly all of its domestic goods--directly from the manufacturer to the storefront. Product no longer languishes in warehouses, saving both suppliers and Home Depot money. "We're treating each of our stores as if it were a distribution center," says CIO Ron Griffin. Because of Home Depot's high volume--its stores average $44 million in sales and 5-1/2 full inventory turns a year--the products frequently ship in full truckloads, making the system even more cost-effective.
The store-distributor setup is part of Home Depot's broad effort to put decisions into local hands, a key factor in the company's successful supply chain. "We're empowering people on the floor," says Griffin. "They feel as if they have ownership, and having that ownership is what makes it work."
Associates walk store aisles, watching for goods that need replenishment. As they enter orders directly into mobile computing devices, called the Mobile Ordering Platform, the request can go almost instantly via EDI connections to more than 80% of Home Depot's manufacturers, which can respond immediately. Home Depot offers its partners recognition incentives to get them on board.
Short-term forecasting is handled locally, with up to 65 weeks of data at the store level, and store managers are given latitude to adjust for demand based on merchandising programs. Home Depot prepares long-range forecasts of three to five years on a national level for its suppliers; they contain product-volume data, of course, as well as where growth is expected and where Home Depot plans to build new stores.
That helps suppliers decide where to build new plants and distribution centers, and it puts Home Depot in the position of helping determine facility location instead of simply working around it. "Rather than assume fixed capacity, we help shape it," Griffin says.
Home Depot opens up even more data to its biggest partners. Electric-tool manufacturer Black & Decker is Home Depot's largest supplier, and Home Depot is its largest customer. So it benefits both companies to share information. Home Depot passes point-of-sale data to Black & Decker, which helps the Baltimore company analyze sales and determine future manufacturing volume.
But the two companies' relationship is still "an arms-length transaction," says Mark Dailey, Black & Decker's VP of supply chain for North American power tools--in part because of limited technology. While the EDI connection between the two companies allows for the speedy transfer of information, Dailey says, it doesn't necessarily mean that the information is of high quality. Black & Decker is looking at technology that would tie its Manugistics supply-chain software to Home Depot's systems so the companies are linked at a business-process level. "The key is really getting good data quickly through both the planning and execution cycle," Dailey says.
Supply chains can also make the business more efficient by squeezing out costs, but Griffin values effectiveness. For example, he says, it would be more efficient for the company to centralize all its merchandisers at company headquarters. But the company wouldn't be as responsive to local conditions, such as snow in Denver or a construction boom in Oregon. So regionally based merchandisers are more effective--which is ultimately better for the bottom line, too.
Because as far as Griffin is concerned, when it comes to having a super supply chain, the human links are the most critical of all.
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