Readers of this blog are probably aware that one of the features of Supply Chain Matters commentaries is to follow certain supply chain transformation efforts involving specific manufacturers or retailers.  Our goal has always been to tie existing news and developments with some form of context, whether crisis, transformational or renewal related.  In essence, we enjoy connecting some of the dots for our readers. One ongoing story involves Home Depot and its efforts to overcome supply chain fulfillment capabilities gaps with its prime rival, Lowes.

Our initial commentary was in early 2010, Can Home Depot Close Its Supply Chain Gap?, and was followed by a subsequent commentary in September 2010, Home Depot Making Progress in Closing the Supply Chain Gap. The essence of these ongoing initiatives from Home Depot were an avoidance of a previous ‘big IT’ approach in favor of concerted investments in specific supply chain related process enablement capabilities.  During the bulk of last year, the Depot embarked on a $250 million investment in improved supply chain capabilities on both supply chain operations and planning. There was a rather large effort to shift inventory replenishment strategies toward more centralized planning, which included the majority of inbound inventory activity moving through 19 regionalized flow-through deployment centers. This freed-up store personnel in inventory management needs, and more toward serving customers. Additional investments were made in inventory optimization, supply chain network design and inventory forecasting technology which were all part of a three year effort focused on supply chain transformation.

Now that Q4 and full year 2010 operating results have been reported, it appears that Home Depot’s investments are starting to make a noticeable difference.  During the Q4 briefing call with analysts, Home Depot CEO Frank Blake specifically cited Mark Holifield and his supply chain team as meriting particular recognition.  Noted were double-digit improvements in power snow equipment, chemicals and snow tool sales categories, along with a 32 reduction in clearance inventory.

In late February, the Wall Street Journal featured an article (paid subscription or sign-up account may be required) reflecting on Lowe’s operating results. The WSJ noted that while Lowe’s demonstrated respectable results, these results were not quite as good as those of Home Depot.  Noted specifically was that in the midst of severe winter conditions that occurred in the U.S. throughout Q4, Lowe’s had run out of key inventory while Home Depot was able to capitalize on strong sales of snow blowers, shovels and other storm-related needs  by more responsive inventory replenishment strategies. A quote from the WSJ notes: “The question is which retailer will win the latest round in their three –decade-long battle for customers, as consumers resume spending on projects once again.” Also included is a quote from Lowe’s CEO Robert Niblock: “The competition has certainly gotten better.”

This story is not by any means over, and both retailers will continue to leverage their supply chain fulfillment capabilities to secure the advantage in consumer sales and service needs. We at Supply Chain Matters have been unsuccessful in our efforts to secure a briefing with the Depot supply chain team, but we will continue to persist in our requests.

Lowe’s for its part, has begun to shed middle managers and hire more part-time weekend staff to better serve customers.  Home Depot has in its 2011 capital spending plans about $585 million slated for U.S. stores and supply chain improvements, along with $370 million for additional IT investments.

Having a CEO specifically praise the supply chain team is a significant accomplishment in any industry and supply Chain Matters once again extends an enthusiastic thumbs-up to the  Home Depot supply chain team.

The ongoing developments at Home Depot are yet another evidence point to why we purposely selected the name for this blog- supply chains do matter!

Bob Ferrari

There are many facets for how manufacturers identify and mitigate significant supply chain risks.  These often include operational or event-driven risks, but what happens when your prime distribution center for all of Europe can no longer receive product because of an ongoing product patent dispute?

Last week , customs officials in the Netherlands seized tens of thousands of Sony’s  PlayStation 3 game consoles because of trading ban handed down by a Dutch court.  LG Electronics secured this legal 10 day injunction against Sony because of an alleged patent infringement concerning the PlayStation’s Blu-ray video technology. According to published news reports, Sony and LG are also engaged in patent disputes in the U.S. as well, which involve flat screen televisions and smartphones.

What makes this situation a bit extraordinary is the high tech companies tend to resolve these patent disputes through adjustments to  technology cross-licensing and value-chain agreements and not outright injunctions. An injunction targeted in the Netherlands is obviously with some knowledge of Sony’s European supply chain distribution network for PS3. The Netherlands is Sony’s primary distribution center for all of Europe, accounting for upwards of 100,000 monthly PlayStation units shipped throughout all of Europe. Since the injunction is only enforceable in the Netherlands, Sony is now scrambling to find a temporary alternate distribution point in Europe, and is assuring European retailers that there will be no interruption in shipments.

Supply chain risk does take on different dimensions, especially when others know of your value-chain footprint.  Having a supply chain crisis, business continuity and response team in place is always a prudent investment.  High tech companies like Cisco already understand this important tenet of supply chain risk mitigation.

Bob Ferrari