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.”
Kleer Lumber gains distribution through iLevel
iLevel by Weyerhaeuser is now distributing Kleer Cellular PVC Trimboard, sheet goods and other Kleer cellular PVC building products from its Baltimore, Md., and Easton, Pa., distribution centers.
iLevel is a new partner for Kleer as the company serves the key building markets of New Jersey, metropolitan New York and other Mid-Atlantic regions including Eastern Pennsylvania, Northern Virginia, Maryland and Delaware.
“iLevel is an ideal partner for Kleer Lumber because of its strong brand name, the products it represents in the marketplace and its commitment to outstanding service,” said Walt Valentine, president of Westfield, Mass.-based Kleer Lumber. “iLevel’s renewed commitment to focus on specialty product groups aligns perfectly with the core product development strategy at Kleer Lumber.”
Construction industry loses more jobs
The construction unemployment rate rose to 18.8% in November as the sector lost another 5,000 jobs since October, according to the Associated General Contractors of America, which just released an analysis of new federal employment data. The analysis indicates that the construction sector has been the hardest hit of any industry during the economic downturn, association officials said.
The industry’s 18.8% unemployment rate, not seasonally adjusted, was the highest of any industry and roughly double the overall unemployment rate. The construction industry has lost 2.1 million jobs since employment in the sector peaked in August 2006, according to the association. Since November 2009, the industry has lost 117,000 jobs, while the private sector added 1,088,000 jobs.
“The unemployment report shows construction still has not broken free of the recession that has gripped the industry since 2006,” said Ken Simonson, the association’s chief economist. “Other than the stimulus and other temporary federal programs, it has been a pretty bleak four yours for the industry.”
The only construction segment to add jobs in the past years has been heavy and civil engineering construction, which has benefited from federal stimulus, military base realignment and Gulf Coast hurricane-prevention projects, Simonson observed. Meanwhile, residential construction has lost 79,000 jobs over the past 12 months, while nonresidential specialty trade contractors and nonresidential building — the other two segments in the nonresidential category — have lost 62,000 jobs.
Association officials cautioned that the stimulus and other temporary federal programs would begin winding down in 2011, most likely before private, state or local demand for construction picks up. They urged Congress and the Obama Administration to act on a series of long-delayed legislative bills for water, transportation and other infrastructure programs.