Home Depot's new pricing strategy and the supply chain restructuring

Filed in archive News on December 15, 2008

Home Depot, as a response to the economic crisis, has started an aggressive pricing strategy to encourage customers to buy more in each visit. It seems from the results so far that this has been a successful effort.

But the important thing to know is that, behind any pricing tactic or campaign, there is a supply chain system in place and with any change in the marketing side, supply chain design and underlying assumptions should change.

This has been exactly what Home Depot has done; below you can find some comments from Inbound Logistics Magazine and ILOG blog on this issue:

A major supply chain overhaul is in place as the company looks to better manage transportation and increase inventory turns by reducing direct-to-store shipments and progressing toward a more regional DC-centric distribution model. In the past, stores stocked inventory in lieu of using distribution facilities.

This efforts underscore the importance of strategic supply chain design. Having the correct number, location, size, and territories of your distribution centers is critical to achieving your objectives. Companies need to stay on top of the structure of their supply chain to ensure that it changes as the business changes. As this story from Home Depot points out, it was initially important for vendors to ship directly to stores. But, as the market changed, it was important to use regional DC's.

One important element, in my point of view, in order to do this is to synchronize supply chain and marketing efforts seemlessly. Weekly or monthly planning sessions between two functions are of course useful but not enough; there should be one resident from supply chain division within marketing group to ensure that all details are transferred to SC area. What do you think?