Home Depot Stores Operations Improvement Plan Project

In order to become more competitive, a particular company should use principles and techniques of operations management, such as identification, planning, analysis, design, testing, implementation, and review of a selected improvement plan (OIP); should be able to analyze candidate processes within the company to select a substantive process of appropriate scope to meet the operations improvement plan objectives; should be able to select and apply appropriate tools and techniques to the creation of an operations improvement plan; should be able to identify applicable ISO certification standards and incorporate appropriately to fortify the improvement process and finally, should be able to identify the anticipated costs and benefits associated with the operations improvement plan(Kenneth, 2008).

Operations Improvement Plan

The Home Depot is still guided today by those values established by its founders: “excellent customer service, taking care of people, entrepreneurial spirit, respect for all people, building strong relationships, doing the right thing, giving back to communities, and creating shareholder value. From the beginning, The Home Depot developed strategic product alliances directly with industry-leading manufacturers to deliver the most exclusive assortments to customers” (Home Depot, 2008).

I have been working at Home Depot fro almost three years.  I have been asking myself, why some particular skus are always out of stock.  I mistakenly though that theses skus have been always in high demand that their suppliers may have not produced enough to satisfy their clients.  I curiously asked that question in receiving department and realized that nobody knew the causes:” What factors could be contributing to the problem”?   I decided to consider this question as my Professional Challenge Project.  Is this out of stock a” failure of strategic planning at the operational level at Home Depot”? Have they ever tried a “continuum of change, not only in physical technologies but in managerial technologies as well”?  Many companies, including Home Depot “are coming to the realization that their survival depends on the capability to manage production as a premier strategic function” (Kasul, 1995).

Out of stocks skus is a key challenge facing Home Depot Stores.  I did identify a set of three support processes that could help Home Depot best serve its customers the product or service they need, in a speedy manner. Theses processes are: Pack in, Pack down and Inter store cross merchandises. All these three processes complete each other to make “Order Fulfillment Process” work as planned.  I know the importance of these processes from my own observations.  They are the bone of product availability to customers.  Does Home Depot uses any technology to help the human workforce to accurately deliver good results?  According to my fishbone diagrame, I realized that the picture showed multiple causes of out of stock.  Then, I had to draw a flowchart to pinpoint where the changes might be most effective.  Consequently, receiving department became the target, where out of stock might have been originated.  This was confirmed later by the results of my survey and interview.

First, “Pack-out” is a process where products coming in from transportation companies to receiving department, are packed out on shelves. In addition, the remaining products that couldn’t make it on shelves are put on overheads for future “Pack-down”. Next, Pack-down is a process where products on the overhead are used to fill empty spots on shelves.  Then after, a particular Home Depot store can rely on Cross-Merchandises from other Home Depot stores in its territory, to get products that couldn’t be found in overheads, and are not in incoming delivery trucks.  Therefore, Cross-Merchandises can be defined as process where a Home Depot store sends a purchasing order to a neighbor Home Depot store. This is a good way to respond to a shortage of a product that may be needed by a customer as a result of a high turnover of that particular product.

Receiving role should be crucial in restructuring out of stock problem. Furthermore, Pack down, Pack out and Cross merchandises are necessary to prevent a flow of Home Depot loyal customers to competitive hardware and home improvement stores. The scope of these processes is that they have an impact on the perception of Home Depot values from the community; because they can influence the bottom line on its financial status; by serving efficiently their customers.  Receiving department, night crew and Inventory management associates are all involved in these processes.  Home Depot stores should work daily on their Pack-out, Pack-down and Cross-Merchandise in order to satisfy their customers. These processes have a high impact, and they are vital to overall performance of any Home Depot store.

Historically, Home Depot does have a sophisticated system of inventory placement, which doesn’t favor VMI (vendor-managed inventories), CRP (continuous replenishment program), RFID known as radio frequency identification and EDI.  Home Depot decided to adopt a cross-docking distribution processes through its Distribution Centers (DC); its philosophy about the lean supply chain is based on forward integration (Krajewski, 2007, p.385-401).  Empty spots occur daily, and the night crew associates or days shift employees have to fill the spots.

Cost- benefits, after changing the problem of out of stock to efficiently smooth replenishment program, should be appreciated for all Home Depot Stores. Empty spots on shelves could damage their values, such as customer’s satisfaction. Customers want to have a product right the way when they need it. Most of Home Depot valued customers are construction contractors who eventually need a product to do their daily business. In addition, stores cannot not only lose the sale to other Home Improvement Retail Stores like Lowe’s, but also their customers. It may be beneficial to always find products on shelves. Therefore, Home Depot could increase sales and keep customers coming back. The outcome is that customer’s satisfaction could become high rated (Krajewski, 2007, p. 208).

As time goes by, Home Depot Stores should have a continuous replenishment system, which favors availability of products on shelves. Home Depot stores should be able to provide products that have a higher demand to its customers, without delays. The pack down, pack out and cross merchandises employees should be able to locate as soon as possible products needed and be able to put them on shelves every night. Inventory Management Associates (IMA) should be able to identify as quickly as possible, the inventory and location of products, so that they can quickly take the decision to reorder or start external cross merchandising process. Customers will value more Home Depot stores than other competitors that may have problems of products availability. In the long run, Home Depot stores will sell more products than any other competitors; therefore, they will increase profits. This could influence overall value of their stakeholders.

It is going to require some process strategy and process performance to achieve continuous full shelves goal.  For improvement of out of the stock problem, I would consider the impact that might have on:” First, retailer shopper loss risk when shoppers permanently switch stores due to out of stock situations. Either the new preferred store has overall lower out of stock levels, or it has lower out of stock levels on items of greatest value to the consumer. In the aggregate, assuming heterogeneity in consumer value on items, the store with a lower overall out of stock level will lose fewer customers and gain more customers from other stores. Second, retailer sales loss risk: consumers buying the out of stock item at another store, consumers canceling their purchase of the item, and consumers substituting a smaller and/or lower priced item. Sales loss risk is calculated by combining the estimated lost sales percentage from these three components and multiplying this by the extent of out of stock. The result provides an estimate of the percentage of the retailer’s total gross sales that are lost due to items being out of stock (Daniel, 2003).

I am going to describe some details of my work on “out of Stock” work at Home Depot

I used both qualitative and quantitative methods, which emphasized on a survey and interview that I conducted on Pack down, Pack out, Inventory, cross merchandises and receiving employees. Then, I used their (data) coded responses on a classic combination chart column series and area series plotted on the same axis as presented on Surveygraph.xls.  Here is what I got from the interchange of ideas with employees as shown on the surveysheet.doc: Purchasing Department was ordering too much stock; some skus inventory is higher; there were repeated stock outs for some items and there were some invoices errors on packing list and more.

My survey asked Pack down, Pack out, Inventory, cross merchandises and receiving employees, to identify the main causes of out of stocks items. After the results of my survey, which identified “receiving errors” as the main factor that contributes to the out of stocks skus, I conducted a second open interview, to detect the origin of these errors in recording data. My window of observation was one week, but with daily information on ten particular skus, chosen because they represent a high frequency in being out of stocks.  I understood that I should have needed more than a week to collect more information and other measurement means.  Nevertheless, I had to limit myself to a just simple interview, asking simple question like: Why the packing list shows a different number from the received items? Why do we have more items on this skus than the number we have on packing a list? Similar questions were asked every day during my week of investigation. I could have better results if this kind of interviews were conducted for a longer period, with for example specific skus to follow.

Since the beginning of my Project, I couldn’t see clearly the right measurement strategy until I started working on it. I finally decided to arrange the collection and the results of the data in two steps: figuring out the real cause of the “out of stock”, which is my problem statement main idea.  It was found that receiving errors was the main causes of out of stock skus. Then, I did some analysis on recording errors at receiving department.  I came to realization that some skus are usually over or under represented during their entry in Receiving Recording Sheet. The following were some of the questions I asked receiving employees:

How many products are under-recorded?

How many products are over-recorded?

In the end, some skus are often overstated, leading to under representation during reordering process; others are understated, leading to over representation during reordering process.  A series of recommendations, which include Receiving Department record keeping, are necessary to resolve out of stock problem.

Finally, here is what I do recommend to Home Depot Management Team: I concluded that Labor/hours cost should become crucial in restructuring Receiving Department, because it was found that employees were under pressure and overwhelmed by recording process at Home Depot Stores. Labor/hour cost will become important to scheduling and capacity planning (Krajewski, 2007)”.  I should mention however, that my recommendations changed from emphasizing on employees resources to including the supply chain redesign, because I realized that suppliers were also influential to of out of stock, from my survey. An organization’s suppliers directly affect the price, quality, delivery reliability, and availability of its products — all of which have a profound impact on customer satisfaction” (Pearson, 1995).  I also recommended working on improving or starting EDI system, which efficiently deals with paperwork.  “The original aims of EDI were to reduce cycle time and replace paper with electronically transmitted documents between trading partners” (Kappelman, 1995).

In brief, I will suggest to the Home Depot Management Team to start thinking on an extended study of the correlation between out of stock and recording errors at Receiving Department.  This will validate my findings about this subject.  I hope they will take seriously this phenomenon and work diligently to resolve it as soon as possible.  This kind of change shouldn’t cost Home Depot a lot of money; because most of changes shouldn’t take much to redesign.  Some suggested possibilities are already in place and they just need some particular attention as suggested in my operations implementation planning idea.

References

W Edwards Deming (1981, December). Improvement of Quality and Productivity through Action by Management: Management can increase productivity by improving quality. Dr. Deming’s fourteen points show the way. Why productivity increases with improvement of quality. National Productivity Review (pre-1986), 1(1), 12.  Retrieved March 24, 2008, from ABI/INFORM Global database. (Document ID: 677627311).

Kasul, Ruth A., Motwani, Jaideep G… (1995). Performance measurements in world class operations A strategic model. Benchmarking for Quality Management & Technology, 2(2), 20.  Retrieved March 25, 2008, from ABI/INFORM Global database. (Document ID: 84986927).

Home Depot (February, 2008).  Home Depot core values. Retrieved on February 21, 2008 from:http://corporate.homedepot.com/wps/portal/?

Vesa Suutari (2002). Global leader development: An emerging research agenda. Career Development International, 7(4), 218-233.  Retrieved March 24, 2008, from ABI/INFORM Global database. (Document ID: 187752451)

Krajewski, L., Ritzman, L., & Malhotra, M. (2007). Operations management: Process and value chains (8th Ed.). Upper Saddle River, NJ: Pearson Education. ISBN: 0131697390

Deming, W. E. (1994, December). The need for change. The Journal for Quality and Participation, 17(7), 30-31

Polito, T., & Watson, K. (2006). Just-In-Time under fire: The five major constraints upon JIT practices. Journal of American Academy of Business, 9(1), 8–13

Simon, K. Cause and effect diagram (a.k.a. Fishbone). Six Sigma. Retrieved August 28, 2006, from http://www.isixsigma.com/library/content/t000827.asp. This site provides information related to the development and use of the Cause and Effect diagram to define a problem.

Gary M Gaukler, Ralf W Seifert, Warren H Hausman. (2007). Item-Level RFID in the Retail Supply Chain. Production and Operations Management, 16(1), 65-76.  Retrieved February 20, 2008, from ABI/INFORM Global database. (Document ID: 1284186931).

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Rebecca Harris (2008, February). INNOVATING TO THE CORE. Marketing, 113(2), 8.  Retrieved February 20, 2008, from ABI/INFORM Global database. (Document ID: 1431437651).

David Stipp (1987, September 10). Ames Shares Fall on Report Of Lower Profit — Source Says Theft Is Part Of Inventory Troubles Plaguing the Company. Wall Street Journal (Eastern Edition), p. 1.  Retrieved March 8, 2008, from ABI/INFORM Global database. (Document ID: 27308542).

Kofi Q. Dadzie, Evelyn Winston. (2007). Consumer response to stock-out in the online supply chain. International Journal of Physical Distribution & Logistics Management, 37(1), 19-42.  Retrieved March 8, 2008, from ABI/INFORM Global database. (Document ID: 1193986441).

Daniel Corsten, Thomas Gruen. (2003). Desperately seeking shelf availability: An examination of the extent, the causes, and the efforts to address retail out-of-stocks. International Journal of Retail & Distribution Management, 31(11/12), 605-617.  Retrieved March 8, 2008, from ABI/INFORM Global database. (Document ID: 536929181).

Peter Milroy (2003, April). The buffer zone. CMA Management, 77(2), 18-21.  Retrieved March 8, 2008, from ABI/INFORM Global database. (Document ID: 324088371).

Kappelman, Leon A, Richards, Thomas C, Tsai, Ray J. (1995). Conducting business on the information superhighway: A manager’s guide to electronic data interchange. Business Forum, 20(3, 4), 29.  Retrieved March 20, 2008, from ABI/INFORM Global database. (Document ID: 7729852)

Pearson, John N, Ellram, Lisa M. (1995). Supplier selection and evaluation in small versus large electronics firms. Journal of Small Business Management, 33(4), 53.  Retrieved March 20, 2008, from ABI/INFORM Global database. (Document ID: 8702464).

Joan S Adams (2004, September). The Lean Approach for the PVF Supply House. Supply House Times, 47(7), 20-22.  Retrieved March 20, 2008, from ABI/INFORM Global database. (Document ID: 702357511).

Showtime (2008, March). Modern Materials Handling, 63(3), 30.  Retrieved March 20, 2008, from ABI/INFORM Global database. (Document ID: 1445755821). Softeon, 703-356-8727, www.softeon.com, Booth 1637.  Mini-load AS/RS

HD Flowchart (2008).  HD Merchandises Flowchart.  Created by Nyagatare Valens on March 10, 2008.

HD Fishbone Diagram (2008).  HD Fishbone Diagram.  Created by Nyagatare Valens on March 15, 2008.

Dr.Kenneth Granberry (2008).  Operations Management Instructor (MBA6130). Capella University. Winter 2008.

Kara Parker (2008).  Operations Management Learner (MBA 6130). Capella University.  Winter 2008

Author Note

The description of Home Depot out of stock at Home Depot was presented to me by one of my colleague in MBA6130 course, Operations Management:” Home Depot being out of stock is a frequent frustration for my husband. He says that there is always at least one item on his list that is out of stock. When this happens he goes to Lowe’s. So I can testify that your problem is real for customers. I am amazed that a company like Home Depot is not using EDI!”(Kara, 2008)

It was amazing to have this opportunity to apply what I learned in theory from my Instructor Dr.Kenneth, to a practical example with my own experience at Home Depot.  It was unfortunate that I was downsized from my job, during this Project.  May be it was a sign that what I am proposing about the change in Receiving Department, could have had an impact on overall performance of the company.  Consequently, there shouldn’t have been any need to downsize employees; instead, they should have been hiring more people.  On the other hand, I do understand the housing economical problems going on in the whole USA.