Weakening supply chain capabilities! Home Depot launches $500 million cost-saving plan!

Home Depot is in the midst of a $500 million cost-savings program that will result in the company reducing its supply chain holding capacity, Executive Vice President and Chief Financial Officer Richard McPhail said at a June 13 meeting with investors and analysts.

The home improvement retailer expects to complete the work in fiscal 2024. McPhail said the savings will be primarily used to reduce fixed operating costs outside of product and shipping expenses, which were "incurred as a result of the surge in transaction volumes in 2020 and 2021."

To handle the surge in demand, Home Depot had to expand its supply chain footprint at a higher cost than expected, the chief financial officer said. "We are now gradually reducing holding capacity as trading normalizes."

After investing heavily in its supply chain over the past few years, Home Depot is trimming excess warehouse capacity as its sales have retreated from pandemic-driven highs.

The company also aims to save costs in its downstream supply chain, which is focused on delivering products directly to customers, by optimizing forecasting and labor management processes and leveraging technology and robotics, John Deaton, executive vice president of supply chain and product development, said at the conference. He added that the push comes as the company has already increased productivity in its upstream network, which moves products from distribution centers and fulfillment centers to stores, through "further automation and mechanization."

Despite Home Depot's efforts to cut costs, its supply chain is expected to benefit it in the long run.

Deaton said the company’s push to reach about 90% of the population with next-day or same-day delivery began in 2017 and has since become a competitive advantage. The company has done so through various investments aimed at creating what he called “the fastest , most reliable, most efficient supply chain in home improvement.”

Many of the initiatives are focused on fulfillment and delivery, and Deaton said the company has opened more than 100 fulfillment centers in those areas over the past five years, bolstering its delivery capabilities.

Home Depot is also working to improve appliance delivery by managing it in-house rather than using third-party vendors, which Deaton said reduces complexity and increases customer satisfaction. To further bolster those efforts, the company acquired appliance delivery and installation company Temco, which has been one of its largest partners in delivering large items to customers.

“There are significant opportunities ahead for us as we differentiate ourselves, particularly in delivery,” Deaton said.

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