An article in the Wall Street Journal (August 16, 2020 https://tinyurl.com/yxuaxu64) describes the impact of the pandemic on hardware chains such as Home Depot and Lowes. From cancelling customer attracting, but low margin, promotions to ensure social distancing, to reordering products that customers demanded to remodel, or dealing with the 35% increase in foot traffic over last year, to monitoring customer demand closely to adjust forecasts, stores are becoming more nimble in their supply chain execution. How should stores adjust to observed store sales to reduce stockouts ? Should suppliers be asked to do vendor managed inventory at retail stores ? How should contractors be managed vs residential DIY customers ?
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Global Supply Chain Musings 
One of the biggest lessons for Hope Depot and other retailers is the limitations of forecasts. Traditionally, sales slump during economic downturns, especially during the Great Recession. It is important for these companies to not only rely on historical trends, but also look at the unique situation, consider how customers will react, and pay attention to early indicators of increased or decreased sales. To help reduce stockouts, Home Depot may consider vertically integrating their supply chain. This will decrease reliance on external suppliers and would limit the effects of competition for limited supplies.
Vendor-managed inventory requires a great deal of systems collaboration, and right now there are other priorities that should take precedent over implementing vendor-managed inventory. Regarding contractors, they are an important recurring revenue source for Home Depot, but many contractors are already at full capacity. They have more business than they can handle, and so much of the growth in business comes from retail customers. As such, these customers should be prioritized.
As the article mentioned, Home Depot has traditionally used historical benchmarks such as GDP and the housing market to help forecast their demand. However, the pandemic has shown them the limitation that exist in their forecasting methods and they had to start watching customer demand very carefully. But with stimulus money decreasing and summer coming to an end, Home Depot should expect to see their sales start to decrease. To prevent stockouts during the pandemic, Home Depot could try to advertise their online platform for customers to shop on. That way Home Depot could increase safety stock by pooling in one geographic area versus increasing the safety stock within all its stores. The same would work for their new online order and curbside pickup process. Home Depot could also ask their suppliers to do VMI at their retail stores, but that would take a lot of integration and communication with their suppliers that might be difficult to do all virtually. Given the criticisms of their store’s safety procedures, employees time could be better spent on improving safety protocol in stores rather than on VMI, but VMI could be something for Home Depot to consider in the future. Since contractors account for 45% of Home Depot’s revenue, Home Depot should continue to focus their efforts on supporting them as they have traditionally done. Many contractors are backlogged with business and as the safety protocols improve, their work will ramp up again. As for DIY customers, they could be best supported through and increased use of Home Depot’s online sales platform.
The pandemic brings a whole new different game compare to the economic recession. During the past few months, we found it brought new opportunities to business thus stores should focus on those. Forecasting from the historical data is completely useless in this situation because it will always be too late. To reduce stockouts, stores should pile more inventories that are particularly popular during the pandemic. The focus should be on flexibility instead of efficient, probably localizing sourcing by each store. It is extremely difficult to achieve in real life due to supply chain constrains.
It is always helpful to let the suppliers do vendor managed inventory during this period. There are several benefits: efficient communication; inventory management expertise exchange; direct feedback from customers to suppliers and less dedicated staffs needed from stores. Those are exactly what the stores need to grow.
We can see a trend in the increase of residential DIY customers, and it will continue this trend as the pandemic is not over yet. Even afterwards, customers found that they have the skills to do most of the work by themselves at home thus they would likely continue their habit. On the other hand, there are still a lot of technical work that requires the contractors. Therefore, the hardware chains still need to focus on both for the long-term.
Being in the carpentry business and shopping a lot at Lowes this summer for materials I witnessed the madness first hand. Stores started to flood right after the pandemic begin when companies pushed their workforce online and the government sent out stimulus checks. Virtual work plus a nice extra stash of cash is a great formula for home improvement or DIY projects individuals have been waiting a while to finally start. Having more free time to improve or work on things at home gave stores like Lowes, Menard’s and Home Depot a perfect opportunity to excel in such a pivotal market.
With regards contractors vs. individual DIYers, I believe stores should focus on the individual DIYers. Contractors are already hard to come by, pre and post pandemic. I know for a fact in my hometown it could take up to 6 months to find a licensed contractor to work on a project, which is why I was able to sweep in and do some of those jobs myself for those clients that didn’t want to wait. All in all, if these stores capitalize on first time DIYers they will start to capture more audience and more customers who feel confident in working on projects by on their own.
I think that the opportunity you mention in the last sentences, capitalizing the first time DIYers, is well worth the trouble. This can be a very good opportunity amidst this pandemic.
In the article, the author mentioned the most hardship for some retailers is that their old systems can’t forecast demand for products and services or track consumer trends during the pandemic time. And I think that is the reason why Home Depot makes a difference. First of all, they put on efforts analyzing the data to forecast the market and the demands. Second, they strive for make the supply chain stable to overcome the shortage issue. Besides, they monitor the employees’ health to ensure they can provide qualified service to the customers. Their insists on not closing the stores in the COVID-19 hot spot area becomes one of their advantages as well.
We can know from the case that it’s requires instant reaction to the market for running a business. However, we can’t be well-prepared to do that if we don’t have enough database.
As learned from the WSJ article, businesses like Home Depot would forecast according to customer’s demand more carefully instead of historical benchmarks such as GDP and housing since they are not accurate anymore. To prevent stockouts, Home Depot should reconsider the lead time and reorder points, while focusing more on the high volume products. Vendor-managed inventory could be a favorable approach. Share their inventory data with suppliers and let suppliers take control of the order size could help Home Depot to adjust inventories according to customer demand, improve the responsiveness, and reduce costs.
In my opinion, residential DIY is getting popular during the pandemic is primarily because of the limited access to the public, which gives DIY customers plenty of time to remodel their homes. In the short term, there is greater demand for DIY customers. After everything returns to normal, contractors would become available and Home Depot should shift their focus from DIY customers to contracts since contractors account for a large share of Home Depot’s revenue.
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Historical data is great, but one needs to pay attention to consumer trends in the market especially during global disruptions. This is what Home depot did amid pandemic, abandoned their past methods and focused on customer demand more carefully. To reduce stockouts, stores must understand the customer spending and make them believe in their retailers to avoid panic buying. 70% of home depot inventory is sourced domestically, making it very less likely to see stockouts. Other stores could also localize their supplier base in order to avoid out of stock problem. Effective communication with suppliers is another key since failure to do so might lead to missed or delayed orders, leading to stockouts.
In my opinion, retailers should ask suppliers to do vendor managed inventory. This way retailers can ensure minimized on-hand inventory and pass replenishment responsibility to vendors. Having said that, VMI requires an accurate information exchange between both parties, which seems a little challenging thing to do virtually.
Home depot should focus on both professional contractors and residential DIY customers. Because of the safety protocols and the lockdown, these contractors cannot do much now but once these measures lifted completely, they will be back to usual work though it will take around 3-4 months to stabilize the things. DIYers want to buy from brands that offer them online resources to help them complete their project. Home depot should manage such customers and increase its online sales.
How should stores adjust to observed store sales to reduce stockouts?
Because of the pandemic, demand as shifted significantly from last year specially on some items. Indeed, a significant increase in sales has been observed which can be explained by the extra money American household received and extra spare time spent at home. Therefore, it increased the chance of stockouts on some items. To mitigate this issue, store should increase safety stock on high seller items. By monitoring closely the demand for each store and also by adjusting to new events created by the pandemic (employment benefit, stimulus check, lockdown…), Home Depot can better estimate future demand and therefore reduce stockouts.
Should suppliers be asked to do vendor managed inventory at retail stores?
It would be a good idea for Home Depot to vendor managed inventory at their stores because it would decrease the complexity of their operations. Indeed, by letting the supplier insuring the inventory level, Home Depot can focus on other tasks like analyzing demand. However, it is important for Home Depot to have a contractual agreement with its suppliers to maintain a defined filled rate.
How should contractors be managed vs residential DIY customers?
Contractors should be incentivized to use the website to shop and pick up on parking to reduce the number of people going into stores. Contractors are generally more familiar with Home Depot products and necessitate less customer help. Indeed, it is critical for Home Depot to avoid crowds in their stores specially if mask is not mandatory. A time of the day can be allocated only for contractors to come pick up their items.
As others have mentioned, the pandemic and the stimulus checks gave people the time and money to work on things at home. Anything from baking bread (flour and yeast were out of stock for a long time) to the DIY projects that had influence on these hardware retailers. Having vendor managed inventory appears to be a great way to increase coordination between the supplier and retailer. The system would incentivize both parties, similar to the Blockbuster revenue sharing we spoke to in class. I don’t think this system would work for all of the supplier, but maybe the larger suppliers can comply with such a system, similar to how P&G and Walmart interact. The time spent in the home may have changed the client base more toward the at home DIY individual. These individuals may need to be more accommodated than they were in the past. This is not to say the contractors should be ignored, but these personnel can reduce time in the store by placing their more predictable orders before hand, etc.
During COVID-19 pandemic, there are many companies and retailers are influenced and sales go down drastically. However, not every industry are negatively affected by it. Some retaliers are beneficial from pandemic because people work at home and spend more time staying at home. They then start panic-buying from supermarket such as hand sanitizer or toilet papers. In this article, we can see that home depot also benefits from pandemic because they DIY their house and buy many materials from home depot store. One thing is that the game is changing, so whoever wants to win the game should adjust their strategy to respond to the demands. Another thing is not to rely heavily on historical data because this actually causes stockout in many places. For example, in early March to late May, it was difficult to buy chicken breast and toilet paper because some producers relied to past records and thought that due to shutdown the groceries industry will be affected negatively, and thus they reduced the amount of products. For producers, they lost potential sales because there are out of stocks for a long time. For customers, they could not get what they want and cause many problems. Therefore, historical data or these numbers are reference but are not absolute. We should also observe external factors like house-DIY goods increase due to people staying at home. I think another important point is that how to balance sales and safety in a right way. From managers’ perspective, they must maintain safe environment for working place, but at the same time they also need to make more sales. Under this situation, e-commerce is blooming, providing retailers more chance to sell goods. To sum up, COVID-19 happened in a sudden and noone can be accustomed to it, but situation also change. The winner will always be someone who responds quickly and knows the game well.
Retailers like Home Depot are needed when people spend more time remodeling their home during the pandemic. It is hard to forecast the demand before the outbreak since the uncertainty of the outbreak and economic environment. But, after the increasing sales and inventory shortage happened in the Home Depot, they need some actions to make sure the stock level is safe. One way is to fix the price to avoid the sudden increase in sales due to the promotion event. Besides, retailers can notice customers when the products are getting lower inventory and provide them a way to pre-order so that retailers would have a way to track the demand. Another is to do vendor managed inventory to lower the possibility of the stock shortage and get more control of the inventory. As the restrictions come out, customers have more time to finish the handwork by themselves. But, when we get more control of the pandemic, the contractors still be needed.
As the pandemic goes on we are certain about two things – this pandemic will end eventually, and it would not end in a short time. Current safety and health protocol might be continued until next spring. With this being said, the old forecast model Home Depot was using would not be useful for at least another 6-9 months, and a new model is needed. With data from March to August it should be able to create a model linking sales to COVID-19 related data. This model should be used together with its GDP model to decide supply level. As previous comments mentioned pooling a regional safety stock is a good idea, but more important they need a better forecast for those safety stock so to better reflect the general market demand.
Vendor managed inventory would be a good idea – but only on paper. At this moment when demand is uncertain, the cause for demand (quarantine and COVID-19) is uncertain it would be risky to apply this system immediately. Home Deport might be able to try this model and adjust the system during this uncertain time and roll out a full scale implementation only when it’s ready.
Contractor and DIY customers acquire their goods in different circumstance. Contractor most likely know how many orders he has on hand and can thus inform Home Deport to prepare inventory. This communication and collaboration will reduce the overall uncertainty in supply chain and increase efficiency. For DIY customers on the other hand, their demand is less certain and more random. It would be better to promote to them to place online delivery or pick-up orders before coming to store to decrease patron footage in store and to also reduce in-store labor cost.
The current times require retailer to be fully alert to demand changes. This also requires high amount of flexibility from the entire operation so as to match the unpredictable demand. One adjustment retailer can make is to reduce the lead time of key items. This may involve changing transportation mode, storing more inventory in nearby distribution centers or asking the supplier to be more flexible and faster with the replenishment process. This interaction with the supplier brings the issue of coordination. There is no better time than right now to start effort on coordinating the supply chain. In some cases, it might require VMI, in others it might simply involve having preference shipments with your supplier.
As per the handling of contractors and residential customers, one key difference is the lead time and type of items these customer groups prefer. I think contractors might be more flexible to longer lead times, allowing the retailer to have inventory further upstream and reacting quickly without committing the inventory in the store already.
While many businesses have been shuttered for good due to the far-reaching economic effects of the pandemic, the opposite has certainly been the case for home improvement stores such as Home Depot and Lowes. Previously employed business models which correlated GDP and housing markets to business growth have been throw out the window. Instead, consumer demand is now dictating the the business model and instinct.
Stockouts are often the direct result of panic buying; something seen with many consumer goods since the pandemic started, particularly with sanitizer products. Yearly store sales, which take up valuable stockroom space, should be set aside in favor of stocking more of what consumers demand. More product, along with reassurance from the company that stock is ample, will reduce the risk of panic stockouts. VMI sounds good in theory, but would be hard to implement effectively store-wide with little lead time. High demand products, however, could see great success with VMI and also result in less exposure to store-front staff.
Contractors and residential DIY customers require different approaches. Your average DIY customer is not buying huge volume and wants stock to be readily available. Contractors, on the other hand, are looking for high volume orders and generally have the flexibility to place and order. I believe it could be advantageous to require contractors to place orders for high consumer demand products to avoid stockouts for the rest of your customer base.
Although during the pandemic, people’s lives and business operations have been greatly affected, but at the same time it is very interesting to notcie that some companies are experiencing rapid growth in demand under such circumstances. Home Depot and Lowe’s mentioned in the article are good examples. Due to quarantine and other reasons, people have more time to stay at home to redecorate their houses, which has also led to significant growth in the business of these two companies. Of course, the measures taken by these two companies from the perspective of employee and consumer safety are very commendable. Although online shopping has not been their main source of profit, I think that under the current circumstances, speeding up the proportion of online shopping can relieve the pressure on logistics and retail stores to a certain extent. Keep the main inventory in the main warehouse, and ship directly to customers from warehouses. At the same time, I think that customer segmentation should be done to distinguish contractors from individual consumers. Because the two have significant differences in consumption patterns, it might be helpfuo to consider establishing different channels to separate a large number of but relatively concentrated types of goods from a random but small number of consumption.
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Possibly once in a life-time black swan event, the COVID-19 pandemic has put the world’s supply chains in an unexplored state. As major retail businesses like the Home Depot has relied more on developed models to manage their supply chain, the more comfortable and stiff they become. The pandemic has rung bell on these businesses and now they start to focus on becoming more responsive. I believe for most retailing businesses, owners should adjust to observed store sales to reduce stockouts. The pandemic will have a long lasting effect, and it is never to late to adjust to observed store sales to forecast demand because there is no history to reference to in this kind of situation thus it is hard to forecast demand. For major retail chains during this time, suppliers should not be asked to engage in VMI, as it is hard to coordinate across regions. Contractors and DIY customers are in completely different categories when managed. Contractors often seek bulk purchases and are more price sensitive. Therefore they should be engaged individually and the business should try to find a lasting partnership. For DIY customers, they demand a higher variety of products and seek availability, but are less price sensitive. They can be satisfied with more SKUs and in-stock products.
For the early pandemic time, many companies started to change their model of selling things. They set up online purchasing and delivery service, pick-up service, the layout of dinning, or automatically check out. From the employees’ sides, to prevent them from getting sick, Home Depot gave all the employees thermometers to check their temperatures and workers take an online health survey. Nobody knows COVID-19 will happen to affect the economy. Companies need to change quickly to survive, form example, supply chain coordination, storing more inventory, and more flexibility among employees.
The pandemic has caused unforeseen impacts on consumer demand across different product categories. This has affected the retailer’s ability to manage store inventory and in-store services. Since there are no similar historical events that can be guide any industry, retailers should follow daily customer demand and macro economic indicators on the customer side. This might help in understanding changing seasonal trends, customer preferences and customer needs. On the supply side, retailers should share this demand data with all upstream supply chain partners to enhance coordination and reduce stockouts. Additionally, keep a close watch on global coronavirus hotspots, shipping restrictions and leading economic indicators can help the retailer influence demand.
For retailers, shifting to CPFR strategy might be helpful in the medium term to enhance supply chain coordination in the face of high demand variability and high lead times. VMI works well only if the supplier can predict demand satisfactorily, having sufficient warehouse inventory to replenish store inventory.
DIY and high-risk customers should be encouraged to use online platforms to ensure employee in-store safety. Additionally, traditional end-consumers might shift to DIY customers as they might not want use contractors during the pandemic. Therefore, managing DIY customers should be more proactive to ensure steady revenue and financial stability.
Increasing dependency on data will help change supply with demand. So Home Depot is going in the correct direction by observing demand more carefully amongst economic factors. Assigning responsibilities to leaders for smaller perimeters always increases forecasting accuracy and reduces stock outs at store level. In Home Depot’s case, since they don’t know their customer demand themselves, it is a long shot that their vendors will know, so vendor managed inventory will increase investment in the wrong inventory. Since contractors are more knowledgeable about products and would require lesser time to shop, there can be a curbside arrangement for them whereas DIY customers need to understand, enquire and buy. This separation will reduce crowds entering stores and will help crowd management without reducing revenue.
As the article mentioned, the traditional metrics for stores are no longer good predictors for success in the coronavirus economy. Stores have had to adjust their operations by directly observing consumer demand. To reduce stockouts, they should carry higher inventories of popular home-improvement items which customers have purchased during the pandemic. Unlike groceries, these stores do not have to worry about the freshness of an item, and therefore can carry inventories for longer times without concern. The supply chain must react quickly to consumer demand trends. Vendor managed inventory would not make sense for this situation due to the sheer number of stores, which would be difficult for the vendor to manage effectively. Managing contractors and DIY customers is very different during the Covid pandemic. At the start of the pandemic, there were no contractors in homes doing work, meaning that all improvements had to be made by the resident themselves. This would have led to an increase in residential customers coming to stores to make their own improvements. The average residential customer does not possess the same level of knowledge about home improvement as the contractor, therefore they will likely need more assistance. Stores should manage this by proving the customers with additional assistance at the store as well as online DIY guides.
Based on the home economy concept, people are stuck at home due to COVID-19, and thus they would use the pandemic to remodel, fix and redecorate. People spend a large amount of time at home changing things they wanted to change before. As a result, sales of companies like Home-depot has increased in a rapid growth.
Since the sales increased significantly, I have the following recommendations to reduce stock-outs. Firstly, it is important to predict demand based on historical data. Have more in-stock of popular items, and less in-stock for those not as popular items. Secondly, I would recommend to open online stores. Customer can order online, and stores send items to customer directly or pick up items from local stores when available.
Vendor should manage inventories at retail stores theoretically, and I agree that managing inventories would certainly reduce inventory stock cost, simplify operating system. However, the prediction based on historical data would not be accurate for current situation. As mentioned in this article, demand has changed under COVID-19, and thus it is hard to make a prediction, and therefore this model might not be helpful to apply.
As mentioned in the article, 45% of the revenue comes from traditional contractor, and thus I would say contractors are at priority. However, as more and more people staying at home start to doing work themselves, the amount of DIY customers would increase, and sales revenue from DIY would increase and this would be considerable for the future.
Forecasting using historical data is not ideal during the pandemic. There is an increase in costs trying to ensure the health of workers and customers. The article talks about various reasons on why spending would be less. However, there was an unexpected increase in sales at Home Depot during the early months of the pandemic. Customers spent a lot of time at home and decided to put the time to best use and remodel their houses.
It is challenging to predict the demand during these uncertain times. Therefore, due diligence must be used to forecast the customer behavior. For example, the company must focus on stocking products that are popular and at least for the time being reduce the stock of products that aren’t as popular. Second, it should promote residential DIY customers as professional contractors may take time to return to normal business. Even when they return to business, the contractors will have a long backlog which they have already committed. Hence, it is better to promote residential DIY customers. This plan will be beneficial to the company in the long run. Third, investing in online sales is the need of the hour. Customers can choose products without exposing themselves to any risk. Customers will be able to understand how a furniture would look in their patio with the use of virtual reality.
Pandemic is a double-edged sword. Because people spend more time staying at home instead of going outside, for Home Depot it’s important to always focus on customers’ requirements. During this special period, old systems can’t forecast demand for products and services or track consumer trends. In order to reduce stockouts, stores need to make analyses for customer behavior and forecast future demand more carefully and frequently. Solutions such as setting higher safety stock levels and customers’ purchase quantity limitation for hot-sell products can be applied. Stores can motivate existing suppliers to guarantee supplements as well as find potential suppliers for the same product. Also, for commodities used at home, there would be lots of substitutes to replace, stores can procure more varieties of products for customers to pick. It would great if suppliers can do vendor managed inventory at retail stores, resulting in more communication and efficiency to satisfy demand. However, many suppliers may not prefer to be responsible for this job during pandemic because of limited resources. So stores have to make more reliable relationships with suppliers and consider information transparency problems carefully. Pandemic stimulates more residential DIY customers while decreasing the number of contractors’ services. At least during this period, stores should pay more attention to DIY market because it brings handsome revenue with a promising increase. But people cannot deny what professional contractors can do and the market would always exist. For stores, they should always cater to customers’ demands.
In any forecasting the main assumption is that the business will continue on the set past trend lines and adjusting with a prediction factor. When the world is going through a pandemic no past data would be really helpful in understanding the current demand. Organisations which were quick to
understand and adapt have really thrived during the pandemic. Home depot is another such successful story. I personally picked up on lot of activities which I always wanted to do and shopped everything online during the summer. It is safe to say that Home-depot should prioritize DIY sales or any such fast moving products to satisfy the customer demand. Even the shelf space should be utilized accordingly. A real time decision making is the need of the hour. All of this cannot happen without vendors support. Vendor managed inventory is a great option. Vendor managed inventory has fewer chances of stock outs as the the supplier monitors how much stock the buyer has, decides how much stock to send the customer, when to ship etc. But due to the pandemic it is the responsibility of the stores to see if the vendors are prepared to handle the current situation effectively. As work-from-home is expected for a longer duration the stores need to be prepared to satisfy the non-commercial customers with DIY stock etc. Also, the pandemic seems to be a extend longer than expected we can now see things opening up with social-distancing norms i.e the new normal. Therefore, the stores/vendors in case of vendor manged inventory need to stay updated on daily basis to pick on current trends and be agile to everything happening around and stock up accordingly.
As every other retailer, Home Depot has grown accustomed to basing their inventory, sales, and customer demand on past sales, GDP, and forecasting which outside the midst of an unprecedented pandemic has proved successful within the retail industry thus far. Specifically for home improvement stores like Home Depot & Lowe’s, their customer base has expanded greatly pushing many people at home who wanted to renovate into their stores during a time of quarantine making it even harder to forecast their customers’ demand.
For a time such as this, Home Depot no longer needs to push sales to get their customers into the stores, and the main current focus is managing the amount of customers in their stores as well as maintaining the health of their employees. Stockouts of items through companies’ supply chains is no new notion for the coronavirus pandemic, however with some little trend information from the beginning stages of the pandemic along with forecasting for what the future of the pandemic will hold in terms of working from home, stimulus and unemployment checks are all important factors for ordering inventory to prevent stockouts for both customers and contractors.
With contractors being a significant and steady part of business for home improvement stores like Home Depot, so naturally they should have priority over regular customers because their business and income can depend on being able to obtain materials needed for their work whereas other customers do not have the same level of dependence on inventory.
Working with vendors and suppliers to adopt a separate chain or compartmentalization for business to contractors versus other customers could make a smoother transition for forecasting demand based on the type of customers as well as make it easier to forecast inventory between the two.
Observed store sales can be used to reduce stockouts via: a) Demand side: There will be a need to verify whether the consumption pattern observed for specific products in stores is a temporary or a medium-longer term thing. Customer surveys can be a tool utilized to gauge this shift by providing customer with some incentive to filling out surveys. This shall help to analyze the firm demand patterns. b) Supply Side: Once critical SKU’s are known, investments can be thought of at vendor’s end in order to ramp up capacity, alternate sources can also be evaluated. Optimization of shipping lanes can be explored in order to ensure smoother flow of products to stores. Vendor Managed Inventories (VMI) can also be negotiated in order to ensure optimal stocking levels.
As VMI provides suppliers a control to maintain necessary inventory levels and align their production plans accordingly, it can be helpful in navigating through current challenges. Companies can reduce labor costs at own end due to lesser responsibility and this can lead to reduce spending.
As there are spending pressures, it seems that share of revenue via contractors will be impacted since customer will conserve cash and shift to DIY mode majorly. New enrollments of contractors can be stopped and as it seems that this shift can be a permanent, trimming down of workforce might be necessary.
Indeed, we are witnessing an amazing situation that humanity has never encountered on such a huge scale. On the one hand, the demand for energy, clothing, luxury items, еtc has decreased. However, the demand for consumer goods rose sharply.
How to deal with the huge unpredictable demand?
Firstly, it is definitely necessary to strengthen partnerships with suppliers. For example, entering into revenue sharing agreements with suppliers will allow companies such as Home Depot to maximize profits. As a similar demand from competitors arises, Home Depot will be able to offer better terms to manufacturers through economies of scale.
Secondly, by entrusting warehouse management to suppliers, the company will be able to focus on analyzing market fluctuations. Thus, to manage the possible risks of changes in demand. Thereby, the company will attract highly motivated manufacturers to manage the inventory of their products in the store. Then, the coordinated network, as a result of the division of functional responsibilities, will gain mutual benefit.
Finally, there is no doubt that companies should use more flexible and diversified approaches in forecasting demand, since the previous methods do not work effectively enough in a pandemic. For example, to analyze forecast data, a project team should be formed, and partly external resources may be involved. In my opinion, certain companies with a focus on data analysis have more ability to forecast demand in the face of uncertainties. At the same time, the more diversified the forecasting portfolio, the smaller the variations.
Although pandemic did bring a huge downtrend for the whole economy along with massive employee’s layoffs, companies like Home Depo actually might get effected not as bad as the rest of other industries do. Because of the natures of the business for selling house supplements and tools, Home Depo’s sales revenue might bring up by the increasing demands of home DIY. Since the lockdown offers people more time staying at home and do something they might not have time to do in the normal situation. Flexible time can bring people more confidences when dealing with the troublesome repairing situations. Thus, to maintain a healthy and consistent supply chain and steady revenue model, the appropriate idea for Home Depo will be to pay more attention to those segments of customers.
Also, the forecasting part can be tricky. Pandemic is a whole new story and challenge for current market. Focusing only on the historic data is not as helpful as it should comparing to the feasibility of most up to dated data. Home Depo should pay more attention to the data that they have after the pandemic begun to draw a clearer picture of the supply chain trends. And then it should be easier to make further projection.
As for the vendor managed inventory, it indeed brings a lot of benefits like better communication and inventory managements. It can still be better improved by accepting more direct feedbacks from the suppliers and customer as well as the accuracy for forecasting.
Observed store sales can be used to reduce stockouts via: a) Demand side: There will be a need to verify whether the consumption pattern observed for specific products in stores is a temporary or a medium-longer term thing. Customer surveys can be a tool utilized to gauge this shift by providing customer with some incentive to filling out surveys. This shall help to analyze the firm demand patterns. b) Supply Side: Once critical SKU’s are known, investments can be thought of at vendor’s end in order to ramp up capacity, alternate sources can also be evaluated. Optimization of shipping lanes can be explored in order to ensure smoother flow of products to stores. Vendor Managed Inventories (VMI) can also be negotiated in order to ensure optimal stocking levels.
As VMI provides suppliers a control to maintain necessary inventory levels and align their production plans accordingly, it can be helpful in navigating through current challenges. Companies can reduce labor costs at own end due to lesser responsibility and this can lead to reduce spending.
As there are spending pressures, it seems that share of revenue via contractors will be impacted since customer will conserve cash and shift to DIY mode majorly. New enrollments of contractors can be stopped and as it seems that this shift can be a permanent, trimming down of workforce might be necessary.
Home Depot is a good example of a company that was able to adapt to a hopefully 100-year situation like this pandemic. It quickly set aside the metrics that guide its normal business activities to focus on consumer demand. In terms of avoiding stockouts, Home Depot could look both at in-store sales and online views to see what its customers are looking at and focus on stocking those items. Home Depot should also make an effort to help its contractors switch to using a curbside delivery method. These are constant customers who generally know what they want to buy and do not need to browse the store for the items. A curbside delivery option would also lower the exposure risk for these contractors.
The newer DYI customers may be harder to service. These customers would probably want to come to the store to look over what they want to purchase. However, current circumstances could deter customers from doing that. Home Depot should expand its online product information and project services to help its customers find the best product for their needs to reduce the amount of foot traffic and time spent in the store.
It’s surprising that the sales of Home Depot have been boosted during this pandemic, but it’s not strange if you think more about it. People always want to find something to do when stuck at home, and that’s why it’s difficult for the retailers to anticipate the trend of demand, they don’t’ know what people want to do next. Also, the historical benchmarks, like GDP and housing, are now irrelated to the sales any more. What the retailers can do is to monitor the demand more frequently, maybe on a week base, and then adjust carefully according to the changes. Also, since more people start to order online, it’s more convenient for them to observe the demand so that they can keep the inventory at an appropriate level. They should keep the price to prevent people from hoarding as well.
The question for vendors is not if they need to control the inventory, but if they can. No one has experienced anything like this. They can’t control the inventory if they don’t know the customer demand. Just like I mentioned above, we don’t know what people want to do next so that we can’t forecast the demand. What’s the best for the suppliers and retailers is that retailers control the inventory by themselves and suppliers respond to the change of retailers quickly. VMI should be considered in the future.
Compared between contractors and DIY customers, I think Home Depot should focus on DIY customers because although contractors account for a large part of the revenue and service, but during this pandemic, people are unwilling to have someone, especially a stranger, at their home to do some repair or decorate. They prefer to buy the staff in the store or online and do it on their own. So, I think they should put more emphasis on DIY customers to meet the demand and reduce the labor costs.
Stores should increase safety stock on their most profitable products to better prepare for events that have economic effects like COVID-19 had and has. Stores should aim to localize their supplier base as well, which indeed can reduce stockout issues because of easier procurement.
Vendor managed inventory helps increase inventory control and can reduce the chances of stock shortages and get more control of the inventory. VMI will help streamline processes and in turn lower costs and bring about a closer relationship with the customers and their feedback and insights as well.
I believe Home Depot should place focus on DIY customers more than contractors at this time. This is because, considering all the pandemic safety protocols as well as fears and concerns of spread, contractors cannot do much until this passes and they can resume normal operations. Obtaining a contractor is and may still be difficult, pre or post pandemic, as Robbie Waggoner commented. There is great potential for Home Depot with their DIY retail customers and putting more focus on them.
As per the article, it is evident that since most employees are working from home, there are spending more time on decorating their houses. This results in higher demand for these hardware stores such as Homedepot. Customers trying to visit these stores have highly surged over the past few months. Companies cannot rely on their prediction models to rely on the expected sales during these unprecedented times. Companies have to be extremely creative at these times. Making sure that there is right amount of inventories to cater to the customers’ demand is important, but making sure that there is no bullwhip effect and these companies left with unnecessary inventories could hurt their businesses more. One option to put a check on the bull-whip effect is by using the vendor managed inventories, where the manufacturers decide and manage the inventories in the retail stores.
It is also important to take notice that people have moved to rely on the DIY modular designs as reliance over the contractors has reduced because of their unavailability. Vendor management inventory also helps to quickly adapt to the current demand and will also reduce lead times. This will also allow them to come up with designs that are easier to fit targetting the DIY customers.
While other industries are frozen due to the effect of the pandemic, retailers of furniture like Home Depot grew during this period because more people stay at home and starting to noticing things that they always want to change but never have time to do. It’s hard to do forecast during this period when all historical benchmarks are useless, thus they should collect data from the start of the pandemic to the most current time to analyst new customer purchasing patterns so they can better forecast sales to prevent stockout.
Vendor managed inventory is always a good idea for the retailer. As a closer contact with the suppliers, Home Depot will have less risk of stock out and increase inventory turn which reduces inventory cost.
During the current situation, residential customers seem to be more important than contractors. The majority grew of sales was because the surge of DIY customers and professional contractors couldn’t go into homes for weeks in some states. So Home Depot should put more emphasis on residential customers for now.
-The article mentioned that Home Depot’s past demand forecasting methods were no longer applicable during the pandemic. Therefore, in order to reduce stockouts, they must pay close attention to and analyze the current customer needs. For example, guide customers to place orders on the company’s online shopping site, invite customers to complete a demand survey questionnaire, increase the order quantity of high-demand products, cancel discount promotion activities, etc.
-Suppliers should be required to do vendor managed inventory. This will not only help avoid inventory overhang but also help Home Depot better respond to customer demand.
-Professional contractors provide about 45 percent of the company’s revenue, so the company should continue to cooperate with them as it has in the past. The management of residential DIY customers can be achieved by encouraging them to shop online, which can increase both the company’s revenue and the safety of employees.
This is a classic case of switching from a predominantly push way of operating, to a pull system, i.e. being more responsive to the demands as the pandemic unfolds. Their methods of forecasting should not be replaced completely but should be adjusted based on retrospective analysis of the recent demands. GDP and other benchmarking methods must’ve had credibility for those models to be in place firstly. So, adjusting these forecasts to suit current demands based on how recent demands have shaped up could be a right forecasting strategy.
Regarding the issue of stockout, I feel before taking any decisions like switching to VMI, data should be collected, grouped into product categories and consumption should be analyzed. For example, an ABC analysis on the consumption for each product category could give insights and feed decision making. Geographic locations as well as customer segments involved must be considered as it can be further used for hotspot related or pooling related decisions.
Though VMI seems like a good way when the demand is stable, one key disadvantage of VMI is that it puts entire pressure on the supplier to handle the responsibility of unstable demands. Customer, which is the retailer in this case has little control over these decisions. Nevertheless, the situation indeed calls for agile decision making, and this makes it necessary to work closely with the supplier. One alternative that could work, can be having incentives placed and SLA’s that reward the supplier for on-time delivery or being able to handle frequent changes in demand. Using the results of ABC and other analysis, reorder points and lead times will have already been tweaked. This way the retailer would have better control, at the same time stockouts would reduce as a combined effort of the supply chain.
Regarding contractors, the supply has to catch up with demand, and even if DIYs have increased due to all the reasons mentioned, focus and priorities if changed, wouldn’t be sustainable.
How should stores adjust to observed store sales to reduce stockouts ? Should suppliers be asked to do vendor managed inventory at retail stores ? How should contractors be managed vs residential DIY customers ?
The stores, as is the case with Home Depot, could adapt very quickly (and be nimble) in their supply chain as soon as any uncertainty (pandemic, in this case) hits. The example is, Home Depot literally had hand signs ready within the 48 hours for online curb-side pick up. Even though, it was claimed that the stores are large enough and social distancing norms are followed, they still responded to the situation and presumably did not lose the customers who would have preferred contact-less delivery at the time.
There are a lot of interesting cases wherein the supplier do the vendor management in inventory in the retail stores. We see that happening mostly in the FMCG departments, mainly in the perishable goods (especially milk, etc.). Which allows for profit sharing, advertisement sharing, and most importantly, risk sharing.
So, both the chains (Home Depot and Lowe’s) have their own idea of dealing with this problem (of contractors vs. residential DIY customers) and again, that is their USP and that is the flexibility they provide and hence attract the customers, accordingly. It’s again, at the end of the day, a trade-off.
Forecasting demand is one of the most challenging things for a business. The accuracy of the forecasts dictates the accuracy of the ordered quantities and fill rates and hence decreasing the stockouts. While in normal circumstances, the independent variables that impact the demand can be used and explored to improve the forecasting accuracy but this pandemic will challenge those forecasts. Home Depot, as suggested is using the best of the judgements to predict the consumer buying patterns, majorly for the DIY homeowners, in the pandemic by visualising the most recent demand patterns.
To solve for the stockouts, VMI seems to be a valid idea but I believe that VMI is most efficient when the forecasts are accurate or we know/ can accurately perceive the upcoming demand. If we are able to increase the accuracy of the forecasts, Vendors/ suppliers can work BACKWARDS from the demand patterns and manage the lead time accordingly. One disadvantage in the VMI is that we are giving them control of a part of the inventory to the vendors, which increases their control of an assigned space in the stores.
I believe that while the customer demand forecast is a little trickier, we can still forecast the contractors’ demand, consolidate the demand and can involve VMI for the contractors.
Where logistical convenience and risks associated with outdoor movements in pandemic enabled the surge in sales of chains and multinationals like Walmart and Amazon, it was the psychological factor and proclivity to develop and sustain stay-at-home habits, that resulted in the growth of the business of the hardware stores like Home Depot and Lowe’s. It is true that these uncertain times created unusual scenarios where some businesses saw an erratic pattern of sales and huge losses, some businesses had to see stock-outs and high demands. Information is a major source of help and vendor managed inventory can simplify and streamline the process of procurement and sales in these uncertain times. Creativity is another important key to handle the situation prudently. Innovative means of understanding consumer psychology can be utilized to better understand their expectations and demands. Inventory can then be managed accordingly to avoid stock-outs. By staying updated with government norms, which are significantly influencing consumers’ behavior, and staying aware of consumer’s expectations, businesses can thrive in the present scenario.
Despite the pandemic leaving most businesses with reduced sales, companies like Home Depot and Lowe’s burgeoned. The article states that the companies registered a much higher growth in the spring/summer quarters compared to previous years. The executives initially feared low sales due to the pandemic and store restrictions, however, careful deliberation would have actually helped these companies predict an increase in sales.
To reduce stock out, the stores can implement online-only policy for the fast moving products with slightly higher delivery times. To ensure that they do not lose the customers to a competitor, they can provide offers such as free delivery/installation, loyalty points, etc.
On the planning side, it makes sense for the companies to place large orders with the vendor for the foreseeable future. While VMI actually helps mitigate the bullwhip effect in the supply chain and reduces the risk involved for the retailer (as the risk gets shared between the vendor and the retailer), it wouldn’t be a smart decision during a pandemic when the increase in demand is evident and the replenishment cycle time is low.
To ensure the safety of the contractors and the customers, the retailers can use a hybrid system where a professional contractor supervises the customer online and provides instructions for product installations. They can also provide an in-person contractor service for a small fee that is used towards safety kits to protect the contractor and the customer. This would dissuade customers from requiring contractors unnecessarily.
During the pandemic, there have been greatly affected people’s life and industry, but at the same time, it is very interesting to notice that some companies are experiencing rapid growth in demand under such circumstances. This has affected the retailer’s ability to manage store inventory and in-store services. Making sure that there is the right amount of inventories to cater to the customers’ demand is important, but making sure that there is no bullwhip effect and these companies left with unnecessary inventories could hurt their businesses more.
During the situation happen now, the majority grew of sales was because the surge of DIY customers and professional contractors couldn’t go into homes for weeks in some states. So Home Depot should put more emphasis on residential customers for now.
It is interesting to see how this transition of remote working has impacted Home focused Retailers such as Home Depot and Lowes. This example shows how important is to understand the nature of the collected data and how to use information (such as announcement of stimulus) can boost sales.
However, it is important to pay attention to customer behavior carefully to avoid a bullwhip effect. This is a risk that may be materialized if remote work is no longer the preferred mean of work. Even though Home Depot has done better than expected, it is important for them to reassess whether it is more convenient to have many contractors or get closer to Lowe’s model of using less contractors as it has had and increase of sales of approximately 30% more than Home Depot (10.9% vs 14.3%).
This sales increase has been mainly driven by retail customers and Home Depot needs to be careful on the way it responds to the crisis as they might be loosing customers towards their competitor.
The biggest learning for retailers like Home Depot and Lowe’s is that they could no longer drive huge amounts of traffic to the stores, this being because of the pandemic social distancing. If you are unable to drive traffic to stores, it will lead to lower sales volumes. One way for these retailers would be to introduce pickup and curtsied delivery as a part of their value offering, this would not only allow them to drive more volume without having to drive traffic into the physical stores. Like we saw in this pandemic that there was a surge in the demand of certain products, and hence for stores to adjust to sales without stocking out. This would require more dynamic forecasting and quick adjustment to the changing customer needs/demand.
In my opinion, supplier should be asked to manage inventory at retail stores at it removes a layer of process and has the supplier have greater ownership of the product at the store. Yet right now during the pandemic, other immediate actions to drive sales/volumes and reducing stocking out should be prioritised.
Being able to predict demand during the past 6 months has been almost an impossible task for businesses, since it’s true that any of the previous information they had about customer’s behavior around this summer season was not useful to project any the demand that happened in reality, influenced by factors as panic buying, or more customer spending thanks to stimulus packages that house holders received, also another important factor is that people is actually spending more time at home and not taking vacations, that had concentrated their attention taking on projects as remodeling their homes themselves (I’ve seen this first hand from 3 close friends), so demand for certain things had increased stock outs.
The idea of managing their inventories in a different way as it is the vendor managed inventory could provide in this situation a closer relation between supplier and customer (demand), and especially would benefit hardware stores to reduce their inventory in hand, sharing or passing this responsibility to the manufactures or suppliers.
In the case of constructor vs residential customers, there is a big difference in quantity of purchase, since the first ones would always have a major demand on hardware products. What they could do different is to have a specific channel for contractor and give them some kind of higher percentage of access to their inventory. Internet so far has been the best resource to maintain social distancing, so this tool could be utilized also to improve their connection and the customer experience with Contractors. On their online purchasing incorporate special prices for bulk purchasing, ready to pick up services or even delivery. This could contribute as well to decrease traffic of customers into the stores.
I believe that although it is usually helpful to let the suppliers do vendor managed inventory, during this period there is a lot to consider. There are several issues to be solved: inventory management expertise exchange, efficient communication, direct feedback from customers to suppliers and less dedicated staffs needed from stores among others.
I can see that the benefits are there to be taken but companies need to put some effort and risk some capital while trying to cope with the pandemic. Still, there are opportunities to grow like Robert mentioned above with the new DIYers who can be new customers and remain if properly targeted.
By observing the historical data, the stores can conduct certain rules to have different inventory levels in different quarters. For example, Christmas trees should be very high demanding in December. By observing past sales history, the companies would have a chance to more accurately estimate the demand and the trend. Therefore, companies can have ordered more accurately in advance. And also by observing the sales history, the companies can adjust their marketing and promotion plan to reduce the inventory level, and avoid ending up with a large amount of inventory on hand.
Having vendor managed inventory at stores would help Home Deport simplify the warehouse management. The inventory levels are monitored by the suppliers. And the risks are shared with suppliers as well.
For contractors, normally they would have more clear ideas about the products they want and would require fewer assistances during the purchasing. While DIY customers would need more assistance during the purchasing and would spend more time in the store. Under the pandemic, contractors can be encouraged to place orders via online websites or phone calls. And for DIY customers, the store can offer virtual channels to answer questions before they visit the stores, which would help to increase efficiency.