Home Depot - Global Operations and Logistics - Case Study Example

Global Operations and Logistics Table of Contents Introduction 3 Historical and Current Development in terms of Production, Operation and Marketing 4Analysis 5 Changes in Merchandising, Store Operation and Vendor Management 6 Centralized Merchandise Planning 7 Findings 8 Conclusion 10 Implication of strategies for future improvement 11 References 13 Introduction Home Depot is one of the leading and largest US based retailers headquartered in Atlanta, Georgia. The organization operates its business practices within home improvement retail industry. The organization was founded by Arthur Blank and Bernie Marcus in the year 1978. The retail chain operates several big box format stores across the United States (Cohen, 2009, p.43). Each and every store of Home Depot operates with the concept of large warehouse style buildings. The largest store of Home Depot is situated in Union New Jersey. The organization achieved huge popularity due to its “do-it-yourself” concept. According to the concept, the home owners and several individuals generally purchase home improvement products and tools. Then they repair or improve their home on their own. The organization not only prioritizes their customer service through this concept but also provides effective clinical and practical workshop training and development to the customers in order to enhance their customer service process. This “do-it-yourself” concept helped the organization to retain their existing clients. In addition to this, Home Depot got success to attract new customers through effective customer service (Ferrell and Hartline, 2008, p.584). The owners of the organization encouraged the sales associates to develop strong relationship with the customers to maintain their leading position in the competitive marketplace. This report will analyze the logistics and customer service activities of home depot throughout the years. Moreover, the study will discuss about the merchandising, store operation and vendor management activities of Home Depot in order to draw an effective conclusion. Historical and Current Development in terms of Production, Operation and Marketing For the first 20 years, Home Depot became popular and well recognized due to its focus on customer services, significant sales growth rate and dynamic entrepreneurial spirit. Initially, the organization used the concept of big box format stores. All the customers could find and purchase all the necessary home improvement products. They introduced “Do it yourself” concept to enhance their customer service. The owners of the organization encourage the sales associates to take care of the satisfaction level of the customers to develop a significant client base (Paper, 2007, p.39). Home Depot organized several effective workshop training and development programs for the customers to fix home problems by their own. These strategies helped the organization to secure their leading spot for 20 years. In 2001, CEO Nardelli changed the product development and distribution process due to rising cost, falling sales and stiffening competition. The organization started to provide specialized goods and services to the smaller professional customers. The CEO had the intention to attain professional business growth. Nardelli implemented several change strategies to improve the productivity. He motivated headquarter of Home Depot to recruit talented and skilled associates to bring more specialization. Moreover, he appealed for simplification of the job function of each and every store associate. He also worked hard to standardize the logistics activity. Introduction of the concept of “inventory velocity” helped the organization to track their stocks effectively. CEO Nardelli made a decision to employ 227, 000 associates to reform its in-store operation activities. In spite of achieving significant growth rate, CEO Nardelli tried to make some changes in business operation to secure future growth rate. Organizations like Walmart implemented advanced technology in their business operation in order to reduce workplace stress. For example, invoices and bills were processed by hand while the other leading organizations like Walmart adopted online billing and product delivery process to achieve competitive advantages. However, the organization tried to adopt several key strategies to respond to rising costs, falling sales and intense market competition. Nardelli introduced a three part strategy in order to overcome the challenges. This strategy includes expansion of the market both geographically and demographically, business extension into new lines and making existing business operation more profitable (Hall, 2010, p.45). The organization implemented change process in merchandising. Nardelli adopted centralized purchasing and merchandising process. In 2001, he reassigned these functions to 12 different merchandising vice presidents. The major aim of this centralization process was to realize the gains in purchasing power and denoting inefficiencies in the store operations. Nardelli also introduced several disciplines through performance evaluation and data analysis. Store managers were assigned to make future operation plans based on the achievement of weekly or monthly sales performance target. However, Nardelli tried to adopt several cost cutting marketing and operational strategies to ensure significant business profit margin. This changed strategy helped the organization in several ways. It increased the satisfaction level of employees. Home Depot was able to reduce the amount of return to shareholders in the 2006 under the leadership of Nardelli. Analysis This part of the study will discuss about the merchandising, store, operation, vendor management and customer service process of Home Depot. Changes in Merchandising, Store Operation and Vendor Management For first 20 years, several Home Depot stores principally depended on the full-time knowledgeable personnel. The organization was praised for its low turnover and high productivity. The organization traditionally shies away from the minimum wage labor. The management of the organization believed that paying effective and best employee will increase the productivity and generate higher store revenue. In the year 2000, the organization decided to provide high level of customer service. Effective customer service is one of the major reasons behind the successive business growth of Home Depot. In spite of astounding success, Blank and Marcus stated that the future growth of the organization require new and unique ways of thinking and doing. The organization tried to implement advanced technology in the business process in order to achieve competitive advantages. The owners of Home Depot recruited Robert Nardelli from GE to reform their business operation. Robert Nardelli as a CEO provided the example of effective and appropriate leadership. His leadership style and decision making process were significantly praised by Wall Street Journal. Nardelli proposed to headquarter of Home Depot to employ more associates. In spite of its rapid growth, the CEO tried to implement change the operation processes and strategies to achieve potential competitive edge among its competitors. Several competitors were trying to capitalize on the potential opportunities that have been developed due to globalizations and technological advancement. Robert Nardelli tries to incorporate all the advanced tools and process in the business process to survive in the saturate competitive market. The organization was experiencing falling sales, intense competition and rising operating cost. Therefore, he tried to reduce the business operation cost through the implementation of cost effective strategies. The organization gave respect to the suggestion Robert Nardelli. The CEO devised a three part strategy to reduce the business challenges. Extending business line, making profit from existing business operation and international business diversification both geographically and demographically could help the organization to compete with several leading organizations like Walmart. Centralized Merchandise Planning In centralized merchandise planning, central buying authority assumes total responsibility for purchasing the assessment of production, warehousing, pricing and distribution. According to the centralized merchandise planning, buyers can check goods (Wood, 2008, p.21). If an organization does not avail warehouse, the products can be shipped directly to the personal stores. There are both advantages and disadvantages of this type of merchandise planning. This process can provide steady flow of merchandise. Organization can make effective and accurate future forecast. This centralized merchandise can help an organization in stock controlling and selling attention process. Looking into these advantages, Robert Nardelli centralized the merchandising and purchasing planning of Home Depot. He reassigned these functions to 12 various merchandising purchasing power. Detractors thought that this centralization may offer the similar product mix. But Robert Nardelli effectively maintained this centralization purchasing process. It helped Home Depot to effectively control the product mix in order to maintain greater consistency in merchandising. Home Depot effectively managed the inventory and vendors through this centralization process. Home Depot supported the decision of Robert Nardelli. The organization spent more than 1 billion US dollar in order to support this centralized purchasing and merchandising process. This investment helped the organization in several ways. It modernized the technological infrastructure and IT system of the retailers. Home Depot motivated the retailers to adopt advanced technology in their inventory management process to effectively control the stocks. For example, the organization implemented markdown management, assortment planning and store space planning software to enhance sales growth rate (Hess, 2013, p, 72). As a result, the organization managed to replenish 11% of sales by 2005. Robert Nardelli believed that power of operational execution and process discipline can improve the quality of several business operation activities. He introduced Six Sigma Approach to the store operations. This Six Sigma Approach helped the organization to filter out the manufacturing process into several business segments. This Six Sigma Approach was represented in a specific four step process in order to attain improved quality. This four step process includes gauge, analyze, improve and control (Roger, 2010, p.434). Measurement or gauging allowed Home Depot to quantify the accuracy and quality of the business process. Analysis is another important step to determine the effectiveness of the business process. Improvement came through the implementation of change process. Finally, the management of the organization monitored, controlled and maintained the quality level of newly introduced strategy to achieve significant business output. However, slowly and gradually the company was losing its market share and sales growth rate. Findings It is clear from the case study that Home Depot followed decentralized merchandising and purchasing planning for first 20 years of its business operation. In the year 2000, the owners of the organization tried to implement change process in order to meet the market demand and customer satisfaction. The new CEO, Mr. Robert Nardelli suggested headquarter of the organization to reform business strategy to maintain its leading position in the competitive home improvement retail industry. Robert Nardelli first of all introduced centralized merchandising and purchasing process when several retailers were developing enormous autonomy to their stores. Integration of discipline throughout the business process helped the organization to improve their infrastructure, technology and IT system (Fekete, 2003, p.230). This centralization improved the international logistics and supply chain process. The organization employed new associates to enhance business operation and customer services. Moreover, supportive leadership style, effective performance evaluation and significant reward distribution process helped the organization to develop a friendly workplace culture. This changing culture at Home Depot motivated the employees to perform effectively for the organization. The centralization was necessary as the other competitors were implementing new strategies to attract the target customers. This changed strategy helped Home Depot to strengthen the opportunities for economies of scale. In addition to this Robert Nardelli introduced several changed marketing and sales development plan to reduce operational cost. However, this aggressive change strategy affected the customer service process. In the year 2006, the CEO and top level management of the organization realized that the organization is facing problems like in adequate customer services and lack of skilled employees. The employees were lacking appropriate knowledge about the products and services. It affected the customer service process. However, the organization had to focus on effective customer service to eliminate the operational issues. Home Depot announced several future initiations to ensure better customer service. Robert Nardelli announced that the organization will ensure better purchasing, customer service and merchandising as well as employee bonus program. This program was known as “Orange Juiced”. Major aim behind the introduction of this program was to motivate the sales associate for effective customer service (Lipman and hall, 2008, p.7). In addition to this, the organization opened each and every board meeting with customer service data. This particular process may not help the organization as it is important for the organization to employ skilled and knowledgeable employees. Moreover, it is quite challenging for the employees to perform both customer service activities and logistics activities. Day-by-day, the number of customers and products are increasing rapidly due to growing market demand. The plan or strategy of Robert Nardelli is quite acceptable as he tried to bring down the operation cost. Besides this aspect the CEO had to ensure the effective customer service aspect as the organization became popular due to effective customer service (Steinberg, 2011, p.54). Only distribution of high reward or bonus cannot help an employee to perform effectively if he or she is lacking quality, skill and knowledge. Conclusion It is clear from the findings that Home Depot is facing problem in customer service process. The organization adopted rapid and aggressive change process in business to increase their productivity. Home Depot is one of the leading home improvement leading organizations. The organization achieved a significant growth rate in its first 20 years of business operation. Slowly and gradually, the owners of the organization helped the newly appointed CEO to implement change in business process. The organization implemented centralized purchasing and merchandising process to reduce business operation cost. However, Home Depot did not sincerely focus on the skill, knowledge and experience of the new employees during the recruitment and selection process. In spite of rapid sales growth rate and successful business performance, Home Depot was facing problems in the customer service process. Implication of strategies for future improvement Home Depot is one of the leading retail chains around the globe. The organization became popular due to differentiated product line and effective customer service. After 2000, the organization appointed Robert Nardelli as the CEO of the organization. He introduced several change strategies in order to secure future market growth. But end of the day, the organization faced several challenges regarding customer service process. Following recommendation plan will help the organization to attain future improvement. The organization is facing customer service problem. First of all, Home Depot should review the performance level of the existing in-store employees. Lack of efficiency of sales associates and in-store employees can hamper customer assistance and follow up process. The employees of the organization are not that much knowledgeable and skilled. The top management of the organization should organize effective training and development program for the existing employees. Only implementation of advanced technology and bonus distribution cannot increase the level of skills and competencies of an employee. As the global retail industry is becoming highly competitive, the organization should try to recruit and select skilled and effective employees. The employees should have the industry experience. This work experience will help the employees to deal with the quarries and demand of the in-store customers. Moreover, the organization should appoint team supervisor to guide the teams in an appropriate way. An individual employee should not perform both customer service and logistics activities. The organization needs to develop two separate divisions. This process will help the employees to focus on their specific job role. Ultimately, it can help the organization to perform effectively. Last but not the least; the organization should not follow too much centralization. It may develop several workplace challenges. The top management of the organization should provide some liberty to express their thoughts and suggestions to the top level executives. It can strengthen the communication activities among the employees throughout the departments of a store. References Cohen, D., 2009. Inside the Box. New Jersey: John Wiley & Sons. Fekete, S., 2003. Companies are people too. New Jersey: John Wiley & Sons. Ferrell, O., and Hartline, M., 2008. Marketing Strategy. Stamford: Cengage Learning. Hall, T., 2010. Ruthless Focus. London: Routledge. Hess, E., 2013. Smart Growth. Columbia: Columbia University Press. Lipman, F., and Hall, S., 2008. Executive Compensation best practices. New Jersey: John Wiley & Sons. Paper, H., 2007. Decorating Ideas that work. London: Tauntaun Press. Roger, K., 2010. Strategic Marketing problems. New Jersey: Pearson Education. Steinberg, R., 2011. Governance, Risk management, and Compliance. New Jersey: John Wiley & Sons. Wood, R., 2008. Into the Value Zone. New York: University Press of America. Read More