Historically, the main reason companies implemented transportation management technologies is to reduce costs. Occasionally, I’ve come across companies that implement logistics solutions to drive increased sales. There can be a strong business case for investing in a transportation management system (TMS) to grow revenues. Home Depot has proven that using a TMS to improve the ability to do time definite deliveries can boost revenues.
Mark Holifield, the Executive Vice President of Supply Chain and Product Development at Home Depot, spoke on March 7th at the Descartes Evolution user conference.
A large-scale supply chain transformation has played a significant role in allowing Home Depot to achieve some aggressive growth, margin, and return on investment targets. Their original goals were set in 2015 to be achieved by the end of 2018. They have already achieved those goals. New stretch goals have been set for 2020 so the transformation program is ongoing.
Mr. Holifield talked about the impressive range of investments and projects they engaged in to improve their supply chain capabilities. But in this article, the focus is on one transportation project whose impetus was, in large part, to drive increased revenues. Home Depot investing in routing, telematics and routing solutions from Descartes to drive a two to four-hour delivery window for their customers – both consumers and construction professionals (Pros).
This was a tough problem to solve. Home Depot has about 2000 stores, virtually all of whom are engaged in home and site deliveries. But they only have about one thousand trucks for delivery to these sites, so there is not a truck for every store. So, part of what the retailer is experimenting with is crowd sourced deliveries in cars.
Mr. Holifield called the Descartes product very scalable and said that it was a simple and intuitive product. “The simplest approach to change management is to roll out great product. Then it sells itself.”
Home Depot began by piloting the product. The pilot helped to prove the capabilities of the product. But the pilot also allowed them to gauge the revenue growth potential from giving customers a narrower, time definite, delivery window. Once the company saw the kinds of revenues these capabilities could deliver, and how the market basket of what was purchased by customers expanded, the supply chain organization got the head of the Pros Channel to agree to pay for a substantial portion of the project.
Chris Jones, an Executive Vice President at Descartes, presented some research that Descartes had done in conjunction with DC Velocity. (He had previously published research on how fleets contribute to competitive advantage in Logistics Viewpoints). Mr. Jones demonstrated a connection between the financial performance of respondents and whether they viewed transportation as a source of strategic importance. The respondents that came from companies that viewed transportation as strategic were much more focused on using a transportation management system to improve business growth and service than other respondents. Top performers were at least two times more likely to value investment in transportation technology to improve customer service over cost-cutting strategies. Clearly, Home Depot would fall into that category.