Suggesting that pressure is growing to deliver faster to e-commerce customers, Home Depot said it will be build three direct fulfillment centers around the country that will enable it to ship orders up to 5 PM on the day they are received.
The three centers will range in size from slightly under 1 million to 1.5 million square feet and will contain stock that goes beyond what is typically available in a store, as many as 100,000 SKUs, versus 30,000 or so available at a retail store.
“The intent of these centers is to enable same day shipping of orders and fast delivery to customers,” Mark Holifield, senior vice president for supply chain, told the company’s 2013 investor and analyst conference, in a transcript posted on Seeking Alpha.
For Home Depot, fast delivery doesn’t mean same-day or even next-day delivery. The point of the direct fulfillment centers, Holifield said, is to “leverage our parcel freight carriers’ network to deliver 90 percent of our customer parcel orders within two days using economical ground service. Most customers will be able to order on a Wednesday by 5 PM and have that product delivered by Friday.”
Home Depot made clear that it is consciously not yet venturing into the same-day or next-day market, at least on a mass scale, which it said the market may prefer but isn’t willing to pay for.
“Our customers want fast delivery,” Holifield said. “With cost being equal, customers expressed preference for same-day delivery over next-day delivery, which in turn they prefer over two-day service. But our customers also want low cost. And when given a choice between fast and low cost in actual observed customer behavior, our customers generally prefer low cost. Our future network with the three new direct fulfillment centers we’re building provides a solid balance of speed and cost that we think meets most of our customers’ need.”
To the extent the company is venturing closer into the next-day arena, it's doing it through its 2,000 retail stores. “Today virtually every Home Depot store is an origin for delivery of customer orders that are taken in-store against store inventory. And usually these deliveries are made on a next-day basis,” Holifield said, saying the company plans to invest further in this channel. “But perhaps surprisingly, while customers can routinely place online orders for pickup in the store, we’re not yet able to take an order online and drop that order to the optimal store for delivery direct to the customer. We're investing in state-of-the-art systems that would allow us to do in the future,” he said. “Ultimately we need to offer enhanced delivery options to customers including online scheduling and shortened delivery windows. Customers will have the ability to schedule their delivery from the store within define timeframes. And we expect this could be especially valuable to our (professional) customers who are looking to schedule time definite delivery of building materials to job site,” he said.
Holifield summarized the company’s supply chain objectives: “Firstly (product) must be in-stock whether that’s in-store or online. Second, we must optimize our inventory productivity driving the best use of our working capital. Third, we must be the leader in low-cost logistics landing the right product at the right place at the right time at the lowest cost in our industry.”