Home Depot to build two distribution centers to expand online fulfillment network

The Home Depot Inc. will build two large distribution centers in suburban Atlanta and Los Angeles as part of the home improvement giant's effort to expand its direct-to-customer online fulfillment business, the company's top supply chain executive said.

Atlanta-based Home Depot will construct a 1.1-million-square-foot DC in Locust Grove, Ga., about 30 miles southeast of Atlanta, according to Mark Holifield, the company's senior vice president, supply chain. The facility, expected to hold about 100,000 stock-keeping units (SKUs) will open in the first quarter of 2014, he said.

A second facility, in Perris, Calif., located about 60 miles east of Los Angeles, will open at around the same time, Holifield said Wednesday at the Georgia Logistics Summit in Atlanta. The California location will accommodate roughly the same number of SKUs.

The two new facilities will augment five distribution centers that support the company's current direct fulfillment operations. Home Depot customers can buy products online and pick it up at the store, often from the existing inventory. However, the company has limited capabilities to ship an online order to a store and to deliver an online order from a store to the final destination. That is what the expanded fulfillment strategy—underpinned by the two new DCs—is designed to address, he said.

Home Depot's 2,256 stores in the U.S. and its territories, Canada, and Mexico already serve as de facto distribution centers, Holifield said. The average large Home Depot store carries about 35,000 SKUs, he said.

Holifield emphasized the new strategy will not forsake the individual stores as distribution locations. "For some of our products, the store will be the place for fulfillment," he said.

Home Depot does about $1 billion annually in online sales, a sliver of the company's near $75 billion in total annual revenue. However, Holifield said the online business is the fastest growing segment of the enterprise.

Holifield, who joined Home Depot in 2006, three years later oversaw the most dramatic supply chain revamp in the company's 35-year history. At the core of the strategy was the building of rapid deployment centers (RDCs) located nationwide and each designed to serve about 100 stores. The overriding goal was to centralize procurement and distribution and to reduce the incidence of vendors shipping directly to the stores and local managers coordinating inventory flow.

The 18 flow-through distribution facilities were engineered for the swift cross-docking of large volumes of merchandise, so little inventory is stored in them. Most products in the RDCs ship within 24 hours of arrival, according to Holifield.

It is for that reason that the RDCs are not suited to support an expanded online fulfillment strategy, Holifield said. "They're not designed to be stock-and-pick centers," he said.