Not Lean Retailing

Renovating Home Depot [the broken link was removed], Business Week

It is always dangerous to make too much of a magazine article, but Home Depot seems to be moving away from lean thinking in the following examples, to me anyway. The Home Depot founders:

allowed store managers immense autonomy. “Whether it was an aisle, department, or store, you were truly in charge of it,” says former store operations manager…

These days every major decision and goal at Home Depot flows down from Nardelli’s office. “There’s no question; Bob’s the general,” says Joe DeAngelo, 44, executive vice-president of Home Depot Supply and a GE veteran.

Nothing is wrong with major decisions being made by the leaders but the article leaves the impression many non-major decisions are cetralized too. That is a problem for those who believe in management improvement ideas including lean thinking.

By squeezing more out of each orange box through centralized purchasing and a $1.1 billion investment in technology, such as self-checkout aisles and in-store Web kiosks, profits have more than doubled in Nardelli’s tenure, to $5.8 billion. Home Depot’s gross margins inched up from 30% in 2000 to 33.5% last year. But fast-growing Lowe’s is still Wall Street’s darling, in large part because analysts are only now getting comfortable with Nardelli’s strategy.

Centralized purchasing sounds like it could easily lead to non-lean behavior. From a previous post on Evolving Excellence:

You don’t read much about whiz bang technology driving Home Depot distribution centers because they didn’t waste their money on such things. They have a few DC’s for imported stuff, but the rule for doing business with Home Depot is that manufacturers generally ship directly to stores in box and skid quantities. Most of the purchasing is done regionally, rather than from headquarters. A Home Depot store manager has an 800 number for each supplier that he feels quite free to use any time, any day, to replenish whatever is needed in any quantity needed.

Another quote from the Business Week article:

Before he arrived, managers ran Home Depot’s stores on “tribal knowledge,” based on years of experience about what sold and what didn’t. Now they click nervously through BlackBerrys at the end of each week, hoping they “made plan,” a combination of sales and profit targets. The once-heavy ranks of full-time Home Depot store staff have been replaced with part-timers to drive down labor costs. Underperforming executives are routinely culled from the ranks. Since 2001, 98% of Home Depot’s 170 top executives are new to their positions and, at headquarters in Atlanta, 56% of job changes involved bringing new managers in from outside the company. Says one former executive: “Every single week you shuddered when you looked at e-mail because another officer was gone.”

Again moving away from lean ideas: longevity of management, focus on value of employees rather than cost of employees…

But drilling workers in how to treat customers may not be enough. The University of Michigan’s annual American Customer Satisfaction Index, released on Feb. 21, shows Home Depot slipped to dead last among major U.S. retailers. With a score of 67, down from 73 in 2004, Home Depot scored 11 points behind Lowe’s and three points lower than much-maligned Kmart.

Not giving customers what they want or expect. I know this has been my experience at Home Depot, and that of those I have talked to for years – poor service. The article does not leave me with a positive view of Home Depot’s future. However it is only one article I would like to hear what others think.

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