Date: Thursday, September 23, 2021
Source: Supply Chain Dive
ATLANTA — Demand swings spurred by the COVID-19 pandemic introduced an unfamiliar problem for Home Depot. Throughout the past 18 months, securing capacity has been a major challenge for the retailer, VP of Transportation Sarah Galica told CSCMP Edge 2021 attendees during a panel Tuesday, as it has for other shippers.
"We pride ourselves on being a shipper of choice," Galica said. "We take it very seriously, because at the end of the day we know in certain markets, carriers are able to have a choice of whose freight they take."
Galica said the company's relationship with shippers isn't simply transactional, but a partnership. That approach helped as the retailer grappled with volume increases during the pandemic. Chief Sustainability Officer Ron Jarvis said during a Sept. 9 webcast that the company saw a 20% increase in volume flow in its supply chain in 2020.
But securing carrier capacity is not a guarantee in the currently constrained environment for shippers, so Home Depot took matters into its own hands by having exclusive-use charters and sharing space on other charters, Galica said.
"It's just a reality of where we are in the industry," she said.
With Home Depot's freight filling hundreds of shipping containers, it needs to be strategic about where those containers enter in its network, Galica said. Freight visibility has been a priority for Home Depot, and the company knows where it's encountering capacity issues by origin and destination. The retailer can also tell where it will likely face challenges in the future and adjusts its operations accordingly, she added.
The capacity crunch came after companies like UPS prepared to scale down their networks in the early onset of the pandemic, expecting a decline in business. Chief Information and Engineering Officer Juan Perez said during the panel that the carrier was trying to figure out how to scale back 20% of its network capacity as it expected shipping demand to drop significantly. Instead, demand boomed as people shopped more frequently online, forcing UPS to build capacity in a very short amount of time, Perez said.
UPS had already been building millions of square feet of additional capacity pre-pandemic, but the recent capacity crunch made the company think about how it could use its existing capacity in the most optimal way possible, Perez said. UPS is adding automation to older company facilities and attempting to add labor quicker by expediting the hiring process for seasonal workers, Perez said. Many applicants will have an offer within 30 minutes of their application, according to a UPS news release.
Still, Perez said there will be a capacity shortage for daily package volume among the primary parcel carriers during peak season. CEO Carol Tomé projected the shortfall at 5 million packages daily during the company's most recent earnings call, which would lead to delays for millions of deliveries.
That lack of space is why Galica highlighted the need for close relationships with carriers like UPS as the carrier decides what volume to take in. Perez said UPS is highlighting to its customers time slots with the most capacity availability and collaborating with them on moving volume out of "critical periods" in its network.
As Home Depot navigates these capacity constraints and other supply chain challenges, it has focused on improving inventory depth in its high-velocity SKUs to minimize the effects to its bottom line, executives said on its Q2 earnings call.
The company is also "getting creative" on cost-savings opportunities in its transportation network, Galica said. She noted the company's use of digital broker Loadsmart to simplify its flatbed freight booking. Loadsmart's technology provides access to instant booking of flatbed capacity, which simplifies the process "for a traditionally challenging equipment type," the company said in a March news release.
Robin Baggs, director of transportation at Home Depot, said in a statement in the release that using Loadsmart will create a more efficient flatbed network for the company and give it access to flexible capacity and the ability to react to unexpected developments. Home Depot uses flatbed trucks to deliver bulk and oversized orders to customers. The service also gives Home Depot the opportunity to make the most out of flatbed capacity it isn't using, Galicia said.
"We're going to be looking to sell off our empty miles and make it a cost savings opportunity," she said.