A Brief Primer on Home Depot’s Distribution Network
The largest home improvement retailer in the world is rapidly getting larger
Home Depot is the largest home improvement retailer in the world. It has more than 2,000 stores and employs more than 400,000 people in the United States. Each store stocks between 30-40,000 items. Most of its revenue (97%) comes from merchandising, and 3% comes from its services (like home installation).
Home Depot was founded in 1978, and for its first thirty years, individual stores largely received goods directly from vendors, leaving inventory decisions to the discretion of store managers. In 2008, they began rolling out the Rapid Deployment Centers to centralize their supply chain and roughly since 2015 they have been optimizing their distribution network through the creation of specialty nodes with the aid of their Supply Chain Sync software, which allows “individuals at each step of the chain [to] view exactly what is on every truck, materials needed to unload, and diagrams of how to position carts/pallets to minimize touches/footsteps.”
In 2018, Home Depot announced a $1.2 billion investment in its distribution network by 2023. The aim was to open 150 new facilities in order to reach 90% of customers with same- or next-day delivery. Before this investment, its outbound network was fragmented between store-based delivery, online delivery from fulfillment centers and vendors, appliance delivery, and Interline brands delivery. By building out Flatbed Distribution Centers and Market Delivery Operations (explained below), and expanding their Direct Fulfillment Center network, the aim was to integrate these delivery modalities.
This investment just so happened to coincide with the Covid-19 pandemic, during which time Home Depot’s sales skyrocketed. Between 2020 and 2023, its revenue jumped from $110 billion to $157 billion. As FreightWaves characterizes this growth,
When we look back at what happened during the pandemic, we will see changes that were accelerated by COVID, and we’ll see fleeting developments that were induced by COVID, but we’ll also see longer-lasting structural changes to behavior, including home improvement, in part due to migration from cities but mostly from remote work. Whether in a hybrid model or fully remote, working from home is sticky and Home Depot loves it.
As with all of our distribution network primers, this one comes with a map of Home Depot’s distribution network. As you can see in the map, there are a number of distribution centers where we don’t know what role the facility plays. As always, please do help us out by emailing ontheseams.newsletter@gmail.com with any updates here.
Inbound Facilities
Home Depot’s inbound facilities consist of Internal Freight Consolidation facilities (IFCs) and Rapid Deployment Centers (RDCs).
There are a handful of IFCs around the country, and as their name implies, they are meant to consolidate smaller shipments into larger ones. As an example, rather than send their goods directly east, suppliers in southern California ship to the Redlands, CA IFC, which consolidates items in full truckloads. This reduces transportation costs and helps with inventory management by minimizing the number of smaller shipments received at RDCs.
The RDCs also receive goods from suppliers, but instead of consolidating them, they stock distribution centers and stores. From what I can tell, there hasn’t been a great push to automate RDCs, as there has been for other large retailers. RDCs today thus look roughly like they did a decade ago, with an inbound section, conveyor sorting, and an outbound section.
Stocking and Bulk Distribution Centers
The RDCs are somewhat like sortation centers, in that the whole operation is set up to get goods in and out pretty quickly. But naturally a company like Home Depot is going to need places to store inventory as well, which is where the Stocking and Bulk Distribution Centers come in. Here’s some footage of an SDC in Mira Loma, CA:
As the names imply, the only difference between the SDCs and the BDCs appears to be that the latter handle bulkier items, and the SDCs conveyable items.
Flatbed Distribution Centers
In 2020, Home Depot began rolling out a new type of distribution center, the Flatbed Distribution Center, geared towards fulfilling large professional orders: as the press release announced, “It’s one thing to deliver a simple package the next day, or even the same day, but imagine a flatbed of 80-pound bags of concrete, concrete blocks, a bunk of lumber and then throw in some drywall to get the project done.” Pros make up about 4% of Home Depot’s customer base, but they’re responsible for 45% of sales, so Home Depot naturally wants to cater to this unique market.
FDCs are drive-thru distribution centers, and Home Depot claims that the first one they built in Dallas can accommodate 65-75 flatbed trucks/day. They are planning to build 40 FDCs in total in the 40 largest markets.
Earlier this year, Home Depot bought construction materials distributor SRS Distribution for $18.25 billion, an indication of the importance of the pro market for them. SRS comes with a sales force of 2,500 people working out of 760 branches and a fleet of 4,000 trucks.
Direct Fulfillment Centers
Beginning in 2014, the DFCs were created for the same purpose as all fulfillment centers: to meet e-commerce demand. Online sales constitute about 14% (and growing) of total Home Depot sales, and they have invested in self-storage lockers and curbside pick-up in stores, and most recently they’ve partnered with Walmart and Instacart for last-mile delivery.
Market Delivery Operations
MDOs, which were introduced in 2018, deal with major appliances: rather than have bulky appliances that often require professional installation routed through their stores, Home Depot is receiving appliances from vendors at their new MDO warehouses and scheduling deliveries/installations directly from there. The aim is to have MDOs in more than 100 locations eventually.
The simultaneous buildout of the FDCs, MDOs, and the DFCs is an impressive feat, as Home Depot is making huge plays in both business-to-business professional orders and business-to-consumer distributional retail.