Forecasting the Unexpected: Home Improvement Retailers and Emergency Response
During the calm before the storm, home improvement stores stock up on the products consumers will need to repair damage and rebuild after an extreme weather event.
Home improvement stores are not only a key resource for bathroom renovations or spring gardening needs; they also serve as the go-to source when a thunderstorm knocks out power, a hurricane strikes, or a tornado touches down. Home improvement retailers, therefore, must plan for the unexpected demands that can accompany a natural disaster, as well as the expected demands as seasons change.
The home improvement industry is expected to reach $143.6 billion in 2014, according to research firm IBISWorld. With their huge assortment of merchandise, home improvement stores already face the challenge of working with carriers and logistics providers to guarantee an uninterrupted flow of goods. But add a natural disaster or major weather event, and the pressure is on to strategically and efficiently move products to customers in impacted areas.
Poised to React
Addressing unpredictable demand is all about being prepared. For Dave Moore, emergency response captain for Atlanta-based Home Depot, addressing these needs is a year-round endeavor. The company operates key distribution centers around the country to react quickly to natural disasters.
"A field team of 61 regional managers supports Home Depot’s emergency response effort," says Moore. "They work directly with stores, so when a natural disaster occurs, we can react quickly to customer needs. We process orders and expedite them to stores. We strive for 24-hour turnaround between when we recognize there is a need to the time we deliver essential goods."
Home Depot uses a forecasting system that tracks major weather events such as hurricanes, tornadoes, and thunderstorms. Hurricanes are easier to plan for because they are easily tracked, Moore says, but their damage is often the most devastating. Moore’s team begins working with Home Depot’s head of logistics every January to prepare for the upcoming hurricane season, which starts in June.
"We maintain several key locations that aren’t in impact areas, but are close to them—from the Gulf of Mexico, around the tip of Florida, and up the Eastern Seaboard," Moore says. "We strategically place products so we can get goods to impacted areas quickly when an event occurs."
Necessities on Hand
Most hurricanes can be identified about one week before they make landfall. If a hurricane or other major storm appears eminent, Home Depot starts shipping goods most likely to be in immediate demand—such as flashlights, water, gas cans, and plywood—to the targeted area.
Then, 72 to 96 hours before a hurricane is expected to strike, Home Depot mobilizes its command center, which includes store operations, merchandising, inventory planning and replenishment, and supply chain representatives—a total team of about 350 people. Carriers are assigned their own room within the command center, where they focus exclusively on determining how to get needed supplies to the impact area.
As the storm moves closer, Home Depot mobilizes prepositioned loads as close to the expected impact area as possible, while still ensuring a safe distance for drivers and goods. The night before a storm is expected to hit—or on impact, depending on the distance and the situation—trucks loaded with goods proceed to the impact area. As stores reopen in the impact zone, those goods are available for immediate consumption.
Home Depot also follows a post-strike process in which it continues to ship larger supplies of certain goods to stores in an impact area for up to six weeks, or as long as demand warrants. "For example, we sent in goods for more than eight months following Hurricane Sandy," says Moore.
When a natural disaster strikes without notice, Home Depot engages similar processes, but over an abbreviated timeframe. "We stock goods in a strategic DC, and we go direct-to-store," says Moore. "The stores contact our regional merchandise managers, who contact me or my counterparts throughout the country. We then work with our urgent host team to fill orders and expedite merchandise to stores in need."
Unfortunately, the disaster response teams are constantly busy, Moore says. Within a period of two weeks, for example, the group dealt with more than 100 tornadoes in the Midwest, record flooding in Pensacola, Fla., and huge wildfires in Southern California.
"We are on call at all times," Moore says. "A situation is always developing somewhere, and we apply the same vigilance to every disaster. Lives are affected, so we take our responsibility seriously."
Oak Brook, Ill.-based Ace Hardware takes a similar approach to disaster preparedness. The home improvement company operates 14 retail support centers around the country, as well as two centers that manage its direct import business. Ace can stock key items anywhere within that network to prepare for large weather events or other unexpected occurrences.
"During advanced planning for natural disasters, we position inventory we believe will be in demand if an event occurs," says Scott McLean, Ace’s director of transportation.
Ace also subscribes to meteorological services that provide updates on incoming weather events and impact area projections.
"When we see an event coming—such as a hurricane tracking toward the Gulf Coast—we transition to a more active approach," says McLean. "If it’s early in the season, we may not have to do much, because we’ve already built up inventory and planned for it. But if it’s later in the season, we may have to move inventory from other DCs to our support centers in the impact region, and bring in additional merchandise from various suppliers."
A major incoming storm triggers Ace’s disaster response team, which includes transportation and supply chain representatives, as well as retail support centers on both the inbound and outbound sides.
"Both sides of that warehouse go into crisis mode in managing the changing inbound and outbound velocity," says McLean. "We may meet multiple times daily as an event is unfolding to ensure the logistics are coming together correctly."
Like Home Depot, Ace Hardware stocks its retail support centers with core items—everything from batteries, flashlights, generators, chain saws, and pumps, to clean-up items such as rakes, gloves, and garbage bags—to ensure they are prepared if a natural disaster occurs.
"The list of storm preparation and clean-up items we stock is exhaustive," says Mike Yockey, senior director of inventory control for Ace Hardware. "Depending on the storm paths each season, we stock several months of additional inventory. If nothing happens and the season ends, we reduce that inventory back down to more normal levels."
Getting Ahead Of The Storm
The earlier Ace can get a jump on an event, the better it can react. "Even a small amount of time can make a big difference in how well we can respond," McLean says. "Once the media starts hyping a storm, other retailers begin trying to secure and ship the same goods."
Advance notice for Ace’s transportation providers is also key. The more the retailer can plan and share volume estimates with carriers, the better the product flow.
"If we are forced into a reactionary mode, we have to lean on our core carriers to provide additional capacity—or we may have to expand our carrier base or go through the brokerage market to find carriers to move the freight," McLean says. "We may also start looking at mode shifts. Items that normally ship via intermodal might shift to over the road, because the product is suddenly in high demand."
Ace operates its own private fleet, and has built an extensive network. So even in winter 2013, when capacity was tight due to endless bad weather in the southern and eastern United States, the company was still able to move freight fluidly.
Home improvement companies must be agile, because carrying so many types of products—purchased from a large pool of vendors of all sizes—keeps the supply chain in a constant state of ebb and flow, Yockey says. Establishing better internal control over transportation operations has helped Ace Hardware manage that challenge.
"We’ve elected to control about two-thirds of our inbound transportation," Yockey says. "We’re responsible for it, and we control it. That’s a key advantage."
A Cloudy Forecast
Ace has also invested in a cloud-based transportation management system (TMS) with a supplier portal.
"Using the TMS allows us to interact with suppliers, and determine when shipments will be ready," says Yockey. "We can then send that information to the carriers. That gives us a lot of control over a big chunk of our supply chain."
For home improvement retailers, dealing with Mother Nature and natural disasters is an integral part of the business. When an event strikes, consumers rely on home improvement stores for the products they need to repair or rebuild. Fortunately, market leaders such as Home Depot and Ace Hardware have a plan in place, and are ready to respond to demand.
Ready in Any Season
When home improvement retailers prepare for natural disasters, they must also be ready to balance emergency-response efforts with regular seasonal product demand, such as stocking air conditioners in the summer and snow blowers in the winter. Seasonality also requires a good deal of forecasting, preparation, and planning—although most retailers handle this process separately from disaster response planning.
Home improvement product sales typically begin picking up volume in late February or early March, with the push culminating in May, according to financial services company UBS. Both Home Depot and Lowe’s—which together make up about 90 percent of the home improvement market—posted about 30 percent of their 2013 sales between May and August.
“In spring, we sell a lot of soil, concrete blocks, and plants,” says Dave Moore, emergency response captain, Home Depot. “We plan ahead for those products, build loads, and secure carriers so we can deliver enough goods to get us through the season. The same can be said for winter, which creates high demand for items such as firewood, space heaters, and wood pellets.”
To prepare adequately, Home Depot often accepts products from vendors in the off-season, and holds them in its DCs. “Our vendors can only produce a certain volume of products during the demand season,” Moore explains. “Stocking up allows us to pull from several locations to get product to our stores when demand hits.”
Mother Nature also plays a part in seasonality, despite the best-laid plans. For example, an extended winter in many parts of the United States from 2013 into 2104 meant home improvement vendors had to hold spring supplies longer, while winter supplies continued to sell well into March and April.
“For 2013, sales in the winter product category were up more than 130 percent compared to 2012,” says Scott McLean, director of transportation, Ace Hardware. “We required increased response from our vendors and transportation team to move our winter products. For spring, we moved products into our warehouses sooner, predicting a more normal season, but winter held on and we didn’t see the roll-out we expected.”