Fortune Magazine: Home Depot’s $300 Million Investment in DC’s and the Payoff

The latest Fortune magazine discusses the role that Home Depot’s CFO, Carol Tomé, played in their turnaround.  Their stock is up over 150% since the beginning of 2009, well ahead of Lowe’s.  The article credit’s her investment decisions.  And, the article gives a lot of credit to a project with a network design component:

Later, as other companies slashed outlays in response to the financial crisis, Tomé tacked in the opposite direction. During the dark days of early 2009, Home Depot embarked on an ambitious overhaul. It shed an inefficient process in which each store ordered products individually and spent $300 million to construct centralized distribution centers, which have saved time and money in ordering costs. “Home Depot readjusted the structure of the company, which allowed it to recover margin lost during the downturn and grow,” says Melich. The company’s operating profit margins, which fell from 11.5% in 2005 to 7.4% in 2008, have rebounded to 10.5% without a significant recovery in home-improvement demand or the housing market.

Of course, the network modeling was only part of this project.  But, when you are investing $300 million in new distributions centers, you want to make sure they are in the right place, they are the right size, and the right products flow through them– this is where network design comes in.
And, from the article, you can get a sense of the pay-off from overall projects like this– profit margins up to 10.5% from a low of 7.4% without a significant recovery in demand.