1. 2008
Investor & Analyst Conference
Supply Chain Transformation
Mark Holifield
SVP – Supply Chain

2. Supply Chain Scorecard
2007 2008
External and internal measures
Improve Product
indicate continued progress
Availability
Improve Inventory Implemented improved
merchandise financial planning
Management
Migration to optimal solution
Develop Distribution
has begun
Network Model
Increase Central
Have 3 operational RDCs
Distribution
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3. Supply Chain
Why is Supply Chain so important?
Ensure a high in-stock level
Optimize Inventory Management
Reduce Supply Chain costs
What does a good Supply Chain do?
Simplifies store operations = Better customer service
Improves speed to market = More product excitement
Better inventory flow and less clutter = Better
shopping experience
Focused stocking tactics = Differentiated customer
strategies (job lot quantities for Pros)
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4. Retailers: Out-of-Stocks
Leading studies indicate that a typical
retailer loses ~4% of sales from OOS
The solution lies in addressing common root causes:
In the store, not on the shelf
Insufficient ordering and poor forecasting
Poor inventory accuracy
Late or insufficiently filled purchase orders - #1 root
cause at HD
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5. Inventory Performance
HD’s Inventory Performance Has Been Deteriorating…
5.6 $48
5.4 $46
Avg Annual Sales per Store
Inventory Turnover
5.2 $44
5.0 $42
4.8 $40
4.6 $38
4.4 $36
4.2 $34
4.0 $32
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Inventory Turnover Avg Annual Sales Per Store
…but Every 1/10th Improvement in turns ~$150 Million in Cash
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6. 2007 DC Network
Distribution
Sources
Channels
Lumber DCs
Domestic
Vendors
Import DCs
Import ~ 20%
COGS
Vendors
Carton DCs
Stores
Transit Facilities
Domestic ~ 20%
Vendors COGS
Direct to Store
~ 60%
COGS
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7. Optimal Flow Distribution Network
Direct
To Store
Rapid
Deployment
Center
Area
Stocking
Center
(“Stock & Pick”)
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8. Future DC Network
Distribution Channels
Sources
Lumber DCs
Vendors
Stocking DCs
~ 75%
COGS
Stores
RDCs
Vendors
Direct to Store
~ 25%
COGS
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9. RDC Concept of Operations
The Vendor picks the
THD Store demand is
Product is shipped from
bulk RDC-level order, … pallet standardized
forecasted for all stores
the Vendor to the RDC
applies a standardized labels are scanned and
serviced by a RDC …
label to the pallet with product is detail received
product information … against the Vendor’s
shipping order
… and sorted to the
… and aggregated for
desired store location
… and sends an
all stores serviced by At the RDC, product is
electronic shipping
that RDC. A single PO physically unloaded…
notice to the RDC
is sent to the Vendor.
RDC Will Simplify & Speed Order Processing
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10. RDC vs. Transit Facilities
Vendor No Vendor
Minimums Minimums
1 PO per store 1 PO per RDC
(100 stores = 100 POs) (100 stores = 1 PO)
Store pick Bulk pick
Partial Truckload /
Full Truckload
Less than Truckload (LTL)
Last minute
Pre-Allocated
allocation
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11. Why Start with RDC?
Immediate, scalable solution to aggregate orders
and improve in-stock in our stores
Biggest efficiency and cost out – 60% of the
network value is derived from the RDCs
Low capital investment – Average RDC cost ~$10M
in leasehold improvements and technology
Simplify operations
Low cost operations
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12. Project to Date Accomplishments
Rolled out 3 RDCs: Georgia, Illinois, Texas
Each RDC services ~100 stores
Have real estate locations for remaining 5 RDCs in 2008
On-Boarding Vendors
% of COGS for stores serviced by an RDC
2008 Target
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08
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13. Long-term Benefits from Supply Chain
Gross Margin Benefits (Basis Points)
~30-40
~20-30
Post 2011
2011
Expecting 1 Full Inventory Turn = $1.5 Billion Cash
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14. Benefits of End State Supply Chain
Simplifies store operations
Improved speed to market
Better inventory turn, lower in-store
inventories
Differentiated customer experience
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