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Home Depot 2003

Home Depot 2003. A Strategic Plan for Information Systems. Mervat Mina Brian Toghyani Ed Rudden Charlie Jones Dereje Tessema. Presentation Overview. Where are We today?. External Analysis. Internal Analysis. Competitive Analysis. Where are we going?. Mission. Long term

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Home Depot 2003

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  1. Home Depot 2003 A Strategic Plan for Information Systems Mervat Mina Brian Toghyani Ed Rudden Charlie Jones Dereje Tessema

  2. Presentation Overview Where are We today? External Analysis Internal Analysis Competitive Analysis Where are we going? Mission Long term Objectives Measurable goals How We will get there? Strategy formulation Action Plans Ongoing review

  3. Company Overview • The world’s largest home improvement retailer • The third largest retailer in the US • 1101 stores in 47 states • 201,000 employees • Market Capitalization: $106 Billion

  4. Traditional Retail Channels • HOME DEPOT STORES sell home improvement products and tools, averaging approximately 108,000 square feet of enclosed space, with an additional approximately 24,000 square feet in the outside garden area. • EXPO DESIGN CENTER STORES sell products and services primarily for design and renovation projects. EXPO Design Center stores offer high-end interior design products, such as kitchen and bathroom cabinetry, tiles, flooring and lighting. • A COMMON OPERATING STRATEGY: The operating strategy for Home Depot stores is to offer a broad assortment of high-quality merchandise at competitive prices, using highly knowledgeable, service-oriented personnel and aggressive advertising.

  5. Construction Industry Online

  6. New E-commerce Channel Home Depot is arriving late to the business-to-consumer Internet party, with its current Website only offering information and do-it-yourself tips.

  7. Customers • Home Depot stores serve three primary customer groups: • Do-It-Yourself (D-I-Y) Customers • Buy-It-Yourself (B-I-Y) Customers • Professional Customers

  8. Home Depot Products • Home Depot buys merchandise from vendors located throughout the world. • Most of the merchandise is purchased directly from manufacturers. • Home Depot maintains an import merchandise program to source high-quality products directly from overseas manufacturers. • Home Depot has formed strategic alliances with vendor partners to market products under brand names that are only offered through Home Depot.

  9. Product Sources • Home Depot buys store merchandise from vendors located throughout the world. • Most of the merchandise is purchased directly from manufacturers. • The Home Depot import merchandise program sources high-quality products directly from overseas manufacturers. • Strategic alliances are made with vendor partners to market products under brand names that are only offered through the Home Depot.

  10. Services • Home Depot stores offer a variety of installed-sales programs targeted at the B-I-Y customer. These programs include the installation of a variety of of products, such as: • carpeting, • flooring, • kitchen cabinets, • countertops • shingles • hot water heaters

  11. In-Store Initiatives • Store growth • Internet • Direct marketing sales • Maintenance warehouse • National blinds & wallpaper • Professional Business Customer initiative • Appliance sales • Credit services • Tool rental • Special order center test • Customer education program

  12. The Environment • MARKETING: • Home Depot uses all forms of mass media and selected forms of highly targeted media. • Sponsorships: NASCAR(R), the Olympics, CBS College Football • Publications, such as the HOME IMPROVEMENT 1-2-3(TM) series and the STYLE IDEAS magazine. • INTELLECTUAL PROPERTY • Home Depot has registered or applied for registration of a variety of trade names, service marks or trademarks for use in their business, including The Home Depot, the "Homer" character, Villager's Hardware and EXPO Design Center stores. • LOGISTICS • The vast majority of products are shipped from the manufacturer directly to the stores. • Home Depot has six distribution centers, located in Savannah, Georgia; Cranbury, New Jersey; Ontario, California; Ontario, Canada; and Chicago, Illinois.

  13. Quality Assurance Program • Home Depot has established criteria for both vendor/factory and product performance, measuring factors such as product quality, timely shipments, fill rate, and policy compliance. This quality assurance program, has four components: • Home Depot authorizes laboratories to test products prior to purchase to ensure compliance with requirements. • Home Depot develops and documents requirements, based on test results, applicable national and international standards, and features determined by their merchants. • Home Depot assesses the capability of factories to manufacture quality products that meet the standards, as well as their compliance with Home Depot policies on child and forced labour; and • Home Depot makes routine audits of purchases by conducting inspections at the factory on shipments to assure continued compliance with product requirements and company policies.

  14. Competition • In each of the markets Home Depot serves, there are a number of other electrical, plumbing, and building materials supply houses, lumber yards, and home improvement stores. • With respect to some products, Home Depot also competes with discount stores, local, regional, and national hardware stores, mail order firms, warehouse clubs, independent building supply stores and, to a lesser extent, other retailers. • In addition to these entities, the EXPO Design Center stores also compete with specialty design stores or showrooms, some of which are only open to interior design professionals. • It is believed that Home Depot market share in the U. S. and Canada for the Do-It-Yourself/Buy-It-Yourself, Tradesmen, Builders/General Contractors, Heavy Industrial, Repair and Remodelling, and Property Maintenance markets is approximately 8.9%.

  15. Present IT Infrastructure • Both distributed and OS/390 Architecture • SAP R/3 for financial, logistic and warehouse management • Informix database servers • BMC's MAINVIEW® and RESOLVE® SRM products installed for centralized storage resource management • Lucent Technologies for telecom equipments

  16. Present IT Infrastructure (continued ) • Supply orders are made directly into Mobile Computing Devices referred to as the “mobile ordering platform.” • Requests can go almost instantly via EDI connections to more than 80% of Home Depot's manufacturers, which can respond immediately.

  17. Home Depot’s Mission • To be a world class, total solutions home improvement retail company — the standard by which other companies are measured. • To attract, retain, and enlighten customers by offering home improvement expertise, providing excellent service, and ensuring comprehensive product inventory throughout the company. • To continue a pattern of strong and consistent sales and earnings growth nationally and globally.

  18. Online Instructional Classes & Bulletin Boards Online Education, Certification, Product Demos, Trades Software Do-It-Yourself In Store Point-Of-Sale Terminals Buy-It-Yourself Professional Customers Home Depot Online Channel Expansion Global Expansion - Australia Direct Marketing Sales Inventory Availability & Computer-Assisted Design (CAD) Online Partnerships with Financial Services Companies (Home Mortgage Financing and Insurance) Strategic Business Options

  19. Consumer Home Improvement Instructional Services • Online Instructional Classes: Demonstrate the proper methods, techniques and tools for completing various construction projects such as laying ceramic tile, installing siding, special effects painting, etc. • Online Bulletin Board: Customers could ask for assistance and share advice on products, tools and techniques for solving various construction related problems.

  20. Scope and Feasibility — Consumer Instructional Services Revenue Estimate: Total Annual Revenue $ 38,000,000,000 Percentage Increase .5% Increased Sales Revenue Attributable to New Instructional Services (Approx. $190,000 per store) $190,000,000 Cost Estimate: Initial Hardware including file servers $ 750,000 / 3 $ 250,000 Web Design Costs 200,000 Annual Production Labor 300,000 Annual IS/IT Labor Costs 400,000 Annual Telecommunications Costs 150,000 Annual Maintenance Costs 125,000 Miscellaneous Administrative Costs 250,000 Estimate of Annual Costs $1,675,000

  21. Professional Customer - New Services • Home Depot University — Long Distance Education • Feedback and Database • Online Virtual Product Demos • Specialized Computer Software

  22. Scope and FeasibilityProfessional Customers - New Services Revenue Estimate: Tuition Revenue (1,000 stores x 200 craftsmen x $125 each) $25,000,000 Increased Sales Revenue Attributable to Professional Education ($38B x .15%) 57,000,000 Increased Sales Revenue Attributable to Professional Database and Feedback ($38B x .30%) 114,000,000 Product Demo, Advertising and Test Marketing Revenue 5,000,000 Annual Software Sales Revenue 3,000,000 Total Annualfrom New Professional Services ($204,000 Per Store) $204,000,000 Cost Estimate: Total Annual Hard and Soft Costs $ 5,450,000

  23. Global Expansion Australia - The New Frontier • We recommend that Home Depot open retail warehouses in the following cities in Australia with populations in excess of 1 million people: City Population Coast • Sydney 3,986,700 Southeast • Melbourne 3,371,300 South • Brisbane 1,574,600 East • Perth 1,341,900 Southwest • Adelaide 1,088,400 South • R&D should be conducted on site. • Australian business partners should be identified and evaluated.

  24. Scope and FeasibilityExpansion Globally Average Store Generates $35 million annually Capital Required $17 million Working Capital $ 2 million Inventories $ 5 million Property and Equip. $10 million Gross Profit Percentage 29% Net Earnings as a Percentage of Sales 6%

  25. Online Partnerships with Financial Service Companies • Home Depot should enter into partnerships with financial services companies to offer consumers mortgage financing and home insurance. Scope and Feasibility Profit Estimate: Annual Mortgage Commissions $200,000,000.00* Annual Home Insurance Commissions 25,000,000.00** * (1,000 stores x 200 customers x average mortgage $200,000 x .005 commission) ** (1,000 stores x 500 customers x $50 commission)

  26. New Online Channel Services • Computer Assisted Design (CAD) programs would help a customer plan projects such as landscaping, building additions, etc. These Web based programs would estimate the costs of supplies and labor. Furthermore, these programs would offer the customer alternative construction materials including those that are bio-degradable and environmentally responsible. • Inventory Availability — This would allow a customer to search a Home Depot store or group of stores in his/her locality to find a particular product.

  27. Scope and Feasibility of New Online Channel Services Revenue Estimate Inventory Availability ($38B x 1.0%) $ 380,000,000 Revenues attributable to CAD 15,000,000 Total Increase in Annual Revenue $395,000,000 Cost Estimate IS/IT Labor to integrate the Perpetual Inventory to the new Web based Online Channel $ 250,000 Development and Maintenance of the CAD system 1,000,000 Total Costs $1,250,000

  28. In-Store Revenue Enhancements • Allowing customers to use in-store point-of-sale (POS) terminals. Products can be purchased directly from the manufacturers and shipped directly to the customer. Scope and Feasibility Profit Estimate: Annual Revenues from POS terminals $500,000,000* *(1,000 stores x $500,000 from each store)

  29. IT Strategy • Sufficient bandwidth • Interoperability of “open systems” • Integrated but distributed enterprise database • Redundancies • Scalability of infrastructure

  30. IT Strategy (Continued ) Wireless Business System in all stores • Supply orders are made directly into Mobile Computing Devices referred to as the “mobile ordering platform.” • In-building wireless, paging and call center functions

  31. Home Depot’s Mission • To be a world class, total solutions home improvement retail company — the standard by which other companies are measured. • To attract, retain, and enlighten customers by offering home improvement expertise, providing excellent service, and ensuring comprehensive product inventory throughout the company. • To continue a pattern of strong and consistent sales and earnings growth nationally and globally.

  32. Social Policies • The Home Depot is taking a global leadership position to help protect endangered forests. • Home Depot partner with venders and forward-thinking organizations to support and further the development of sustainable forestry. • Stocking an increasing variety of merchandise that helps to conserver energy and water. • Home Depot will promote and support the development and use of alternative environmental products.

  33. Where to invest? $$

  34. Store Support Services • INFORMATION SYSTEMS: • Equipped with a computerized point of sale system, electronic bar code scanning system, and a UNIX server. • A mobile ordering system has been implemented in Home Depot stores using portable carts with computers to assist the associates in placing accurate orders for inventory. • Currently, most high volume vendors are participating in the EDI program, which represents more than 70% of their total transactional volume. • ASSOCIATE DEVELOPMENT • Employed approximately 201,000 associates, of whom approximately 12,000 were salaried, with the remainder compensated on an hourly basis. • Enhanced their training programs . These programs are designed to increase associates' knowledge of merchandising departments and products, including mandatory product knowledge training classes. How do we go about organizing, evaluating, prioritizing, and implementing all of our great ideas?

  35. Measurable Goals (Easy Ones) • Increase profitability • Increase market share • Increase presence globally • Improve enterprise efficiency • Find new suppliers of excellent products at competitive prices

  36. Measurable Goals (Hard Ones) • Maintain/improve customer satisfaction and loyalty • Maintain/improve social values and programs • Increase business partner synergy

  37. Strategic Option Arenas (Rollups) • Arena 1: Leveraging the Internet • Arena 2: Improving point of sale effectiveness • Arena 3: Global expansion priorities • Arena 4: Home improvement finance partnerships

  38. The Strategic Planning Cycle

  39. Arena 1 Considerations: Strategies for Leveraging the Internet • 1A: Comprehensive supply chain management. • Minor improvements possible (scaleable environment) • Key to Arena 3 global expansion. • 1B: Do-it-yourself online instruction and advice. • Expect moderate enhancements through diverse topics. • May facilitate Arena 4 financing partnerships. • 1C: Technical trades online professional services. • Possible conflicts with trade associations. • Possible synergy with trade associations. • 1D: Design-buy software. • Consolidate diverse software across trades and professions. • May be able to matrix and link for fast access and use.

  40. Arena 2 Considerations: Improving Point of Sale Effectiveness • Impacts customer satisfaction. • Impacts employee efficiency. • Impacts floor space and equipment needs. • May require new equipment/downtime. • IT industry provides cost effective hardware and software opportunities. • Impacts employee training.

  41. Arena 3 Considerations: Global Expansion Priorities • Gradualism is not a virtue: Business model requires massive presence. • Available market (people) and their IT infrastructure is key. • Focus on Australia makes sense. • least risk and fewest obstacles • greatest distance

  42. Arena 4 Considerations: Home Improvement Finance Partnerships • Negotiate better rates for Home Depot customers • Reduced rates justified through customer and craft training records, support, contractor qualifications, and product quality • Provides a logical link for customer capture (hook)

  43. Other Considerations: Market and Stakeholder Issues • Arena 1: Leveraging the Internet • Internet and WWW continue to grow • High tech talent market loosening • Arena 2: Improving point of sale effectiveness • Stay ahead of the competition • Enterprise inter-connectivity — construction industry going high tech • Arena 3: Global expansion priorities • Australia relatively wired and English speaking • Focus first on large cities with higher education campuses • Arena 4: Home improvement finance partnerships • Timely if interest rates continue to decline (promotional hook)

  44. Risks • Point of sale hardware and software upgrade is a critical event (need for aggressive contractor oversight). • Online training quality must be consistent and technically competent (do it right the first time). • Home Improvement Help Desk must still be responsive as traffic increases (install monitoring software). • Dependency on company Finance Department to provide interface to banking partners. • Managing global expansion ventures — need for more global infrastructure, global thinking, and global expertise. • Duplication of effort or more direct conflicts with trade and craft associations, schools, and unions.

  45. Prioritization Scheme • Double weighted calculation connects the proposed strategic options (project-based arenas) to strategic goals. • Options are weighted from 0 to 10 based on their contributions to meeting the company’s 8 strategic goals. • Favorable high, medium, and low goal-benefit assessments are converted into factors of 10, 6, 3, 0. • For example, a high benefit recommendation is assigned a score of 10. A low benefit option would be a 3 or could even be a zero relative to one or more goals. • Average goal-benefit weights are multiplied against a similar cost factor (0 to 10). • Maximum strategic option project or study score is 100. • Studies are generally cheaper than projects, but they may do less relative to achieving one of the eight goals.

  46. Prioritization ResultsProfitability x Strategic Goals • See handout — the complete prioritization spreadsheet for all 49 projects and studies (tasks). # Tasks Total Pts Average • Arena 1: 12 320 21 • Arena 2: 15 416 28 • Arena 3: 18 557 31 • Arena 4: 4 122 31

  47. IT Strategic Plan Steering Committee • CEO Lead for goal and metric changes • CFO Lead for financial arena changes • CTO Lead for infrastructure changes • CIO Lead for software changes • CKO Lead for database mining • CPO Lead for database privacy changes

  48. Strategic Planning Organization Chart STEERING COMMITTEE Strategic Plan Management Support Liaison Group SP Technical Support Group • Hardware Specialist (HS) • Software Specialist (SW) • Database Management (DM) • Security Specialist (SS) • Software Design QA (QA) • Software Test Specialist (ST) • WWW Specialist (W) • International Specialist (IS) • Help Desk Operator (HD) • Customer Relations (CR) • Marketing Coordinator (MC) • Others on an as-needed basis

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