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A big new distribution center in Pennsylvania for True Value Co. is just one part of an ambitious $150m investment to optimize and overhaul the hardware wholesaler’s entire supply chain.
Located in Hanover Township, PA, the 1 million square-foot D.C. will service the entire Northeast region, supplying more than 1,000 retail locations in a hub-and-spoke configuration, according to James Harrington, True Value’s vice president of supply chain for outbound transportation.
The facility is one piece of a network-optimization initiative that has been underway for several years, Harrington said. It began with the goal of providing True Value stores with higher fill rates and a broader portfolio of services.
Back then, the company maintained a single-tier distribution structure, shipping direct to stores from its various warehouse locations around the country. Beginning with a location in the Midwest, True Value shifted to the hub-and-spoke model. The layout allows the company to keep additional stock at a central location, which can step up shipments to the stores in the event of large spikes in demand. It also makes possible the storage of a wider breadth of product, some of it slower-moving in nature. True Value supplies a total of approximately 85,000 SKUs across its network.
None of its existing warehouses in the Northeast was suitable to be transformed into a regional hub, so True Value sought out a greenfield site in Pennsylvania that was centrally located and matched the needs of its growing network of stores. It would become the company’s first “ground-up” D.C. in more than 30 years.
While the new facility isn’t True Value’s largest in terms of square footage, it features an innovative design, with 40-foot-clear height. The idea was to shrink travel distance within the warehouse while maximizing the building’s footprint, Harrington says.
Compared to some modern warehouses, the Pennsylvania location is relatively low-tech. Harrington says True Value’s order profile, consisting of a large number of SKUs per order, doesn’t lend itself to a high dependence on automated systems. “The technology is getting better,” he says, “but it’s not quite to where it can do completely automated storage and retrieval.”
The new D.C. is set to open in the fall of this year. At the same time, True Value is installing new demand and replenishment software, supplied by JDA Software Group, Inc. Lyndsi Lee, vice president of supply chain for inbound, said the project will support the shift to hub-and-spoke replenishment. Currently in the second phase of implementation, it will also help True Value to better manage seasonal demand, which can be a major headache for hardware retailers.
Roughly 75 percent of the company’s SKUs are significantly impacted by weather, injecting an element of unpredictability into the hardware supply chain. At the same time, a substantial number of True Value’s products — imported patio furniture, for instance — involve order lead times of up to six months, and planning cycles of up to a full year. The company requires both efficient advance planning and the agility to respond to changing weather conditions.
Jeff Ziegler, senior solutions strategy director with JDA, says the vendor’s software features a multi-echelon design that matches the requirements of hub-and-spoke distribution. In essence, the technology creates a “digital twin” of the supply chain, simulating how it will respond in the coming weeks and months to the demand forecast.
“Once you have that, you can model what you’re going to need from your vendors for the next few months,” says Ziegler. “That’s very useful when you’re eight weeks to three months away from vendors in China.”
True Value stores don’t have the space to store additional buffer inventory. “The value we bring is allowing them to utilize us as their backroom,” Harrington says. Under the wholesaler’s new distribution model, “upticks in demand get transmitted through the supply chain quite quickly, without the need for any kind of damper at store level.”
As a wholesaler supplying some 4,500 retail locations globally, True Value emphasizes “white-glove” service to the stores, says Lee. The policy is key to the company competing against big-box retailers such as Walmart and Home Depot on the brick-and-mortar side, and Amazon.com in the ever-growing e-commerce sector.
True Value’s historical fill rate of 97-98 percent is among the industry’s highest, Harrington says. The hub-and-spoke model has enabled even greater improvements in that area, approaching 99 percent.
That one-percent increase is vital to the ability of retailers to remain competitive, especially in the age of the omnichannel. In addition to supplying the stores, True Value performs direct-to-consumer service for online orders on their behalf. Lee says the company has retrofitted three of its D.C.s in the U.S. to provide two-day service to 90 percent of the country. “Omnichannel will always be a part of our retail landscape,” she says.
At the same time it set out to improve its physical supply chain, True Value entered into a strategic partnership with ACON Investments, a private equity firm. The deal returns more than $230m to True Value’s independent retailers, while giving them a 30-percent stake in the reconstituted company. The money will allow store owners to remodel and make additional improvements to their properties.
The True Value retail network continues to grow at a rapid pace. It added 300 stores in 2018, and another 190 in the first few months of this year. Lee says the company considers it essential to support the stores in an increasingly competitive retail world. “It’s a pretty challenging environment,” she says, “but we think they have a differentiated advantage.”
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