In our first post we discussed the recent snafu made by Home Depot during a recent upgrade to its online website on February 1^st where some incomplete planning and testing “Left Home Depot Customers Running in Circles” (which is terrible as there was no danger and there should have been no doubt^*). We concluded that, while it probably upset a few customers with its incompletely planned upgrade, it was definitely not the end of Home Depot (online) and probably won’t even make a blip on its bottom line when all is said and done. However, this isn’t to say that Home Depot doesn’t have problems. In the doctor‘s view it has big ones, which are likely getting bigger by the day, and the worst thing is that Home Depot probably isn’t even aware of these problems which are, ultimately, guaranteed to increase its unsatisfied customer count by the day as people, including programmers, aren’t perfect and systems can be even worse.

You see, as per our last post, over the last year or two, Home Depot has rolled out its new centralized automated replenishment system to the store level across all of its North American stores and this is causing, and will inevitably cause it, problems as time goes on as SARS, Storefront Automated Replenishment System, assumes a perfect world and this world is far from perfect. As a result, every imperfection gets amplified into a real world problem that is often worse than the stock-out problems the system is supposed to prevent.

First of all, ARS will only re-order stock if the stock level drops low enough or it detects inventory is moving fast enough. This won’t happen if (1) there is a POS failure, if (2) the initial inventory is reported too high, or (3) associates don’t bother to enter damaged inventory. In each of these cases, the inventory levels will appear to be high in the system, and in no need of restock, when, in fact, they are (too) low. For example, I went to the local store to get some high-end 20″ by 96″ laminate pine project panels, that cost about $38 a board. (For that price, you can get 5/8″ 4″ * 8″ sanded pine plywood.) I wanted 5. They told me they had 8, but in reality they only had 3 that were saleable. Why? (a) For reasons unknown, they only had 5 in stock. An unknown inventory error told the system there were 3 more than there actually were. But 2 were badly water damaged — chipped and covered with black mold — which no one caught because “the system tracks inventory, so why should we check it”. Since no one confirmed the inventory count or recorded the bad inventory, the system did not reorder a low-stock and/or high-moving item, leaving customers, like me, unsatisfied. What retailers being wooed with ARS fail to understand (as the vendor will never, ever tell them) is an error in POS file transmission, a data entry error in initial inventory levels, or failure to record damaged inventory will skew counts and break the system — as products will remain understocked or stocked out until the system is corrected. (This was one disappointment.)

Secondly, it won’t check whether or not the product should be stocked at all. For example, if a nut can only be used with a certain bolt, and the bolt is no longer available, why stock the nut? In my case, I wanted a certain track lighting system. After going to a number of stores, I finally found something close to what I wanted (on the display), but I had to buy the track, the lights, and the connector separately. A set would have been more convenient, and probably more cost effective, but no big deal. I quickly found the track, and the lights, which were not next to each other on the shelves for some unknown reason (and that’s ok too), but couldn’t find the connector. So I asked the associate in the department who told me that they were probably just stocked in the wrong location or temporarily out of stock, and if I came back tomorrow (or on the weekend) when the department manager was working (as it wasn’t his regular department and the store was closing in five minutes), she’d be able to either find the matching connector or order one in because it wouldn’t be on the wall if it wasn’t available. Annoying, but understandable. So, a couple days later, I return, find a long-time associate who says “sorry, we don’t carry that connector — the manufacturer is out of business and we can’t get them anymore”. This dumbfounded and annoyed me as I was told everything on the display was available, so I asked why the store was still selling the tracks AND lights if the connector was not available anymore, or at least not indicating the products were “for replacement only” and informing customers that certain products were no longer available. The answer was “because our new system automatically replenishes these parts and tells us to put them on the shelves and we have no control over what is ordered, stocked, or displayed”. What? No control over your own department, inventory, or display? Really? Isn’t that just a disaster waiting to happen?

Needless to say, at this time I asked to speak to the store manager because this is just sad when, at least in my view, Home Depot used to be the best Home Improvement store with the most knowledgeable associates and best run departments even up in the often forgotten Great White North. He said, yes, that’s how it works, and he doesn’t like it but it takes so many e-mails, calls, and approvals to override anything that it’s just not feasible to fix some of these problems. But no problem, I could take the products back, no questions asked, because of the snafu. Fine. So I leave, unsatisfied again.

I return a few days later, when the manager does not happen to be there, and then have to wait to speak to the department manager and explain the situation again, as the return desk clerk couldn’t understand how only part of a system would be for sale as if it was a complete system. (Which illustrates yet another problem with SARS — these systems aren’t designed to let you record problems or inform all affected parties of inventory problems. Why should a customer have to explain it to three different people? As soon as an associate knows of a problem, a good supply management system would let her record the problem, which would immediately be reported to the department manager and manager when they next signed in.) So, I finish the explanation and then I am disappointed again. I am told that if I want, I can go back and pick something else out, and get 10% off today, but only today. However, because I had to go back to the store a third time and didn’t want to waste time on the weekend, I stopped in on the way to the office and didn’t have a lot of time to spare (especially as I had to repeat my story again). Plus, this wasn’t a decision I was willing to make alone. So, in addition to misleading me (come back and we’ll find the part for you), I was figuratively slapped in the face with an insincere discount offer. (If Home Depot was sincere about compensating me for wasting a lot of my time, they could have given me a 10% of your next purchase voucher.) Yet another example of bad customer service, and the real reason I believe that Home Depot could be in jeopardy.

And then, to add insult to injury, a few days later I want to look at a specific product in Storage and Organization. Specifically, I want to look at it in the store, but I don’t want to go back to the store unless I know it’s there. So I check online. Is it in stock? Sure thing — 3 units. Is it in stock when I get there? No! And I’m told the store doesn’t carry the item. (Which is not the first time I’ve been told the store doesn’t carry the item when it’s not on the shelf. Which would be okay except for the fact in a few instances the item has “magically reappeared” on the shelf the next time I’m in the store.) All in all, I am now a very unsatisfied customer of Home Depot and given the apparent inability of local store managers to prevent similar situations from happening again (as they are never supposed to override the all-knowing system), the disillusionment of long-time pros who used to be able to run their department like a tight ship but are now subject to the whims of an inanimate piece of software they don’t understand, and the utter indifference of new employees who would rather just proclaim “we don’t carry it” then try to figure out a system that, as far as I can tell, isn’t useable and doesn’t work anyway — I can’t see the situation getting any better.

Now, I’m just one customer, but from what I’ve been told by associates at the local store, something like this is happening to a customer every day. And given known ARS system error rates (which vendors don’t advertise — an 80% reduction in stockouts still leaves room for errors that will never be discovered without human intervention), I believe it’s actually a few customers every day at the local store. Now this would only be 1,000 a year at the store — a drop in the bucket in a municipality with 400,000 residents split between only 2 Home Depot stores — but when you put this in perspective, an entirely different picture emerges. There are over 2,200 Home Depot stores. This means that 2,200,000 customers could be left unsatisfied every year because of an improperly implemented (S)ARS system across North America and the indifference in customer service it is slowly instilling in the store associates. And that’s not a drop in the bucket. In fact, that’s a rip current, and rip currents are dangerous things. One has to remember that, in retail, it is your brand that matters, and if your brand becomes synonymous with poor customer service, you will have a problem. The question is, will Home Depot fix the leak before the rip current forms?

^*Don’t get it? Too bad … but on the bright side, you feel just like a Home Depot customer who visited the site after 11:59 am on February 1^st or how the doctor felt each of the last five times he visited his local Home Depot store!

In our last post we discussed the recent snafu made by Home Depot during a recent upgrade to its online website on February 1^st where some incomplete planning and testing “Left Home Depot Customers Running in Circles” (which is terrible as there was no danger and there should have been no doubt^*). Home Depot likely made the right business decision (despite the protests of some E-commerce folk) when it decided to start an upgrade at noon on a Wednesday, did the right thing when it put up a “Pardon Our Dust” notification page, but screwed up when it directed visitors to its blog that was filled with links back to the Home Depot e-Commerce site, which was offline and which resulted in users seeing a “Moved Permanently” page which redirected to the “Pardon Our Dust” page which, of course, redirected to the blog … in an endless circle of redirects. This was bad, but as explained in our last post, definitely not the end of Home Depot (online). In fact, it’s likely that it won’t even make a blip on their bottom line when all is said and done.

But this isn’t to say it has problems. In this blogger’s view, it has big problems, and they could be getting bigger by the day — and Home Depot probably isn’t even aware of them. What are these problems? Unsatisfied Customers! That’s right, every day it’s unsatisfied customer count is likely increasing, and it probably doesn’t even know it. How do I know? the doctor has been unsatisfied in his past 5 (five) visits and has been told each time, by at least one associate, including the manager, in the store, that they’ve been having this problem regularly lately and that there’s nothing they can do about it unless they send half a dozen e-mails and go through eight levels of approval. (Probably an exaggeration, but I’m sure the effort to try and fix the problem, which can only be done on a piecemeal basis, is not worth their pay-check or sanity.)

So why did I leave as an unsatisfied customer 5 (five) visits in a row and why am I sure that I am not alone? And why do I suspect it’s happening to thousands, if not tens of thousands (or more), of other customers across North America? Because of the (ultimate) source of the problem — a source that, I am told, is universal across every Home Depot location in North America. What is that source? It’s the supply management evil called ARS, and more specifically, it’s SARS. An unfortunate, but accurate, acronym.

So what does ARS stand for? Automated Replenishment System. And is it evil? Only when misapplied. And the mis-application in particular is Storefront Automated Replenishment System — SARS for short. And it is evil. Unchecked it is more devastating to your supply chain than a tsunami, earthquake, or other natural disaster that wipes out your primary supplier’s central manufacturing facility. There isn’t a single supply management solution that will create more of a disaster if misused than SARS. Every supply management solution from RFx through e-Auction to Decision Optimization, from e-Requisition to P2P, and inventory / warehouse management to distribution management can be misapplied and cost an organization millions of dollars in the wrong, untrained hands, but SARS doesn’t even need any hands at all to bring an organization to financial ruin! It does that all on its own. How?

First of all, we need to step back and define what ARS, or an Automated Replenishment System, is and why one has to be wary of such a technology. An automated order replenishment system is a system that tracks inventory levels in near-real time and automatically re-orders stock when a minimum threshold is reached or when, in a more advanced system, it detects that certain inventory is moving faster than expected. Based on the idea that one of the most costly events under a retailer’s control is a stock-out, which happens, on average, in 8% of products for a retailer without an ARS, the system attempts to prevent such stock-outs by detecting when a product is too low or moving too fast. It ties into the POS system and receiving system, downloads data at least daily, and calculates current inventory levels based on the last known amount, the amount received, and the amount sold, and if the inventory hit a threshold or dropped too fast, automatically sends a purchase order for more inventory to the supplier with a target delivery date. Now, a retailer, who carries thousands of products and who can’t keep an eye on every one in real time (without investing a lot of money in manpower who can make mistakes) will typically think this is the greatest thing since sliced bread the first time he hears of it, but what he doesn’t understand is that this system only works in a perfect world model, and there ain’t no livin’ in a perfect world. He can keep on dreamin’ that there is, but there ain’t. Why?

^*Don’t get it? Too bad … but on the bright side, you feel just like a Home Depot customer who visited the site after 11:59 am on February 1^st or how the doctor felt each of the last five times he visited his local Home Depot store!