Lowe's looks to logistics for growth
August 26, 2002,
As Lowe's continues to break into new markets nationwide, company executives detailed how its centralized integrated logistics system helps keep costs down and enables it to remain the "lowest-cost customer" to its vendors, said Tom Whiddon, evp logistics and technology, at the company's quarterly conference call earlier this month.
Lowe's also is looking to knock down the fully loaded cost of product, he said, which results in four methods of distribution: flowing merchandise through its regional distribution centers; shipping by consolidation or transit facilities; using commodity-focused flat bed reloading DCs; and having vendors ship directly to the stores.
The company's network of regional DCs is its "backbone" and about 50 percent of inventory is moved through this method. Lowe's now operates seven regional DCs and has two more averaging over 1 million sq. ft. currently under construction. Even as volume per store increases, Lowe's will not need more space in its DCs, Whiddon said, leveraging the investment it's already made.
"We will reduce the company's distribution costs as a percentage of costs of goods sold."
Lowe's also considers speedy replenishment of both fast- and slow-turning items as critical. "To maximize sales, slower-moving skus are essential for the assortment," he said. Even a high-volume store, with sales of $50 million to $60 million a year, has a number of "B" items, he said, and both "A" and "B" items drive sales.
Since "B" items sales are less consistent, Lowe's is keeping its stock at the regional DC, where fulfillment can be completed within 48 hours. "As we sell one, we can replenish one," he said.
Bob Tillman, chairman and ceo, added that because Lowe's believes its strength is its wide assortment, which he said is broader in most categories than its competitors, it will not reduce skus, not even in the smaller markets, and in fact may add more skus in some categories. Each store carries about 45,000 to 50,000 skus.
About 40 percent to 45 percent of inventory is direct shipped to the stores, said Whiddon, which suits some categories like concrete, a high-weight, low value item, and live nursery. However, the retailer would prefer to reduce direct ships in favor of adding more inventory to the DC network. "Our ultimate goal is to be sending more trucks from our DCs more often with less of any one sku with each shipment, both from an inventory turn standpoint and a store productivity standpoint," said Whiddon.
"We're not limited to a few distribution options," he said. "We look at the characteristics of the product and the capabilities of the vendor to determine the distribution approach. Our goal is the highest level of in-stock position at the lowest possible landed cost of every product onto the shelves of the stores and into the hands of the customer."
Lowe's also noted that it experienced strong comp-store performance across all home decor and outdoor living categories in the second quarter.