Although Atlanta, GA-based HD Supply has "the best-in-class enterprise tools," it was lacking the necessary "processes and people to be able to execute and utilize" those tools earlier this fiscal year. But the company is now focused on resolving that problem, according to CEO Joe DeAngelo in HD Supply's second quarter earnings call.
"What we got in trouble with this year is we realized too late that our demand signals were too weak, so we weren’t acquiring enough product," said Evan Levitt, senior vice president and chief financial officer.
"And by the time we figured that out and recorrected, we had too much product available to consume."
By working through the supply chain issues, the company will be "digitizing and standardizing processes so that we will have better visibility and clarity" to avoid future issues, Levitt said.
HD Supply is "undergoing a major initiative to ensure that our systems are utilized," including a push toward systematic processes and away from manual processes which create variability, DeAngelo said.
"Our supply chain transformation through digitally enabled performance will remove friction points concurrently improving our customers’ overall experience, accelerating profitable growth and reducing cost," he said.
However, the investment needed to bring these processes up to par is more than HD Supply initially anticipated due to improvements taking longer than expected and original cost estimates increasing. The company now expects an annual impact of $25 million EBITDA, according to Levitt.
Even with higher-than-expected costs negatively impacting the company's performance, sales were up 4.1 percent in the second quarter. And, although challenges remain in the second half of the year, HD Supply is positive the supply chain investments will be worth the effort.
"Ultimately, you grow yourself out of manual processes and that’s the point that we came to and that’s a point that we needed to address," DeAngelo said.