The supply chain function at Office Depot had several concrete assignments, as well as one overarching objective, in supporting M2. As an example of the former, Yoshimura points to supply chain's work on holding capacity on the store floors and the company's collaboration with its suppliers on display-ready packaging. The work on holding capacity stemmed from learnings from Office Depot's earlier store design initiative, Millennium 1 (M1). "We wanted to build a better mousetrap with M2," Yoshimura says, "and one of the key learnings from Millennium 1 centered on holding capacity and the implications on distribution expense and our just-in-time cross-docking model." The company primarily distributes to its stores through its cross-docks, working on a once-a-week replenishment cycle, with product held on top of those towering, warehouse-like shelves on the store floor. The trouble with top stocks, of course, is that the store employees must spend considerable time and effort recovering open position on the selling shelf by bringing down top-stocked product.
Moving to the redesigned M2 store model, Office Depot wanted to ensure sufficient holding capacity on the store floor but minimize top stocks, while also maintaining the company's existing cross-dock distribution network. To accomplish these goals, the M2 design team envisioned switching to low steel shelving, adding selling-shelf capacity and holding more inventory on the store fixtures and bringing more product into the stores in display-ready packaging. "If we could have a packaging concept that allowed us, much like the wholesale clubs, to receive at our store dock door, take the product straight onto the shelf and, in a simplistic world, tear the top off and it's ready to go, we felt that we could reduce store labor via those mediums," explains Yoshimura. Some of the Office Depot's suppliers already provided display-ready "trays" of products, but the current store fixtures did not allow the company to take full advantage of the efficiencies afforded by this packaging, prompting changes in the types of fixtures included in the M2 format. In addition, the company called on its top dozen suppliers and involved them in the process of rethinking their own packaging approaches to assist Office Depot in simplifying its processes and reducing its costs. According to Yoshimura, this collaboration has not resulted in a blanket mandate to change packaging but has helped Office Depot, and the suppliers, understand where changes are appropriate. "In working with our supply base, we really are attacking it category by category and figuring out where it makes the most sense for us to do this, and then individually working with vendors in those categories to make the necessary changes," Yoshimura says.
Adding Flexibility Without Adding Costs
Elsewhere, Office Depot's supply chain function took aim at the broader objective of supporting the M2 initiative by looking at ways to add flexibility to the company's supply chain without adding cost. In particular, the supply chain needed to be able to support the company's planned expansion with new stores (including M2-type stores set up in 50 to 60 converted Kids "R" Us sites acquired from Toys "R" Us), as well as redesigns of existing stores, all the while ensuring high service levels and holding the line on costs. Of course, supply chain flexibility has been an ongoing goal of the supply chain organization at Office Depot, but with regard to M2, the company's supply chain function began focusing on ways to make its inventory ordering and allocation decisions based more on a total supply chain cost model. "In the past we've looked at inventory ordering and allocation based on maximizing inventory turnover," Yoshimura explains. "Now we're building a model that looks at total cost, taking into account not only inventory carrying costs and turnover, but also handling costs within our distribution network and labor costs within our stores."
The company supported the drive to greater supply chain flexibility with a series of organizational changes over the past year. In the past, the supply chain function was fragmented organizationally, with replenishment reporting to merchandizing, fulfillment centers reporting to the sales organization with the company's Business Services Division (BSD, which serves the needs of midsize and large corporate or institutional accounts on a national or global basis), and the cross-dock distribution network reporting to the store sales organization. But in September 2003 Office Depot named Mark Holifield as executive vice president of supply chain, giving him responsibility for all warehouse, cross-dock and replenishment activities in North America. "By bringing it all together, we're able to focus on the total cost instead of just maximizing opportunities within the individual silos, and that really gives us the capability to leverage our total supply chain infrastructure across the business," Yoshimura says.