The world's largest seller of home improvement goods, Home Depot Inc., today announced a major SAP initiative designed to give the massive retailer a new logistics platform.
Speaking this morning at SAP's annual user event, Sapphire, Home Depot CIO and executive vice president Robert DeRodes said the massive retailer plans to expand its seven-year relationship with SAP to a "strategic" level.
Home Depot's growth -- nearly $80 billion in annual revenues and more than 1,800 stores -- has created challenges for the business, DeRodes said. He joked that when he joined Home Depot nearly four years ago, its legacy as a low-tech seller of hammers, wheelbarrows and other home goods meant its most significant piece of information technology was a No. 2 pencil.
He wasn't joking when he recalled that CEO Robert Nardelli asking to send a companywide e-mail in 2000. He was informed that Home Depot did not possess the hardware infrastructure for him to be able to do that, DeRodes said.
Home Depot will turn to SAP for a new logistics platform, addressing merchandising, inventory and supply chain management. The software promises to determine the right mix of products for retail outlets, set regional prices and track inventory from the manufacturers' assembly lines to stores' cash registers. This is a departure from Home Depot's history as a chain of entrepenuerial, almost independently managed store locations, DeRodes said. The SAP contract is part of the Home Depot's IT transformation, or its so-called "Digitize the Depot" vision, DeRodes said.
Home Depot represents a major customer win for SAP at a time when it's battling Oracle Corp. on several fronts – including the retail market.
"This would be a very, very competitive deal, very prestigious that every vendor and their mother would be fighting hard to win," said Joshua Greenbaum, principal consultant at Berkeley, Calif.-based Enterprise Applications Consulting.
"This is a company that fundamentally cannot survive without an extremely efficient supply chain," Greenbaum said.
It's well known within the industry that Home Depot has an antiquated mainframe inventory management system, Greenbaum said.
"That supply chain is being challenged by a number of retailers. Folks like Target and Walmart are also encroaching into their territory. It's a real imperative to be as lean and mean as possible."
The company reported a 13% jump in first-quarter profit to beat Wall Street expectations.
Home Depot already has a relationship with SAP, having implemented core financial systems from the company to improve processing and analytic capabilities last summer.
Following SAP's failed bid for Retek Inc. – a small retail software provider based in Redwood Shores, Calif. – in March, the company is eager to highlight any retail customer wins.
SAP's Sapphire event is being held this week in Boston.