American Hardware

By: Tapas Patil (674518602) Date Oct 30, 2012

Case analysis on

American Hardware case summary American Hardware Depot (AHD) - one of the leading players in the US hardware retailing industry - sells over 65,000 products through its network of 4,500 stores. Majority of its stores (except self owned large retail centers) are operated by owner-dealers network, which has three distinct ways of procuring and replenishing the inventory. With the recent boom in ecommerce, AHD is facing stiff competition from its archrivals Home Depot and Lowes, who had already gained the first movers advantage in e-business. Whereas, AHD has been moderately successful in some of its e-business efforts, on the other hand, it has also faced severe setbacks in others. Considering the present strengths, weaknesses and opportunities, AHD has to decide on several issues that will decide its future. SWOT Analysis of American Hardware Depot (AHD) Strengths One of the leading players in the U.S. hardware retailing industry. Large number of owner-dealer operated stores and available warehouses in addition to variety in offered product line. AHDCONNECT extranet helps streamline the supply chain, reduce transaction costs, and enhance AHD-dealer communications. Member of global retail exchange with other retail giants to increase its online presence. Partnership with FindMRO.com, allowing access to hard-tond maintenance, repair, and operating supplies. Weakness Low bargaining power with suppliers as compared to that of its competitors. No standardized business processes and systems across stores nationwide. Little information on dealer activity as many of AHDs dealers operates independently. Signicant lag time for updates and integration problems with its Legacy System. Opportunities Enter online retailing, developing self-owned Web-based e-commerce. Partner with other companies having online experience. Enhance extranet and global retail exchange to maximize the profits. Threats E-presence of archrivals Home Depot and Lowes, both accounting for about 30% of the market share. General merchandise chains such as Sears and Wal-Mart, carrying hardware and home improvement goods. Competition from Several pureplay Internet rms such as builderdepot.com, cornerhardware.com, and ebuild.com. Advanced Web sites by several national chains having more interactive and sophisticated features than that of AHDs.

Key Issue recognized in the case AHD has been trying hard to sell hardware products online and develop a web presence. But in the process, AHD has been receiving mixed results, as it succeeded in achieving an extranet AHDCONNECT, to connect to its dealers, on the other hand it failed drastically in forming a fruitful partnership with AmericanHome.com. Thus AHD, with available resources and technological advancements, is struggling to form competitive e-business website and establish web presence in the process. Recommendations At first, with present business process and order fulfillment activities, I believe that AHD is unable to form a uniform process to carry out the business activities and give consumer a defined product prices and policies. Hence, I would recommend to initially concentrating on its present business activities and later turn to establishing a web presence, once processes and business activities are more defined and visible. Recommended changes in present business activities Bring uniformity in product prices and services offered. As per the present system, Dealers are provided with considerable flexibility in running their stores. This leads to issues like different prices for same product at different stores and complexities in product return and price adjustments if purchase made in different store. These issues may bring uncertainties to customers mind, as, whether to buy from which store would be more beneficial, or returning policies would be easy at which one. Eventually this may lead to loosing customer to a more organized business, where things are defined. Hence, AHD needs to bring uniformity in the process by o Providing defined guidelines to its stores and dealers on how and on what rates to operate. o Provide consistent prices and return policies across the region. o Setting up defined dealers and owners for region and monitoring their business methods. Make order fulfillment process more consistent and real time. Presently AHD has three different ways of order fulfillment process i.e. Direct-DropShip, AHD-Drop-Ship, Retail-Support-Purchase. The major drawbacks faced in these processes are o Direct-Drop-Ship method allows a dealer to maintain direct relationship with the suppliers and place order directly with them. This causes AHD to loose on valuable live transaction information, which could have been used for business intelligence and decision-making. Also, its makes it hard for AHD to detect any malpractices. o AHD-Drop-Ship method increases the delivery time by involving more participants in the order-delivery cycle. Also, it creates lot of rework, as delivery is first made to AHD and later to dealer, multiplying the amount of work involved.

I recommend to form a consistent and effective order fulfillment process using deployed extranet AHDCONNECT, in this, order would be placed to the AHD from the dealer using existing extranet, then AHD would order the same from its predefined pool of suppliers and get order registered electronically in AHDs system. The order then gets delivered directly to the Dealer, avoiding any additional handling of ordered goods. Upgrading to this process would help in o Having real time data for the orders from dealers. o Avoiding any lag in orders placed. o Complete control of AHD over the ordered goods and inventory management. Reduce operational cost and enhance bargaining power to provide competitive rates to end customers. AHD should leverage on the recently formed alliance with FindMRO.com and partnership with B2B market place to bring products that are more unique and cheap as compared to those offered by the competitors in market. Bringing down the operational cost and forming a streamlined supply chain would acts as key factors for reducing the rates of the product offered and hence it will help AHD to be more competitive in the market. Capitalize on hardware and home improvement products that are served better in-store. While AHD is trying to improve on its present business activities, it can capitalize on several hardware products may not be suitable for online selling. Below is a graph taken from Exhibit 5, showing the percentage increase in sales of home improvement products from 1998 to 2001. For products Lumber and other Construction material and Hardware, plumbing and heating equipment, we can see that the total growth is more significant as compared to esales growth. This proves that there are several products in this category that are not suitable for online selling. AHD can tap such products to reap maximum market share of products that are doing good for in-store selling.

Advantages of concentrating on present business activities, rather than moving online More effective business processes as, supplier-dealers network is more establish and transaction data is real time available to AHD. Consistency in offered product line, thus having uniform prices over the region and defined return and refund policies. More bargaining power and streamlined supply chain, enabling competitive prices in the market. Better market share on products that dont do good online.

Disadvantages Loosing the early movers advantage in e-business Concentrating on present business activities may cause AHD to loose on early movers advantage in e-business. But down the line, developing a e-business with more organized business activities and uniform processes will surely make AHD to get a substantial market share due to its organized business. For example, Walmart came in 4 years after Sears in e-business, but eventually the one with more organized business proves out to be leader in long run.

Reference : Case study The Snakes and Ladders Game in E-Business: Digital Transformation at American Hardware Depot by Dr. C. Ranganathan, University of Illinois, USA and Dr. Dong Back Seo, University of Illinois, USA