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Texas Freight Leadership Summit Michelle Livingstone Vice President - Transportation April 3, 2014 Proprietary & Confid...

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Texas Freight Leadership Summit Michelle Livingstone Vice President - Transportation April 3, 2014

Proprietary & Confidential to The Home Depot

Company Overview  Founded in 1978  Bernie Marcus and Arthur Blank  Atlanta, GA

 Total square footage: 235 million  Stores: 2,263  United States – 1,977  Canada - 180  Mexico – 106

 FY2013 Sales: $78.8 billion USD  300,000+ associates 2

Proprietary and Confidential Property of the Home Depot

The Power of a Values-Based Business

Taking Care of Our Associates and Customers Proprietary and Confidential Property of the Home Depot

The Power of The Home Depot Interconnected Retail

Passionate About Customer Service

Disciplined Capital Allocation Driving Productivity and Efficiency

#1 Product Authority for Home Improvement

Delivering a Best in Class, Interconnected Multichannel Retail Experience 4

Proprietary and Confidential Property of the Home Depot

2014 Financial Targets

Sales growth

~5%

New store openings

8 (1 U.S., 1 Canada, 6 Mexico)

Operating margin expansion ~70 bps to >12% EPS Growth

~17% (after share repurchases)1)

ROIC 5

~24% Proprietary and Confidential Property of the Home Depot

2007 Distribution Center Network Distribution Channels Import DCs Carton DCs Lumber DCs

~ 20% COGS

Import Vendors Transit Facilities

~ 20% COGS

Domestic Vendors Direct to Store ~ 60% COGS

80% of Store SKUs Ordered by the Store 6

Proprietary and Confidential Property of the Home Depot

RDC Concept of Operations Store demand is forecasted for all stores serviced by an RDC…

The Vendor pulls full pallets….

Full truckloads arrive at the RDC…

Product is allocated based on real time demand…

… and aggregated to a single Purchase Order.

…and ships in bulk to the RDC.

…where current store needs are assessed.

… and delivered daily to each store.

Day 1

Days 2-3

Days 4-7

Days 8-9

Product is Not Held in Inventory at RDCs 7

Proprietary and Confidential Property of the Home Depot

Current Supply Chain Network Lumber/Bulk DCs

Vendors

Stocking DCs

~ 75% COGS

RDCs

Vendors

Direct to Store

~ 25% COGS

Central Replenishment Systems & Processes 8

Proprietary and Confidential Property of the Home Depot

Optimal Flow Distribution Network Best Used When…

Direct To Store

 Full Truckload  Manufacturing Close to Stores

Why?  Eliminates Additional Distribution Expense Associated with Handling at a DC

 High Volume Stores

Rapid  Less than a Full Truckload/Store Deployment  Demand & Supply is Predictable Center “Flow”  Value of Product is Low to Medium

 Aggregates Store Demand to

Stocking DC  Less than Full Truckload/Store “Stock & Pick” Demand & Supply is Unpredictable

 Aggregates Store Demand to

 Value of Product is Medium to High

 Holds Buffer Inventory at the

Create Full Truckloads

 Low Handling Costs

Create Full Truckloads

Stocking DC to Allow for Rapid Replenishment

Lumber/Bulk  Handling Bulky, Oversize Materials DC 9

 Flatbed Truck Transportation is Optimal

Proprietary and Confidential Property of the Home Depot

Supply Chain Core Distribution Network

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Average Sq Ft Bulk Distribution Centers ~175K Stocking Distribution Centers ~825K Rapid Deployment Centers ~560K Transload / FTZ Proprietary and Confidential Property of the Home Depot

RDC Service Area Map

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Proprietary and Confidential Property of the Home Depot

Home Depot Loves Texas Every Year Across the State:

We have 178 Stores in TX, 10% of the US total

We drive 30,000,000 Miles

7 Distribution Centers in TX, 10% of the US total

Haul 80,000 truck loads

Make 280,000 appliance deliveries

Dallas RDC Dallas SDC Dallas BDC

Houston RDC Baytown SDC Houston BDC San Antonio BDC

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Proprietary and Confidential Property of the Home Depot

Direct Fulfillment

Why we are investing in interconnected retail Papal Inauguration 2005 vs. 2013

The Mobile Mind Shift

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Proprietary and Confidential Property of the Home Depot

Direct Fulfillment

 Building New Direct Fulfillment DCs  Larger More Capable Operations  Closer to our Customers: Improved Speed  Stock High Demand SKUs  Complemented by Vendor Drop Ship

Direct Fulfillment is Building New Capabilities to Support Interconnected Retail 15 Proprietary and Confidential Property of the Home Depot

Locust Grove, GA Direct Fulfillment DC OBJECTIVES:  Supports expansion of SKU assortment and sales growth of hd.com  Improved customer service through faster delivery  Lower total Supply Chain costs

FACILITY HIGHLIGHTS:  Locust Grove, GA ~35 miles South of Atlanta  ~1.1 MM SqFt Facility  Estimated Go-Live: Q1’ 2014  ~175 Dock Doors  Automated, state of the art facility  Upgraded WMS System

Locust Grove, GA Facility Enables DF to Meet Long Term Strategic Goals 16

Locust Grove, GA Direct Fulfillment DC

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Transportation Overview

Use All Modes of Transportation

THD shipped 6.4 million loads across the modes in 2013 19

International Logistics Footprint Origin Factory

Origin Operations

• 40+ Countries • ~1,000+Factories (US/CAN] • 6,000+ import SKUs • 3 Origin Cargo Managers (OCM) • 12 CFS Facilities • 4 Overseas Sourcing Offices

Origin Port

On The Water

Destination Port

• 24 Ports Of Entry (US/CAN/MEX] • ~125 Terminals • 9 US Container Management Companies • 2 “Expedited Freight” • 8 Global Ocean Service Providers Carriers • 6 Railroads • 6 Jones Act Carriers • 4 Transloads • 1 Air Freight Broker

Destination Customs

• 85+ Origin Ports • 250 Terminals

THD Facility

• 22 SDCs • 5 Transload facilities • 18 RDCs • 2,200+ Stores • 3 Customs Brokers • 4 FTZ (3 live, 1 pending approval)

• Country Risk Management • C-TPAT • International Security Legislation

International Logistics manages the operations, trade compliance, and trade risk for the 3rd largest container import program into North America (123K FEU) 20

Service Counts! • • • • •

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Inbound on-time service: 97.3% Outbound on-time service: 98.5% Low on-time service scores impact ability to capture new business Provide weekly scorecards to all carriers Traffic congestion impacts metrics

DOT

Keep Freight Flowing!

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Recommendations 1. Routinely include business advisors who move freight in your discussions.  Integrate Freight Advisory Committees into the mainstream – no siloes. 2. Remember the first and last mile connectors in your plans. 3. Use technology and innovation wherever possible. 4. Continue to push for infrastructure improvements. 5. Use strategic zoning, smart land use policies, economic development incentives, and effective truck route planning to buffer freight activity centers from population centers. 6. For both short- and long-term, small- and large-scale infrastructure planning, use real-time/real-world data that is readily available from various high-tech sources (Inrix, ATRI, USDOT’s truck data feed). 7. Don’t assume that all truck drivers, shippers, and loads require the same speed and reliability for the haul,

While speed is important, reliability is the key to success. 24

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