In the midst of the Covid-19 pandemic, retailers have been at the forefront of keeping us supplied with the goods that make our lives feel as normal as possible. But not all retailers have fared equally well in these difficult times. Some are on the verge of collapse, unable to withstand the one-two punch of mandated store closures and the e-tail tsunami, while others have pivoted successfully and actually grown their business. Brentwood, Tennessee-based Tractor Supply Co. is one of the latter. Thanks in part to a formidable supply chain operation, Tractor Supply has managed to keep essential goods flowing to America’s “out here” locations throughout the health crisis while racking up double-digit increases in sales.
Executive Vice President and Chief Supply Chain Officer Colin Yankee is responsible for that supply chain, overseeing merchandise planning, inventory management, vendor operations, transportation, and distribution operations. Yankee gained valuable supply chain management experience during stints at Neiman Marcus and Target. Before starting his civilian career, he graduated from the U.S. Military Academy at West Point, New York, and served as a captain in the U.S. Army. He holds a master’s degree in supply chain management from Michigan State University and an advanced management certification from Columbia Business School.
Yankee recently spoke with DC Velocity Editorial Director David Maloney about Tractor Supply’s wild ride over the past year. Read or listen to the interview.
Q: Tractor Supply has stores in most parts of the country, but some readers may not be familiar with your company. First of all, your main line of business is not really tractors, is it?
A: It is not. Tractor Supply has been operating since 1938. It started out as a mail-order tractor parts company for small farmers, but the business has evolved over the past 80-plus years. Today, we operate over 1,900 stores in 49 states that cater to the rural lifestyle. We had about $10 billion in revenue this past year, and are publicly traded on the NASDAQ as TSCO.
We sell everything people need for what we call the “out here” lifestyle. Our product lineup ranges from workwear and footwear for people out on the job site to animal feed for both livestock and pets. We also carry truck tools and hardware parts, all the way down to make/model-specific parts for a particular piece of equipment. And then we have all kinds of seasonal goods. So, while in a couple stores, we actually do sell tractors, we also sell basically everything you need to live out in the country and be self-sufficient.
Q: A lot of your stores are located in rural areas, but I live in the suburbs of Pittsburgh and there’s a Tractor Supply store about a mile from me. So you’ve made inroads into urban areas as well.
A: Yes, we have. As the suburbs have expanded out into the country and as our store footprint has increased, it has changed the nature of some of our stores and created a need for a very localized assortment mix. In Texas, we have a store that’s out near oil fields, so we will cater to that customer. Or you may be in the suburbs of Pittsburgh, and we’ll have more of a pet and garden type of assortment.
Q: That obviously presents some supply chain challenges.
A: It does. The hyper-localization means that we need to keep close tabs on the assortment level at each store and what the inventory position is at each of the distribution centers. You also have to factor in the highly seasonal nature of our business. It is very weather-dependent, and inventory is deployed for stores based upon the time of the year. But that can be surprisingly complicated. For example, we have a DC in Kentucky that services about 290 stores stretching from Ohio to Louisiana. Because spring arrives at different times in different parts of that geographic region, that one DC services spring goods and winter goods all at the same time.
Q: Like all businesses, you’ve had to adapt very quickly to a new normal since the arrival of Covid-19. How has the pandemic affected your company and your supply chain?
A: We’ve had the good fortune to be designated an essential business, so we’ve been able to continue operating throughout the pandemic. We first started monitoring the whole Covid phenomenon back when it was still contained in China because we’re a direct importer from China. At that time, our main concern was how it would impact the flow of our goods into the United States for the spring and summer selling seasons.
But then in March, things really started to hit home here in the U.S. For us, that meant navigating an array of local requirements in order to continue our operations. At about that time, we saw sales start to surge because we were selling animal food and pharmaceuticals and items that people were stocking up on in those early days. The surge in demand and the need to replenish those stocks had a ripple effect throughout our supply chain.
Then as customers started spending more time at home and in their backyards, they began to focus on improving their homes and property. We saw the spring and summer home-improvement goods really take off. We had two consecutive quarters of 30%-plus sales increases. That obviously put a strain on our DC network and our supplier base.
Q: You mentioned direct imports from China. Did you have to change any of your sourcing because of the pandemic?
A: We did. This experience really exercised some muscles that already existed. We are constantly re-evaluating our sourcing, and Covid is really just a new chapter in what’s been a pretty active couple of years. For context, we have adopted a total-landed-cost view for evaluating our assortments, so that includes product cost, where we source from, freight terms, miles, and packaging. We look at all those things as they relate to the flow of goods to the DC and ultimately to the store and to the customer’s doorstep.
And because we have a highly seasonal business, we’ve been adapting our supply chain over the last few years to give us more sourcing flexibility—specifically, the flexibility to source a product overseas initially and then replenish from a more domestic supply base so that we can be nimbler with replenishment based on sales.
And then in 2018, the newly imposed tariffs on steel and aluminum forced us to change some of our sourcing—not only for the things we sell but also for our racking, material handling equipment, and other items used in the construction of new DCs. And then, the Section 301 tariffs shifted some production sources. We moved some production to the U.S. and Mexico.
We conducted many of those same evaluations in response to Covid. But it wasn’t just through the lens of cost; it was through the lens of reliability and supply chain resilience. I think in the near term, it's been about shifting sourcing to help our suppliers as they've dealt with new workplace hygiene protocols, labor availability issues, and the transportation disruptions we've been experiencing.
Q: Your company has been out in front in its efforts to leverage data to fine-tune its operations. How has Covid affected the way you process and use that data?
A: We use both structured and unstructured data in adjusting our operations. That can include information from stores and online sales, credit card and loyalty program information, and insights from our call center. Then we take that and integrate it with what we’ve learned from team members in our stores and the feedback we get from our regional leaders who are out there interacting with customers and suppliers, and then we combine that with market intelligence from economists and with other customer feedback. And that data impacts everything, including store staffing, hours of operation, our product assortment, and how we communicate with our customers.
From a supply chain perspective, our big focus has been on applying data to help coordinate activities across the value chain—from our planning team, to our suppliers, to our carriers, through the DCs, and into the stores. In particular, we’ve been trying to use data to solve a couple of problems. The first is how to get earlier visibility into vendor production and transportation issues and then use that information to be more proactive with respect to re-allocating inventory, shifting our transportation plans, and adjusting DC staffing levels. The second is figuring out how to communicate that information across the organization, with our suppliers, and with our finance organization—and ultimately, how we can use it to be the best supplier we can be for our customers.
Q: Your business has had to adjust to people staying at home, or at least not venturing into stores as much as they used to. How has the resulting shift to online sales changed your DCs’ operations?
A: We’ve been on a multiyear journey to “activate” inventory everywhere, in both our stores and our DCs. We now have the ability to let customers buy online and pick up in every one of our stores. Each of our distribution centers not only supports store replenishment but can also fulfill direct-to-consumer orders. So, we have that opportunity to use inventory wherever it sits in a variety of ways.
What we saw with Covid was the acceleration of trends that we thought would take two or three years to gain widespread acceptance. The timeframe got compressed down to two or three weeks in some cases, where customers started leveraging “buy online, pick up in store” a lot more in order to reserve inventory and have a contactless transaction. We had already been offering curbside pickup at all of our stores, but that volume definitely picked up. And then, customers have been using our same-day delivery options out of all of our stores.
At the same time, we’ve seen about a threefold increase in the daily volume of direct-to-consumer orders fulfilled out of our DCs, and they’ve handled that very well. We’ve had to increase our staffing—both in our stores and in our DCs—to support the shift to digital fulfillment. And looking forward, as many operators know, it's not the daily volume that's the challenge; it's the peak jumps. So, we focus on getting as much throughput from our DCs as possible.
Q: What are some of the trends you’re tracking?
A: We think that the trends we saw in 2020 with customers engaging more digitally and spending time in their homes and with their families are going to continue through 2021. We are preparing for that. We are also seeing a lot of disruption in the import market right now with equipment imbalances in trade lanes between Asia and the U.S. So, we’re looking at how to adjust our ordering patterns and shift our sourcing.
We also see continuing demand for online fulfillment, so we’re continuing to invest in our fulfillment capabilities out of our DCs and expanding our ship-from-store capabilities. I think that’s going to stay with us for 2021, 2022, and beyond.
Q: You mentioned at the recent Gartner supply chain conference that every company should be looking at industry leaders to help show them the way. Who for you is that industry leader?
A: I don’t think there’s just one for us. One thing I love about supply chain is that there’s an openness to sharing in the profession. Supply chain professionals understand that supply chain success derives from a combination of all their capabilities, not just one tool or system or piece of automation. And because of that, there isn’t one leader that we look to when we go to benchmark our operations. Instead, we use our network of retailers, carriers and their customers, suppliers, software providers, automation providers and their customers, and their extended networks to find great reference points—companies that excel in specific aspects of supply chain management.
For example, we’ve recently had conversations with a pure apparel retailer about order-management system logic for fulfillment. We’ve done some compare-and-contrast exercises on organizational design with a company in the beauty space. We’ve shared our perspective on transportation visibility in sales and operations planning with a food and beverage company that was looking at our operation as a benchmark.
So, while I think imitation may be the sincerest form of flattery, it would be a terrible idea to pull from just one example when you’re looking to benchmark in your supply chain. I think there is something we can learn from everybody. And there is something we can teach everybody, and that’s one of the great things about the openness of the supply chain profession.