Tractor Supply Co.: Optimizing the supply chain for ‘Life Out Here’

NRF Supply Chain 360: CEO Hal Lawton on supporting customers, reducing emissions and defining product priorities
Fiona Soltes
NRF Contributor

The NRF Supply Chain 360 conference and expo was held in Cleveland June 20-21, 2022. It explored the modes and methods needed to build a stronger, more sustainable supply chain and ensure resiliency in challenging times. Learn more about the conference, here.

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Who would have thought, just a few years ago, that supply chain would become the “cool, hip topic?”

Hal Lawton, president and CEO of Tractor Supply Co., greeted the audience of the inaugural NRF Supply Chain 360 conference with the quip, a laugh and a truckload of company insight. He sat down with Lori Ann LaRocco, senior editor of guests, CNBC, for the opening keynote, speaking on how TSC is accelerating its investments and working toward optimizing the end-to-end supply chain. He also touched on reducing emissions from operations with the goal of achieving net-zero emissions across all operations by 2040.

The session included a welcome from Jon Gold, NRF vice president, supply chain and customs policy, and a video greeting from Ohio Gov. Mike DeWine. One in four Ohioans is employed directly or indirectly in retail, Gov. DeWine said, representing nearly 2 million jobs across some 139,000 establishments.

Lawton began by speaking of the challenges retailers are facing in getting products from China. Particularly in the last few months, he said, China has been like the game Whac-A-Mole, with its strict zero-COVID policy, lockdowns, supply congestion at various ports, inability of truck drivers to get items from manufacturers to the ports and other challenges. The United States has its own issues, but at present, China has been “quite a barrier to getting product over here.”

As a result, TSC’s team can no longer plan months in advance, he said. “Now, the team is literally hourly working it, every single border, every single container.” There might be changes and reprioritization with ports, methods of transport, manufacturers, products, contracts and categories.

TSC has been able to move about 10 percent of its Chinese business to other locations, some even to the U.S. More broadly speaking, there’s also inventory building in the U.S. above demand levels, Lawton said, particularly in seasonal goods, apparel and discretionary-type items. That means a dialing down of retail orders overall. And yet, there are those lengthy dwell times in U.S. ports, related to rail and trucks.

Lawton shared a month-by-month color-coded 2022 supply chain heatmap that showed decreasing to increasing strain related to U.S. and Chinese materials, logistics and labor, detailing percentages of change in areas such as logistics labor supply and ocean freight cost. The “demand” side listed insights into TSC’s customers, including such behavior as increasingly looking for discounts or promotions, reducing spending and shopping retailers/websites with free shipping/delivery.

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TSC has taken an integrated approach to the challenges, with unified planning and execution activities. That includes defining clear product priorities; aligning future orders with sales; ensuring financial plans account for cost and availability; and aligning marketing and store tasks work to product availability.

The company has stopped preprinting prices and now does that in-store, for example, and line reviews are starting earlier in the process. Overall, Lawton said, sales have been up 52 percent for TSC, thanks to trends such as rural revitalization. Heatmaps are built around those macro tailwinds — as well as multiple other factors — to increase understanding and the ability to adjust accordingly in real time.

Setting clear product priorities is key, Lawton said. “Where do we want to place our bets? What inventory do we want to go long on, and what inventory do we want to de-risk?” TSC is a large seller of gun safes, for example, which had big sales last year driven by stimulus and other factors. “We anticipated those would moderate as we went into this year. It’s also a big-ticket item. It’s got a lot of import costs associated with it, and margins are low. So we said, ‘Let’s de-risk there. We can always chase it if we want with some near-shore product coming from Mexico.’”

By contrast, TSC sells the most animal feed nationwide, a replenishable category that’s made in the U.S.; more of the sales plan goes there.

Lawton also shared thoughts on his recent phone conversation with President Joe Biden. They spoke about the importance of getting the Ocean Shipping Reform Act passed, but also about inflation — particularly related to food and energy: TSC sells more bagged corn than anyone else in the U.S., whether used for animal feed or wildlife. Two years ago, Lawton said, a 50-pound bag was $8. Now it’s over $14. Making the decision to decrease ethanol content in fuel might help with fuel pricing. But it also places constraints on corn farmers, who hadn’t planted with that shift in mind.

As for reducing emissions, Lawton noted that TSC’s customers tend to consider themselves stewards of their land rather than owners. As a result, “They’ve always embraced good agriculture hygiene, how to crop, how to maintain your land and homestead. And we’re kind of the same way.”

The company has committed to spending more than $100 million in capital to reduce emissions, including building LEED Gold certified distribution centers, retrofitting other properties, and using electric lifts and trucks, solar energy and skylights. “As our supply chain team reminds us,” he said, “the best carbon footprint is one that never gets created, because you’re optimizing your flowpaths.”

Hal Lawton, CEO of Tractor Supply talks with Lori Ann LaRocco of CNBC about inflation and improving the supply chain during NRF Supply Chain 360.

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