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Lesson's from Best Buy's Supply Chain Initiatives


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Lesson's from Best Buy's Supply Chain Initiatives

  1. 1. Best Buy’s Customer Centric Supply Chain Transformation Dan Currie SVP, Global Supply Chain
  2. 2. About Best Buy <ul><li>Founded in 1966; based in Minneapolis, Minnesota </li></ul><ul><li>An innovative , $36 billion, Fortune 100 growth company </li></ul><ul><li>#1 Consumer Electronics retailer globally </li></ul><ul><ul><li>Consumer electronics </li></ul></ul><ul><ul><li>Personal computers </li></ul></ul><ul><ul><li>Entertainment software </li></ul></ul><ul><ul><li>Appliances </li></ul></ul><ul><li>1086 stores in US, Canada, and China </li></ul><ul><li>Puerto Rico, Mexico, Turkey in the next 12 months </li></ul><ul><li>841 Geek Squad precincts worldwide </li></ul>
  3. 3. Our Revenue Growth by Fiscal Year ’ 95 ’96 ’97 ’98 ’99 2000 ’01 ’02 ’03 ’04 ’05 ’06 ‘07 $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $ Billions $12.5 $15.2 $17.7 $20.9 $24.5 $10 $8.3 $7.8 $7.2 $5 $27.4 $30.8 $36.0 $35.9
  4. 4. WHAT – are the strategic issues facing Best Buy? WHAT – is Best Buy’s strategic response? WHAT – capabilities are being deployed to enable the strategy? Our Transformation Agenda:
  5. 5. What are the strategic issues facing Best Buy? <ul><li>The WHATs </li></ul><ul><li>What is the next source of top-line growth ? </li></ul><ul><li>What are we famous for in each brand? </li></ul><ul><li>What do our brands stand for today and tomorrow? </li></ul><ul><li>Which innovations are important for us to respond to? </li></ul><ul><li>The HOWs </li></ul><ul><li>How do I run a cost-effective operation and reduce complexity? </li></ul><ul><li>How do I develop a results-driven organization? </li></ul><ul><li>How can technology help me? </li></ul><ul><li>How do I develop a confident organization, retaining and equipping people for change? </li></ul><ul><li>How do I build relationships with customers across each brand? </li></ul>
  6. 6. The macro trends facing us are changing fast <ul><li>Consumer pulls </li></ul><ul><ul><li>Balance of Power </li></ul></ul><ul><ul><li>Demand for personalization </li></ul></ul><ul><ul><li>Convenience </li></ul></ul><ul><ul><li>Alternative calls on disposable income </li></ul></ul><ul><li>Technology shifts </li></ul><ul><ul><li>Disruptive Technologies </li></ul></ul><ul><ul><li>Global Supply Chain </li></ul></ul><ul><ul><li>Channel Integration </li></ul></ul><ul><ul><li>Vanilla </li></ul></ul><ul><li>Retailer challenges </li></ul><ul><ul><li>Consolidation </li></ul></ul><ul><ul><li>Commoditization </li></ul></ul><ul><ul><li>Collaboration </li></ul></ul><ul><ul><li>Compliance </li></ul></ul><ul><ul><li>Convergence </li></ul></ul><ul><ul><li>Obsolescence </li></ul></ul>So is Pace
  7. 7. What are the Customer Behavior Trends issues are we facing? <ul><li>The Customer </li></ul><ul><li>Changing demographics </li></ul><ul><li>Health and wellness </li></ul><ul><li>The ‘smart consumer’ converging technologies </li></ul><ul><li>Differentiation of the buying experience </li></ul>Source-Cap Gemini, 2016: The Future Supply Chain
  8. 8. What are the Product Characteristic trends are we facing? Source-Cap Gemini, 2016: The Future Supply Chain <ul><li>The Products </li></ul><ul><li>Shift toward services </li></ul><ul><li>Virtualized products </li></ul><ul><li>Product complexity </li></ul><ul><li>Customer-driven R&D </li></ul><ul><li>The commoditization of quality </li></ul><ul><li>Brand ownership </li></ul>
  9. 9. What are the Product Chain trends are we facing? Source-Cap Gemini, 2016: The Future Supply Chain <ul><li>The Product Chain </li></ul><ul><li>Global sourcing – Global SCM </li></ul><ul><li>Minimum inventory </li></ul><ul><li>Lean provisioning </li></ul><ul><li>Multi-channel shifts </li></ul>
  10. 10. What are the Information Flow trends are we facing? Source-Cap Gemini, 2016: The Future Supply Chain <ul><li>The Information </li></ul><ul><li>Demand capturing and aggregation </li></ul><ul><li>Real-time visibility </li></ul><ul><li>Intelligent decisions using agents </li></ul><ul><li>Service orientation </li></ul><ul><li>Standardization </li></ul>
  11. 11. WHAT – are the strategic issues facing Best Buy? WHAT – is Best Buy’s strategic response? WHAT – supply chain capabilities are being deployed to enable the strategy? The Transformation Agenda:
  12. 12. The Co-Creation Experience I n s t a l l R e p a i r R e s e a r c h Contact Store Pickup H o m e S h i p m e n t H o m e D e l i v e r y Order Management O n l i n e S i t e s C a l l C e n t e r s K i o s k s S t o r e s S e r v i c e C o m m e r c e Experience S h o p F u l f i l l S c h e d u l e S i g n U p L e a r n Customer S u b s c r i p t i o n s <ul><li>Mass </li></ul><ul><li>Targeted </li></ul><ul><li>Personalized </li></ul><ul><li>Co-Creation </li></ul>> Interaction > Seamless Multi- Contact Experience > Community & Social Networks Co-Create the Purchase
  13. 13. Two major pillars: customer centricity and efficient enterprise Customer Centricity Efficient Enterprise Customer EVA % Customer Deciles Customer Profitability Distribution 100% - 100% Supply Chain Information Technology Enablers Enablers 19.9 16.8 8.6 SG&A costs % of sales
  14. 14. WHAT – are the strategic issues facing Best Buy? WHAT – is Best Buy’s strategic response? WHAT – capabilities are being deployed to enable the strategy? - Customer Centric Supply Chain The Transformation Agenda:
  15. 15. Our Customer Centric Supply Chain Strategy - Objectives Customer experience driven Best Buy will “ own the pipe ” through end-to-end integration from the consumer’s home back to the raw materials producers Work and cost will be pushed up the supply chain and away from the store, with floor-ready merchandise that enable stores to focus on serving the consumer A “one version of the truth” forecast will be developed that will migrate the business from a push model, to a pull model Speed and flexibility will be built into the supply chain to enable more “fashion” and “freshness” building attribute driven flows We will transform our supply chain at speed by collaborating and integrating with our partners, develop collaborative partnerships within and beyond our industry Leveraging our global partnerships to extend global reach 3 4 2 1 5 6 7
  16. 16. From To <ul><li>Standard assortments </li></ul><ul><li>Push model </li></ul><ul><li>Unnecessary work in the stores </li></ul><ul><li>One size fits all </li></ul><ul><li>Multiple forecasts </li></ul><ul><li>Single channel </li></ul><ul><li>Reactive variability management </li></ul><ul><li>“ Voice of the store” tailored market assortments </li></ul><ul><li>Pull model –Locality demand </li></ul><ul><li>Push work back up the supply chain – sales floor ready </li></ul><ul><li>Tailored price and flowpath by store </li></ul><ul><li>One version of the truth forecasting - CPFR </li></ul><ul><li>Multi channel </li></ul><ul><li>Proactive variability management </li></ul>We needed to transform the supply chain for speed, efficiency and flexibility
  17. 17. The Holistic Customer Centric Supply Chain Asian Factories Asian 3 rd Party Consolidator (by Vendor) US Mfg DCs BBY/Vendor DCs BBY Stores Store Shelf Focused Customer Tailored Supply Chain 1 Streamlined Inbound Management Advanced Planning and Replenishment North America ASIA N. American Factories Reduce G&A Improve speed and transparency: reduce cost Improve customer availability Improve CA; reduce inventory 2 3 4
  18. 18. Panorama Program How are we going to achieve this – SC Transformation Program Merchandising Product Fulfillment Forecasting & Replenishment <ul><li>Forecast Accuracy </li></ul><ul><li>Replenishment/ Allocation </li></ul><ul><li>Inventory Optimization </li></ul><ul><li>Key Item Planning </li></ul><ul><li>Space Management (macro and micro) </li></ul><ul><li>CPFR, VMI </li></ul><ul><li>Assortment / Space Optimization (TMA ) </li></ul><ul><li>Price Optimization </li></ul><ul><li>Integrated Promo Planning </li></ul><ul><li>Financial Planning </li></ul><ul><li>Partner Innovation </li></ul><ul><li>Labor Scheduling </li></ul><ul><li>Global Sourcing </li></ul><ul><li>Physical Flows </li></ul><ul><li>Direct Import </li></ul><ul><li>Lean </li></ul><ul><li>RFID Strategy </li></ul><ul><li>Entertainment </li></ul><ul><li>Network Optimization </li></ul>
  19. 19. The Best Buy RFID program has been shaped around customer centricity. Predominant Industry Focus Supply Chain Value Customer Value Best Buy Focus
  20. 20. RFID is already driving convenience for customers <ul><li>“ On our roads with E-ZPass, saving time at toll stations ” </li></ul>“ By helping us keeping track of keys, mobile phones, laptops, pets and even our children” “ When we are in a hurry” “ To enjoy attractions without having to carry cash or credit cards”
  21. 21. Getting in the game with our case & pallet pilot <ul><li>Suppliers place RFID tags on cartons and pallets </li></ul><ul><li>Suppliers send carton and pallet EPC information to BBY via Advanced Ship Notice (EDI ASN-856) </li></ul><ul><li>Pilot suppliers represent 80% of total shipment volume </li></ul><ul><li>All major product categories represented </li></ul><ul><li>EPC reads will be captured at RFID enabled dock doors. </li></ul><ul><li>Reporting will compare EPC reads to ASN and actual PO receiving. </li></ul><ul><li>EPC reads, read rate, tag, and ASN performance reporting will be shared with suppliers via portal </li></ul>Pilot runs in parallel with current processes for shipping, routing, receiving, packaging, labeling, and invoicing.
  22. 22. Our Customer Driven Vision for the Store Experience Receiving - RFID readers automatically confirm receipts and update store inventory as product is unloaded. Check-Out - Serialized EPC codes increase the speed and accuracy of customer checkout and returns processing. Down-Stocking - RFID-enabled “smart shelves” predict, identify, and report shelf stock levels to store employees. Shopping Assistance – Loyalty cards with embedded chips identify customers as they enter the store. Smart Signs - Data from RFID-enabled smart shelves correlate sales to store promotions and product information.
  23. 23. Our RFID Customer Experience Test at Best Buy <ul><li>Retail Store Test – Video Games </li></ul><ul><ul><li>Test Goals: </li></ul></ul><ul><ul><ul><li>RFID technology readiness. </li></ul></ul></ul><ul><ul><ul><li>Gain retail insight into the operational benefits. </li></ul></ul></ul><ul><li>Results </li></ul><ul><ul><li>Revenue lift = 18.7% increase </li></ul></ul><ul><ul><li>Number of Units sold = 14.1% increase </li></ul></ul><ul><ul><li>Margin = 10.8% increase </li></ul></ul><ul><ul><li>Store averaged 98.7% CIS (games in store, and customer facing) </li></ul></ul><ul><li>Conclusions: </li></ul><ul><ul><li>Item-level RFID improves retail processes </li></ul></ul><ul><ul><li>Technology solution needs to be more flexible, easier to maintain, and less expensive. </li></ul></ul>Lower labor cost; increase customer encountered in stock
  24. 24. The road ahead… <ul><li>Expand our pilot to more categories </li></ul><ul><li>Prove performance of Gen2 technology </li></ul><ul><li>Continue to provide leadership in the industry </li></ul><ul><li>Continue to explore innovative ways to use RFID driven data to improve the customer shopping experience </li></ul>
  25. 25. RFID – Could it be the greatest thing since….? The 1928 design for the first bread slicing machine
  26. 26. So Why Transformation? <ul><li>Economic: </li></ul><ul><li>Reshuffling of the top economies </li></ul><ul><li>Growing gap between industrialized </li></ul><ul><li>and developing countries </li></ul><ul><li>Regulatory: </li></ul><ul><li>Legislation on health and wellness </li></ul><ul><li>Privacy standards </li></ul><ul><li>New Technologies: </li></ul><ul><li>Virtual reality </li></ul><ul><li>Information Networks </li></ul><ul><li>Ecological: </li></ul><ul><li>Energy scarcity </li></ul><ul><li>and efficiency </li></ul><ul><li>Sustainability and </li></ul><ul><li>waste management </li></ul><ul><li>Demographic: </li></ul><ul><li>Shift in global population </li></ul><ul><li>Urbanization </li></ul>Closing Thoughts The world around us will continue to change at the speed of life, as will our customer’s needs, wants and desires. We must transform our approach to driving the future value chain TOGETHER! <ul><li>Smart consumer as a partner </li></ul><ul><li>Differentiation of buying and </li></ul><ul><li>selling channels </li></ul><ul><li>Shift form product to service </li></ul><ul><li>Commoditization of quality </li></ul><ul><li>“ Lean: throughout the supply chain </li></ul><ul><li>The open network rules </li></ul><ul><li>Static, dynamic and rich </li></ul><ul><li>content coverage </li></ul><ul><li>Everything is a service </li></ul>2016: The Future Value Change, Gap Gemini The Future Value Chain Product flow Information flow Consumer Behavior
  27. 27. In light of future trends, collaboration across the end to end supply chain will be key to meeting the needs of our customers, employees and stakeholders . “ The potential value to be delivered by these trends will not occur on it’s own. Left to their own devices, companies may potentially act in isolation or in limited partnerships. The industry needs to work in a more collaborative fashion across the total value chain to deliver the cultural and infrastructure changes necessary to meet . . . consumers’ needs.” 2006 Global Commerce Initiative, Gap Gemini True ‘Transformation’ will happen when we collaborate Closing Thoughts
  28. 28. <ul><li>The supply chain transformation has to begin at the end – which is with the customer </li></ul><ul><li>Your Supply Chain journey must be holistic </li></ul><ul><li>The transformation journey never ends – as long as your customers continue to change </li></ul><ul><li>Innovation is important but integration and collaboration are essential </li></ul>Closing Thoughts
  29. 29. <ul><li>Questions? </li></ul><ul><li>Thank you </li></ul><ul><li>[email_address] </li></ul>