Webster University

July 29, 2010

MRKT 5980

04/22/2304/22/23 Webster University MRKT 5980Webster University MRKT 5980 Page Page 22

04/22/2304/22/23 Webster University MRKT 5980Webster University MRKT 5980 Page Page 33

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Changing Business ModelsChanging Business Models

55

Transformation of the Supply ChainTransformation of the Supply Chain

Success comes from managing the links!

What is the Problem?What is the Problem?

Supply chains have become increasingly out-Supply chains have become increasingly out-sourced, globally dispersed, and complex.sourced, globally dispersed, and complex.

The importance of sharing data between trading The importance of sharing data between trading partners and across multiple tiers has intensifiedpartners and across multiple tiers has intensified

Tier 2 Tier 1 OEM Wholesaler Retailer

Delays, Distortion, Differences, Disputes

Single Version of the Truth (SVoT)Single Version of the Truth (SVoT)

Retailer

Wholesaler

OEM

Tier 2

Tier 1

SVoT

SVoT Example: Service EcosystemSVoT Example: Service Ecosystem

99

Evolution Of The Supply ChainEvolution Of The Supply Chain

1990 2000 2010…1990 2000 2010…

ProcessA

ProcessA

ProcessB

ProcessB

ProcessC

ProcessC

ProcessD

ProcessD

ProcessH

ProcessH

ProcessY

ProcessY

Enterprise Authority Domain

VERTICALVERTICAL

“within the four walls”

POLICYPOLICY: Do It All Re-engineer/Outsource Architectural PartnershipPOLICYPOLICY: Do It All Re-engineer/Outsource Architectural Partnership

PROCESSPROCESS: Push Mass Customization Market-DrivenPROCESSPROCESS: Push Mass Customization Market-Driven

PERFORMANCEPERFORMANCE: Cost Accounting/ROI Optimization/ROA Risk ManagementPERFORMANCEPERFORMANCE: Cost Accounting/ROI Optimization/ROA Risk Management

ENABLERSENABLERS: ERP APS/Integration Network/Mobility/RFIDENABLERSENABLERS: ERP APS/Integration Network/Mobility/RFID

ProcessA

ProcessA

ProcessB

ProcessB

ProcessC

ProcessC

ProcessD

ProcessD Enterprise

HEnterprise

H

EnterpriseY

EnterpriseY

Enterprise Authority Domain

VIRTUALVIRTUAL

Shared execution

Fully outsourcedprocesses

EnterpriseA

EnterpriseA

EnterpriseB

EnterpriseB

EnterpriseC

EnterpriseC

EnterpriseG

EnterpriseG

EnterpriseH

EnterpriseH

EnterpriseX

EnterpriseX

EnterpriseY

EnterpriseY

EnterpriseZ

EnterpriseZ

Domains of Authority / Influence

FEDERATEDFEDERATED

Supply Chain OrchestratorSupply Chain Orchestrator

Customs Agency

Installation/Repair

Tier 1Component

SupplierRaw Materials

Supplier

3PL/Carrier

Design Shop

Physical

ServicesDelivery

Digital MediaServicesTier 2

ComponentSupplier

FinancialInstitution

Concierge

Call Center

Customer

ContractManufacturer

Brand Owner

Distributor

Retail Store

Supply ChainOrchestrator

Predictive NetworksPredictive Networks

Total Sourcing ModelsTotal Sourcing ModelsExpressive BiddingExpressive BiddingTotal Cost to ServeTotal Cost to ServeCompliance AuditingCompliance AuditingRisk ManagementRisk ManagementCollaboration a Given!Collaboration a Given!

Predictive NetworksPredictive Networks

Total Sourcing ModelsTotal Sourcing ModelsExpressive BiddingExpressive BiddingTotal Cost to ServeTotal Cost to ServeCompliance AuditingCompliance AuditingRisk ManagementRisk ManagementCollaboration a Given!Collaboration a Given!

20001990 2010

Technologies Supporting Supply Chains Technologies Supporting Supply Chains

MRPMRP

Data Warehouse, OLAPData Warehouse, OLAP

Event ManagementEvent Management

SpreadsheetsSpreadsheets

Optimization (APS)Optimization (APS)

RFIDRFID

Client ServerClient Server

AP

PL

ICA

TIO

NS

AR

CH

ITE

CT

UR

ES Web (Service-based)Web (Service-based)

MainframeMainframe

Third Paradigm PlanningThird Paradigm Planning

SynchronizationSynchronization

Evolution of MarketingEvolution of Marketing

Production Orientation

Sales Orientation

Marketing Orientation

Outcome Orientation

Late 1800’s Early 1930’s Mid-1950’s 2010

• Focus: Increase Output• Demand > Supply• If we make it, they will buy it!• Products

• Focus: Increase Demand• Demand < Supply• “Hard Sell”• Products

• Focus: Creating Demand• Demand < Supply• Educated Consumers • Products & Services

•Experience• Global •Results •Services•Outcomes

Source: Fundamentals of Marketing,Stanton, Etzel, Walker

Seller Power Buyer Power

Outcome Business ModelsOutcome Business Models

Increasing Margins

Em

bedd

edne

s of

Nee

ds a

nd V

alue

s”

Make +Service

with SLAs

Leasing

ManagingOut-

SourcedProcesses

SellingOutcome

s

Warranties

$

MakeOnly

Make +Service

Doll: China: $2.80 Retailer: $19.99 Fashion Party: $1,020.00

Best Buy’s Customer Centric Best Buy’s Customer Centric Supply Chain Transformation Supply Chain Transformation

About Best BuyAbout Best Buy

FoundedFounded in 1966; based in Minneapolis, Minnesota in 1966; based in Minneapolis, Minnesota

An innovativeAn innovative, $36 billion, , $36 billion, Fortune 100Fortune 100 growth company growth company

#1 Consumer Electronics retailer globally#1 Consumer Electronics retailer globally• Consumer electronicsConsumer electronics• Personal computersPersonal computers• Entertainment software Entertainment software • AppliancesAppliances

1086 stores in US, Canada, and China1086 stores in US, Canada, and China Puerto Rico, Mexico, Turkey in the next 12 monthsPuerto Rico, Mexico, Turkey in the next 12 months 841 Geek Squad precincts worldwide841 Geek Squad precincts worldwide

The Co-Creation Experience

Inst

all

Rep

air

Research Contact

Store Pickup

Home Shipment

Hom

e

Del

iver

y

Order Management

Online

Sites

Call

Centers

Kiosks

Stores

Ser

vice

Com

merce

Experience

Sh o

pF u

lfill

Schedule

Sign Up

Lear

n

Customer

Subscriptions

1. Mass2. Targeted3. Personalized4. Co-Creation

> Interaction> Seamless Multi-Contact Experience> Community & Social

Networks

Co-Create the

Purchase

Two major pillars: customer centricity and efficient enterpriseTwo major pillars: customer centricity and efficient enterprise

CustomerCentricity

Efficient Enterprise

19.9 16.88.6

SG&A costs% of sales

Cu

sto

me

r E

VA

%

Customer Deciles

Customer Profitability Distribution100%

- 100%

Supply ChainInformation Technology

Enablers Enablers

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:

Best Buy Customer Centric Supply Chain Best Buy Customer Centric Supply Chain Strategy - ObjectivesStrategy - 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 global partnerships to extend global reach

3

4

2

1

5

6

7

From To

• Standard assortments

• Push model

• Unnecessary work in the stores

• One size fits all

• Multiple forecasts

• Single channel

• Reactive variability management

• “Voice of the store” tailored market assortments

• Pull model –Locality demand

• Push work back up the supply chain – sales floor ready

• Tailored price and flowpath by store

• One version of the truth forecasting - CPFR

• Multi channel

• Proactive variability management

Transforming the supply chain for speed, efficiencyand flexibility

The Holistic Customer Centric Supply ChainThe Holistic Customer Centric Supply Chain

Asian FactoriesAsian Factories Asian 3Asian 3rdrd Party Party ConsolidatorConsolidator(by Vendor)(by Vendor)

US MfgUS MfgDCsDCs

BBY/Vendor DCsBBY/Vendor DCs BBY StoresBBY Stores

Store Shelf Focused

Customer Tailored Supply Chain11

Streamlined Inbound Management

Advanced Planning and Replenishment

North AmericaNorth AmericaASIAASIA

N. American FactoriesN. American Factories

Reduce Reduce G&AG&A

Improve Improve speed and speed and

transparenctransparency: reduce y: reduce

costcost

Improve Improve customercustomer

availabilityavailability

Improve Improve CA; reduce CA; reduce inventoryinventory

22

33

44

Panorama Program

How Best Buy Achieves This–SC Transformation Program

Merchandising Product FulfillmentForecasting & Replenishment

• Forecast Accuracy

• Replenishment/ Allocation

• Inventory Optimization

• Key Item Planning

• Space Management (macro and micro)

• CPFR, VMI

• Assortment / Space Optimization (TMA)

• Price Optimization

• Integrated Promo Planning

• Financial Planning

• Partner Innovation

• Labor Scheduling

• Global Sourcing

• Physical Flows

• Direct Import

• Lean

• RFID Strategy

• Entertainment

• Network Optimization

Predominant Industry Focus

Supply Chain Value

Customer Value

Best Buy Focus

The Best Buy RFID program has been shaped around The Best Buy RFID program has been shaped around customer centricity.customer centricity.

RFID is already driving convenience for customersRFID is already driving convenience for customers

““On our roads with E-ZPass, saving On our roads with E-ZPass, saving time at toll stationstime at toll stations” ”

“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”

• Suppliers place RFID tags on cartons and pallets

• Suppliers send carton and pallet EPC information to BBY via Advanced Ship Notice (EDI ASN-856)

Case & Pallet pilot at Best Buy Case & Pallet pilot at Best Buy

• Pilot suppliers represent 80% of total shipment volume

• All major product categories represented

• EPC reads will be captured at RFID enabled dock doors.

• Reporting will compare EPC reads to ASN and actual PO receiving.

• EPC reads, read rate, tag, and ASN performance reporting will be shared with suppliers via portal

Pilot runs in parallel with current processes for shipping, routing, receiving, packaging, labeling, and invoicing.

Customer Driven Vision for the Store ExperienceCustomer 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.

RFID Customer Experience Test at Best BuyRFID Customer Experience Test at Best Buy Retail Store Test – Video Games Retail Store Test – Video Games

• Test Goals:Test Goals: RFID technology readiness.RFID technology readiness. Gain retail insight into the operational Gain retail insight into the operational

benefits.benefits. Results Results

• Revenue lift = 18.7% increaseRevenue lift = 18.7% increase• Number of Units sold = 14.1% increaseNumber of Units sold = 14.1% increase• Margin = 10.8% increaseMargin = 10.8% increase• Store averaged 98.7% CIS (games in Store averaged 98.7% CIS (games in

store, and customer facing)store, and customer facing) Conclusions:Conclusions:

• Item-level RFID improves retail processesItem-level RFID improves retail processes• Technology solution needs to be more Technology solution needs to be more

flexible, easier to maintain, and less flexible, easier to maintain, and less expensive. expensive.

Lower labor cost; increase customer

encountered in stock

So Why Transformation?So Why Transformation?

Economic:• Reshuffling of the top economies• Growing gap between industrialized

and developing countries

Regulatory:• Legislation on health and wellness• Privacy standards New Technologies:

• Virtual reality• Information Networks

Ecological:• Energy scarcity

and efficiency• Sustainability and

waste management

Demographic: • Shift in global population• Urbanization

The Future Value Chain

The world will continue to change at the speed of life, as will our customer’s needs, wants and desires.

• Smart consumer as a partner• Differentiation of buying and

selling channels

• Shift form product to service• Commoditization of quality• “Lean: throughout the supply chain

• The open network rules• Static, dynamic and rich

content coverage• Everything is a service

2016: The Future Value Change, Gap Gemini

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