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Webster University

Webster University. July 29, 2010 MRKT 5980. Changing Business Models. Transformation of the Supply Chain. Success comes from managing the links!. Tier 2. Wholesaler. Retailer. Tier 1. OEM. Delays, Distortion, Differences, Disputes. What is the Problem?.

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Webster University

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  1. Webster University July 29, 2010 MRKT 5980

  2. Webster University MRKT 5980

  3. Webster University MRKT 5980

  4. Changing Business Models

  5. Transformation of the Supply Chain Success comes from managing the links!

  6. Tier 2 Wholesaler Retailer Tier 1 OEM Delays, Distortion, Differences, Disputes What is the Problem? Supply chains have become increasingly out-sourced, globally dispersed, and complex. The importance of sharing data between trading partners and across multiple tiers has intensified

  7. Tier 2 Wholesaler Retailer Tier 1 OEM SVoT Single Version of the Truth (SVoT)

  8. SVoT Example: Service Ecosystem

  9. Evolution Of The Supply Chain VERTICAL VIRTUAL FEDERATED Enterprise Authority Domain Enterprise Authority Domain Domains of Authority / Influence Enterprise Y Enterprise A Enterprise X Process A Process A Enterprise B Enterprise Y Enterprise C Process Y Fully outsourced processes Process B Process B Process C Enterprise G Process C Enterprise Z Process D Process D Enterprise H Process H Enterprise H Shared execution “within the four walls” 1990 2000 2010… POLICY: Do It All Re-engineer/Outsource Architectural Partnership PROCESS: Push Mass Customization Market-Driven PERFORMANCE: Cost Accounting/ROI Optimization/ROA Risk Management ENABLERS: ERP APS/Integration Network/Mobility/RFID

  10. Supply Chain Orchestrator Concierge Tier 1 Component Supplier Raw Materials Supplier Design Shop Call Center Brand Owner Customer Retail Store Contract Manufacturer Tier 2 Component Supplier Distributor Installation/ Repair 3PL/Carrier Customs Agency Digital Media Services Physical Delivery Financial Services Institution Supply Chain Orchestrator

  11. Technologies Supporting Supply Chains Predictive Networks Total Sourcing Models Expressive Bidding Total Cost to Serve Compliance Auditing Risk Management Collaboration a Given! 1990 2000 2010 Synchronization RFID Event Management APPLICATIONS Third Paradigm Planning MRP Optimization (APS) Data Warehouse, OLAP Spreadsheets Web (Service-based) Client Server ARCHITECTURES Mainframe

  12. Evolution of Marketing Outcome Orientation • Experience • Global • Results • Services • Outcomes Marketing Orientation • Focus: Creating Demand • Demand < Supply • Educated Consumers • Products & Services Sales Orientation Production Orientation • Focus: Increase Demand • Demand < Supply • “Hard Sell” • Products • Focus: Increase Output • Demand > Supply • If we make it, they will buy it! • Products Source: Fundamentals of Marketing, Stanton, Etzel, Walker Seller Power Buyer Power Late 1800’s Early 1930’s Mid-1950’s 2010

  13. Outcome Business Models Doll: China: $2.80 Retailer: $19.99 Fashion Party: $1,020.00 Selling Outcomes Make + Service with SLAs Make + Service Managing Out-Sourced Processes Embeddednes of Needs and Values” Warranties Leasing Make Only $ Increasing Margins

  14. Best Buy’s Customer Centric Supply Chain Transformation

  15. About Best Buy • Founded in 1966; based in Minneapolis, Minnesota • An innovative, $36 billion, Fortune 100 growth company • #1 Consumer Electronics retailer globally • Consumer electronics • Personal computers • Entertainment software • Appliances • 1086 stores in US, Canada, and China • Puerto Rico, Mexico, Turkey in the next 12 months • 841 Geek Squad precincts worldwide

  16. The Co-Creation Experience • Mass • Targeted • Personalized • Co-Creation Experience h c Contact r a e s e S R i g n U p r i O a p n p S o l e i i h t n R S e e s S n u r b a s e c C L r e Co-Create the Purchase i o p c t i i m l l o v a > Interaction > Seamless Multi- Contact Experience > Community & Social Networks S c h e d u l n e r m t s s e e n S I r c S e t Customer y o r r e e e v m s i l o e H D l l i K f l C i u o e F s n k t s e C H r a o s l S m l h e i p m Store e n t Pickup Order Management

  17. SG&A costs 19.9 16.8 % of sales 8.6 Two major pillars: customer centricity and efficient enterprise Customer Profitability Distribution 100% Customer EVA % - 100% Customer Deciles CustomerCentricity Efficient Enterprise Supply ChainInformation Technology Enablers Enablers

  18. The Transformation Agenda: 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

  19. Best Buy Customer Centric Supply Chain Strategy - Objectives 1 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 2 3 4 5 6 7

  20. Transforming the supply chain for speed, efficiencyand flexibility To From • “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 • Standard assortments • Push model • Unnecessarywork in the stores • One size fits all • Multiple forecasts • Single channel • Reactive variability management

  21. The Holistic Customer Centric Supply Chain Improve customer availability 1 Customer Tailored Supply Chain ASIA North America Reduce G&A BBY Stores US Mfg DCs BBY/Vendor DCs Asian 3rd Party Consolidator (by Vendor) Asian Factories 2 Store Shelf Focused Improve speed and transparency: reduce cost 3 N. American Factories Streamlined Inbound Management Improve CA; reduce inventory 4 Advanced Planning and Replenishment

  22. How Best Buy Achieves This–SC Transformation Program Panorama Program Forecasting & Replenishment Product Fulfillment Merchandising • Global Sourcing • Physical Flows • Direct Import • Lean • RFID Strategy • Entertainment • Network Optimization • 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

  23. The Best Buy RFID program has been shaped around customer centricity. Supply Chain Value Predominant Industry Focus Best Buy Focus Customer Value

  24. RFID is already driving convenience for customers “On our roads with E-ZPass, saving time 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”

  25. Case & Pallet pilot at Best Buy Pilot runs in parallel with current processes for shipping, routing, receiving, packaging, labeling, and invoicing. • 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 • Suppliers place RFID tags on cartons and pallets • Suppliers send carton and pallet EPC information to BBY via Advanced Ship Notice (EDI ASN-856) • Pilot suppliers represent 80% of total shipment volume • All major product categories represented

  26. Customer Driven Vision for the Store Experience Smart Signs - Data from RFID-enabled smart shelves correlate sales to store promotions and product information. Down-Stocking- RFID-enabled “smart shelves” predict, identify, and report shelf stock levels to store employees. Receiving - RFID readers automatically confirm receipts and update store inventory as product is unloaded. Shopping Assistance – Loyalty cards with embedded chips identify customers as they enter the store. Check-Out - Serialized EPC codes increase the speed and accuracy of customer checkout and returns processing.

  27. RFID Customer Experience Test at Best Buy • Retail Store Test – Video Games • Test Goals: • RFID technology readiness. • Gain retail insight into the operational benefits. • Results • Revenue lift = 18.7% increase • Number of Units sold = 14.1% increase • Margin = 10.8% increase • Store averaged 98.7% CIS (games in store, and customer facing) • Conclusions: • Item-level RFID improves retail processes • Technology solution needs to be more flexible, easier to maintain, and less expensive. Lower labor cost; increase customer encountered in stock

  28. Consumer Behavior The Future Value Chain Product flow Information flow So Why Transformation? 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 • Economic: • Reshuffling of the top economies • Growing gap between industrialized • and developing countries • Ecological: • Energy scarcity • and efficiency • Sustainability and • waste management • The open network rules • Static, dynamic and rich • content coverage • Everything is a service • Shift form product to service • Commoditization of quality • “Lean: throughout the supply chain • Regulatory: • Legislation on health and wellness • Privacy standards • Demographic: • Shift in global population • Urbanization • New Technologies: • Virtual reality • Information Networks 2016: The Future Value Change, Gap Gemini

  29. Webster University

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