H.E. Butt Grocery Co.: A Leader in ECR Implementations Case Study.

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H.E. Butt Grocery Co.: H.E. Butt Grocery Co.: A Leader in ECR A Leader in ECR Implementations Implementations Case Study Case Study

Transcript of H.E. Butt Grocery Co.: A Leader in ECR Implementations Case Study.

Page 1: H.E. Butt Grocery Co.: A Leader in ECR Implementations Case Study.

H.E. Butt Grocery Co.: A H.E. Butt Grocery Co.: A Leader in ECR Leader in ECR ImplementationsImplementations

Case StudyCase Study

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Industry FocusIndustry Focus

Huge, $376B industryHuge, $376B industry• heavily fragmentedheavily fragmented• top 5 companies account for only 21% of salestop 5 companies account for only 21% of sales

Grocery chains under great pressure from Grocery chains under great pressure from Wal-Mart type store to become more Wal-Mart type store to become more efficientefficient

Massive inefficiencies present in channelMassive inefficiencies present in channel• forward buyingforward buying• poor inventory managementpoor inventory management

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Industry Focus (cont.)Industry Focus (cont.)

Industry is highly geographically Industry is highly geographically focusedfocused• top 3 companies in each region have top 3 companies in each region have

70% of market70% of market Food retailing industry is an Food retailing industry is an

industry where technology has industry where technology has potential to effect significant potential to effect significant restructuringrestructuring

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Company FocusCompany Focus

Mid-sized food retailing chainMid-sized food retailing chain• 200 stores and 7 warehouses200 stores and 7 warehouses• ranked #13 in countryranked #13 in country• sales of $3.2Bsales of $3.2B• strong commitment to technologystrong commitment to technology

Dominant presence in region (Wal-Dominant presence in region (Wal-Mart also located in this region)Mart also located in this region)

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Company Focus (cont.)Company Focus (cont.)

Heavy growth in sales/employee in last Heavy growth in sales/employee in last decadedecade

Growing in org. complexity as it handles Growing in org. complexity as it handles more products and faster inventorymore products and faster inventory

Recent commitment to EDLP strategyRecent commitment to EDLP strategy Recently reorganized around “category Recently reorganized around “category

management”management”• led to replacing all but 1 of its buyersled to replacing all but 1 of its buyers

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Company Focus (cont.)Company Focus (cont.)

HEB’s new incentive plan is built HEB’s new incentive plan is built around profitsaround profits

HEB is concerned with Wal-Mart’s HEB is concerned with Wal-Mart’s contract with P & G for new EDI-contract with P & G for new EDI-based order entry systembased order entry system

Little room for failure given their Little room for failure given their size and position in market place size and position in market place with Wal-Martwith Wal-Mart

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Firm Infrastructure

Human Resource ManagementHuman Resource Management

Technology DevelopmentTechnology Development

Procurement of ResourcesProcurement of Resources

Factory/Warehouse

Factory/Warehouse WarehouseWarehouse Storage/

ShelvesStorage/Shelves

Com

petitive

Adv

anta

ge

Porter's Value ChainPorter's Value Chain

Manufacturers Distributors Stores

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Interaction between opportunities and threatsInteraction between opportunities and threats

Threat of new entrants

Bargaining Power

of Buyers

Bargaining Power

of Suppliers

Threat of Substitute Products or Services

Rivalry Among Existing Competitors

Porter’s Five Forces ModelPorter’s Five Forces Model

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Key Success Factors at Key Success Factors at HEBHEB

Ability to maintain low pricing (core Ability to maintain low pricing (core differentiator)differentiator)

Use of technology to drive costs down Use of technology to drive costs down and sustain them (technology seen as and sustain them (technology seen as key enabler)key enabler)

Highly reliable technology (system failure Highly reliable technology (system failure can lead to significant sales losses)can lead to significant sales losses)

Properly timed investments in the tech Properly timed investments in the tech curvecurve

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HEB Technology InitiativesHEB Technology Initiatives

Unix Mini-computers linked to POS and Unix Mini-computers linked to POS and then linked to HQ via VSAT systemthen linked to HQ via VSAT system

e-mail, automated attendance e-mail, automated attendance reporting, automated DSD, Motorola reporting, automated DSD, Motorola hand radioshand radios

Ordering done by scanning labels and Ordering done by scanning labels and entering quantities into computer then entering quantities into computer then uploading, still largely manual checkinguploading, still largely manual checking

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HEB Technology Initiatives HEB Technology Initiatives (cont)(cont)

CRP and EDICRP and EDI• PC pilot with P & GPC pilot with P & G• moved to m/fmoved to m/f• grew to 60% of ordersgrew to 60% of orders• improved stockout levels, improved stockout levels,

transportation costs, elliminated transportation costs, elliminated forward buying, lowered inventory forward buying, lowered inventory costscosts– some up front costs for vendorssome up front costs for vendors

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Efficient Consumer Efficient Consumer ResponseResponse

See http://www.fmi.comSee http://www.fmi.com One aspect was to link POS to CSO One aspect was to link POS to CSO

to implement CRPto implement CRP Optimize retail space and selectionOptimize retail space and selection Maximize promotions in value chainMaximize promotions in value chain Maximize new product introductions Maximize new product introductions

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Situation at HEB at end of Situation at HEB at end of casecase 1994, 60% of inventory handled via CRP1994, 60% of inventory handled via CRP 96% of orders handled via EDI96% of orders handled via EDI Generating 100X more dataGenerating 100X more data Warehouse stockouts dropped from 6% to Warehouse stockouts dropped from 6% to

1%1% Potential problem of POS accuracyPotential problem of POS accuracy

• 90-95% accurate; can’t support on-line access90-95% accurate; can’t support on-line access Threat of new entrants?Threat of new entrants?

• Any barriers needed?Any barriers needed?

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Update to HEB caseUpdate to HEB case

Major initiative to improve scanner Major initiative to improve scanner accuracyaccuracy• improved scanner maintenanceimproved scanner maintenance• replaced older scannersreplaced older scanners• disqualified vendors for poor bar codingdisqualified vendors for poor bar coding

– improved accuracy to 99.98% by end of 1995improved accuracy to 99.98% by end of 1995– increased data 1000xincreased data 1000x– asset and inventory responsibility moved down asset and inventory responsibility moved down

the value chainthe value chain– pay via AFTpay via AFT

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Update to HEB case (cont.)Update to HEB case (cont.)

1998 HEB initiated Peapod1998 HEB initiated Peapod• designed for two income familiesdesigned for two income families• PC-based home grocery shoppingPC-based home grocery shopping• depends more on efficient warehousing depends more on efficient warehousing

rather than shopper-friendly storesrather than shopper-friendly stores Loyalty cards started by Tom ThumbLoyalty cards started by Tom Thumb

• HEB debating whether to start oneHEB debating whether to start one– system cost vs. cost of not knowing system cost vs. cost of not knowing

customerscustomers

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Update to HEB case (cont.)Update to HEB case (cont.)

HEB began performing “basket analysis”HEB began performing “basket analysis”• 1997 FMI report encouraged them to reduce 1997 FMI report encouraged them to reduce

number of products carriednumber of products carried• HEB elliminated 700+ itemsHEB elliminated 700+ items• Basket analysis showed many of these Basket analysis showed many of these

items were present in the most profitable items were present in the most profitable basketsbaskets– allows data mining for Lays vs. Pringles analysisallows data mining for Lays vs. Pringles analysis

• HEB restored these items and added 700 HEB restored these items and added 700 more in the gourmet areamore in the gourmet area

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Update to HEB case (cont.)Update to HEB case (cont.)

Moved to 12th largest grocery chainMoved to 12th largest grocery chain• largest private company in Texaslargest private company in Texas

Expanding into Mexico and Expanding into Mexico and LouisianaLouisiana

Chosen retailer of the year 1996Chosen retailer of the year 1996 1998 sales increased to $7B with 1998 sales increased to $7B with

7.7% growth7.7% growth

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Lessons Learned from Lessons Learned from CaseCase

Revolutionary changes take timeRevolutionary changes take time• threat of Wal-Mart always therethreat of Wal-Mart always there

Creating an IT infrastructure can lead to Creating an IT infrastructure can lead to future opportunitiesfuture opportunities

High staff turn-over with cultural changeHigh staff turn-over with cultural change Previous IT successes can determine Previous IT successes can determine

level of success in future IT projectslevel of success in future IT projects Cross-industry collaboration can workCross-industry collaboration can work