Stanford Supply Chain Forum Stanford Supply Chain Forum

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1 DRAFT Stanford Supply Chain Forum Stanford Supply Chain Forum February 9th

Transcript of Stanford Supply Chain Forum Stanford Supply Chain Forum

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Stanford Supply Chain ForumStanford Supply Chain Forum

February 9th

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Operationalizing the Vision: Where Supply Chain Intersects Strategy

Operationalizing the Vision: Where Supply Chain Intersects Strategy

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In the beginning…In the beginning…

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The Tornado SaleThe Tornado Sale

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Enter Best BuyEnter Best Buy

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Industry ConsolidationIndustry Consolidation

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Evolving store conceptEvolving store concept

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Infrastructure for growthInfrastructure for growth

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To Grow: Grab market share & gain new customersTo Grow: Grab market share & gain new customers

eCommerce International

Musicland Acquisition High End Specialty

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Best Buy Today Best Buy Today

• 780 North American stores

• FY04 revenue: $24.5 billion*

• 17% market share

• No. 1 in consumer electronics,No. 2 in home office andentertainment software

* Continuing operations

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Strategy Inspired by Customers Strategy Inspired by Customers

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Customer Centricity CapabilitiesCustomer Centricity Capabilities

Efficient Enterprise

Customer Driven

Talent Powered Branding

Core competence: engaging and empowering our people

Enabling competence: Recognizing a unique set of customer segments and building a set of activities to

meet their unmet needs

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A ChallengeA Challenge

Incremental Incremental NPVNPV$

EVA

Store Age

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Creating a Sustainable Competitive AdvantageCreating a Sustainable Competitive Advantage

• People and experience• Unique competencies that are difficult to duplicate• Data, information and processes• Relationships, alliances and marketplace

positioning

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Store Readiness PlanStore Readiness Plan

• Leadership• Talent • SOP

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Business AcumenBusiness Acumen

Grow profits while we prepare

Close Rate

UPT Units Per Transaction

ASP Average Sales Price: Per unit

Net Gross Margin %“Entire companydriving the benefits”

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Accelerating Scale for RolloutAccelerating Scale for Rollout

Leadership

Business Acumen

SOP

Talent System

Enablers / Infrastructure

Scaleable Learnings

Scale Segments

Leadership

SOP

Talent System

SegmentationTop TalentTraining

VPE DeploymentCC Score carding

600-Store Plan 70-Store Plan

Same Plan

Different Plan

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Roadmap to “7 x 7” Op. Income GoalRoadmap to “7 x 7” Op. Income Goal

FY05 Q1(ttm)

Best BuyCanada

SupplyChain /

Sourcing

IT StrategicAlliance

CustomerCentricity

FY07 Goal

5.4%

7.0%

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Best Buy Overview – About Best BuyBest Buy Overview – About Best Buy

• North America’s largest consumer electronics retailer in the $130B consumer electronics market

• 2004 revenue: $24.5B• 2004 net income: $705M• Current market share – 19%• Currently operates over 750 stores• In 2005, will open 70 new large format 45K sq. ft stores

and additional small format 20K sq. ft. store in select markets

• Also operates 100+ Future Shop retail locations in Canada and 22 West Coast high-end Magnolia stores

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Best Buy Overview – Corporate StrategyBest Buy Overview – Corporate Strategy

• For 2005, Best Buy will transform 80-110 stores to “Customer Centricity” formats which focus on specific market segments and regional demographics which will feature:

– Tailored assortments

– Increased staffing over traditional store headcount

– Specialized services and offerings

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Best Buy Overview – Corporate StrategyBest Buy Overview – Corporate Strategy

• Investing over $130M in technology for 2005 with significant investments in these supply chain areas:

– Merchandising and space management systems– Forecasting and demand planning tools– Support of RFID vendor mandates and infrastructure– Call center and customer support enhancements– Supplier Innovation Initiatives including CPFR

• Select locations will also be retrofitted with a Magnolia “store-within-a-store” section, including San Francisco and Costa Mesa

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Best Buy Corporate Strategy –Growth and Profitability GoalsBest Buy Corporate Strategy –Growth and Profitability Goals

• Achieve Revenue Growth Objectives– Double current revenue to achieve $50 billion by 2010

• Achieve 7X7 Target– Achieve 7% operating profit by the end of FY 2007

(March 2006 – Feb 2007)

• Each of these goals presents significant challenges to the Best Buy supply chain organization

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Best Buy Corporate Strategy –Supply Chain ImplicationsBest Buy Corporate Strategy –Supply Chain Implications

Some of the Supply Chain Impacts …Impact ofGrowth

• Profitable Growth…Constrained Spending• Agility and Flexibility• Extending Existing Infrastructure

New Required Capabilities

• Flow Through Distribution• Support “Direct to Home Initiatives”• Direct Import – Factory Gate Flow Management

ServiceRequirements

• Store / Shelf Ready Delivery Capability• Direct Store Delivery Initiatives• Reverse Logistics challenges

Impact on• Cost• Inventory• People

• Competing Initiatives focusing limited investment • Financial plans require reductions to fund expansions• New Skills and Training required to support requirements

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The Intersection of Strategy and Supply ChainThe Intersection of Strategy and Supply Chain

Supply Chain will help to enable the Customer Centric Supply Chain through the development of capabilities to support:

• Tailored Market Assortment supporting customer segmentation focus

• Speed and Response to enhance customer availability

• Retail Ready and Shelf Ready capability to reduce in-store labor and improve in-stocks

• Lower total cost of ownership

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Integration across the Supply Chain LandscapeIntegration across the Supply Chain Landscape

Customer Focused InitiativesDelivered through Retail Operations

ProductFulfillment

SupplierManagement

Merchandisingand Space

Management

Planning andForecasting

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A series of interrelated Supply Chain initiatives drive us to our future visionA series of interrelated Supply Chain initiatives drive us to our future vision

• Today we will focus on Product Fulfillment and Supplier Management

Supply Chain/Merchandising: Functional View

Initi

ativ

esTe

chno

logy

Merchandising

• Assortment / Space Optimization

• Price Optimization

• Integrated Promotional Planning

• Retek modules including ASO, Promote

• Rules Based and Demand Based Pricing Optimization (system TBD)

• DemandTec

3Product Fulfillment

• Flow Through

• Direct Import Acceleration

• Lean

• Network Rationalization

• RFID Strategy / Pilot

• Entertainment

• Upgrades to Order Management and WMS systems

Supplier Management

• Supplier Performance Management

• Collaborative Planning and Forecasting

• Supplier Integration and Execution

• Partner Innovation

• Vendor scorecard and portal

• Extension of CPFR Implementation

1Forecasting & Replenishment

4

• Forecast Accuracy• Replenishment/

Allocation• Inventory Optimization

Pilot/CA• PC Forecasting Pilot• Merchandise Financial

Planning• Transition• System Shore-up• Retek modules

including RDF, Promote, RMS (Replenishment, Allocation), AIP, RIO (leased) and Planning

2

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Product Fulfillment Initiatives:Direct ImportProduct Fulfillment Initiatives:Direct Import

Our concept of Direct Imports is to compress the supply chain, eliminating redundant steps and closely managing the inbound fulfillment process.Our concept of Direct Imports is to compress the supply chain, eliminating redundant steps and closely managing the inbound fulfillment process.

Represents the Overlap which will be eliminated by direct import

RDC/DDC

BBY ControlledVendor Controlled

StoreDe-consolidationAsia

Factory

Suppliers DC

Redundant Activities

2 Node Supply Chain

Asia Facto

ry

De-Consolidation RDC/DDCStore

…………………BBY DI Supply

Chain

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Product Fulfillment Initiatives:Direct ImportProduct Fulfillment Initiatives:Direct Import

• Building “end-to-end” supply chain management capabilities from factory gate to our store

• Integrating supporting technologies• Manage Purchase Orders

• Book and Manage Transportation • Provide Supply Chain Visibility and Event Management

• Providing linkage to Best Buy Merchant Organization for negotiation support and inventory management

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Product Fulfillment Initiatives:Physical FlowsProduct Fulfillment Initiatives:Physical Flows

A series of initiatives are being implemented and tested to support growth activities and newly required capabilities

– Overall Network Rationalization to support Customer Centricity store alignment requirements

– Cross-Dock and Flow Through Capabilities

– Enabling efficient “direct-to-home” capabilities for major appliances and consumer electronics

– Increasing consolidation and DC by-pass

– Reductions of vendor to store direct shipments

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Product Fulfillment Initiatives:RFIDProduct Fulfillment Initiatives:RFID

Best Buy is currently making significant investments in developing capabilities and infrastructure to support RFID for Distribution and Retail applications

Best Buy is currently making significant investments in developing capabilities and infrastructure to support RFID for Distribution and Retail applications

• Developed and released RFID Vendor Mandate to Best Buy’s Top 100 Vendors at the end of August ’04

• Release of RFID Technical requirements to Top 100 Vendors in December ’04

• Investing in Best Buy’s retail and distribution infrastructure to support full production of Pallet and Case tagging of product by May 2007

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Product Fulfillment Initiatives:Lean OperationsProduct Fulfillment Initiatives:Lean Operations

Best Buy has initiatives led by the Supply Chain Organization to institutionalize a “Lean Culture” focused on quality and waste reduction

• Lean Events have been conducted across the organization resulting in over $40M in savings for 2004

• Lean initiatives are taking hold as functional organizations train facilitators and integrate Lean behaviors in their organization

• A full slate of Lean Events are planned for 2005 in Distribution and Store Operations

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Product Fulfillment Initiatives:EntertainmentProduct Fulfillment Initiatives:Entertainment

Best Buy Supply Chain initiatives to support Entertainment distribution across Music, Video and Games will focus on initiatives focused on improving in-store selection and cost reduction

• Vendor Managed Inventory capability to support direct to store delivery

• Implementation of revised capabilities to improve overall distribution, assortment and selection of music integrating syndicated data and micro-market demographics

• Improvements in returns and reverse logistics capabilities

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Supplier Management InitiativesSupplier Management Initiatives

Best Buy is seeking to forge enhanced capabilities with suppliers across a number of initiatives

• Supplier Performance Management• Development of shared metrics and scorecards

• Collaborative Planning and Forecasting (CPFR)• Expand sharing of inventory and movement data to improve

in-stocks, reduce inventory and returns

• Supplier Integration and Execution/Partner Innovation• Seeking opportunities to jointly improve service, product cost

and quality through innovative shared initiatives

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Enabling the Supply Chain Strategy with “vanilla” technologyEnabling the Supply Chain Strategy with “vanilla” technology

Supply Chain Technology

• Import Enablement• Retail Suite• Supplier Integration• Vehicle Routing• Supply Chain Event Management

New Capability Design • Redesigned or improved Process Designs• Overall Supply Chain Capability Blueprint• Cross Capability / Organization Requirements

Skills and People Development

• New or Revised Job Requirements• Technology Skill Focus• Revised career progression and success models

Integration of Innovation

• Focus on interdependent / cross-functional capability design across:

– Merchandising– Inventory Planning and Forecasting– Supplier Integration– Core Product Fulfillment areas including Transportation,

Warehousing, Reverse Logistics

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Tracking Performance:Shared metrics across all initiativesTracking Performance:Shared metrics across all initiatives

• Customer Availability• Perpetual Inventory Turn (Stock Turn)• Supply Chain % of Sales• Forecast Error• Inventory Growth % to Sales % Growth• Forward Days of Cover (DOS)

• Stores• DC

• OTRQ (On Time Right Quantity)• DC Cost / Outbound Unit

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Alignment Challenges – Keys to SuccessAlignment Challenges – Keys to Success

• Executive Alignment

• People

• Business Knowledge

• Internal and External Factors

• Operating Systems

• Corporate Strategy

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Moving ForwardMoving Forward

• Insuring Success

• Flexibility

• Mid-Year / Mid-Strategy Corrections

• International Focus

• Investments - Capital, People and Technology

• Maintaining Focus