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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?. - PowerPoint PPT Presentation
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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
44
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
Webster University