SCDigest editorial staff

The News:  Best Buy revamps store strategies to be more focused on local requirements and push decision-making to the front line. The retailer’s supply chain must support the changes at many levels.

Why It Matters: Supply chains must be increasingly agile to support corporate innovation; trend of putting more work on the supply chain to allow front line employees to focus on customers and sales; Best Buy’s advanced technology leadership in visibility and “predictive modeling.”

The Story: Electronics retailer Best Buy continues to innovate both its merchandising and its supply chain, and is indeed showing how tight integration of those disciplines is the real driver of retail success.

A recent article in the Supply Chain Strategy newsletter, jointly published by Harvard Business School and the MIT Center for Transportation and Logistics, describes how the company is rolling out a new strategy around “customer centricity.” That strategy most visibly impacts product layout and selection at the store, but is backed by significant changes in the supply chain to support the new approach.

The core of the strategy is allowing individual stores to adjust layout, merchandising and inventory to meet the needs of its dominant customer demographics. Best Buy has identified eight core consumer segments that it serves (family men, suburban moms, affluent professionals, younger males, etc.), and recognized that an individual stores probably draws most of its business from a sub-set of those eight groups.

So, while all stores will cater in part to all segments, they’ll put more focus on a handful. This means giving local managers more autonomy to make layout, inventory and merchandising decisions, and an end to the “one store format” concept. There is much more to the strategy, such as improved sales training and therefore service in the store, but the core is becoming more responsive to the product and information needs of the consumer.

A little more than 25% of Best Buys stores have been converted to this strategy so far, with encouraging results.

The impact on Best Buy’s Supply Chain:

• Non-sales activities being pushed back up the supply chain: Store shipments are being made based on store specific layouts, reducing the time it takes to get merchandise to the floor.
• Some inventory decisions being pushed down to the store level: Local stores can override inventory stocking decisions that were previously made by central planners. Store distribution operations must react quickly to changing layouts or product needs. Best Buy is developing software to allow it to reroute trucks in transit, such as changing delivery times. (Health and drug retailer CVS is another retailer that has optimized pallet build and deliveries to a store-specific layout.)
• Better visibility: Store-level employees will have visibility to much more inventory data as product flows from supplier to the store, and be able to give customers a better idea of when products will be available. They will also be included in the alerts from the event management system about delays in expected receipts or other inventory issues. In turn, stores will be able to electronically communicate changes to store layouts back to distribution so that picking/pallet building requirements are quickly and accurately known.
• Smaller, more frequent deliveries to the stores: More of Best Buy’s merchandise will be sent to its smaller home delivery DCs from its consolidation warehouses in Long Beach and Seattle, rather than its seven traditional DCs. The result will be smaller, more frequent store deliveries.
• Better smarts: Best Buy has already been on the forefront of visibility and exception management systems (using technology from i2); now, it plans to use “predictive modeling” to have its systems look for solutions used in the past for a supply chain problem that occurs in the present.
• Further use of Collaborative Planning, Forecasting and Replenishment: Best Buy is using CPFR with 17 or more current suppliers.
• Improved forecasting: Moving from multiple, disparate forecasts to a single, consolidated forecast across the company.

Best Buy has rolled out a number of innovative strategies in recent years. In addition to the intelligent visibility system referenced above, SCDigest reported previously on the company’s use of advanced customer segmentation techniques to focus on the most profitable customers – and to shed “the devils” that lose money for Best Buy through frequent products returns and other actions.

What Best Buy illustrates is the ability of the supply chain to support innovation and growth, rather than simply reducing costs. (See SCDigest Contributing Editor Gene Tyndall’s thoughts on this topic here).  

What do you think about Best Buy’s “customer-centricity” strategy? The cycle between centralization and decentralization seems to always be in play – will the strategy of allowing local managers to make decisions survive long? Are we likely to see layout-specific deliveries to become commonplace in retail? Let us know your thoughts.