APoint of Differentiation

The retail landscape continues to consolidate, and more chains continue to blend pieces of their competitors’ businesses into their own selling strategies. While this saturated marketplace gives consumers many more options to buy merchandise, including electronics, it makes it tough for chains to stand out.

Eager to differentiate itself in this competitive landscape, Richfield, Minn.-based Best Buy Co. is transitioning to a consumer-centric merchandising strategy that fulfills store shelves based on consumer demand. However, a traditional “push” replenishment strategy could not support this approach.

As CEO of Best Buy International and CIO, Best Buy Co., Robert A. Willett is charged with revamping Best Buy’s supply chain and sourcing efforts to efficiently replenish stores using consumer-driven assortments.

Willett chatted with senior editor Deena M. Amato-McCoy about how the process is evolving.

Chain Store Age: What are your main responsibilities?

Robert A. Willett: This Canadian-based business, which also operates the 24-hour computer support group the Geek Squad, had 150-plus stores at the end of 2006. A store is also scheduled to open in Shanghai, China, by the end of our fiscal year, which ends next month.

CSA: How did you make your move to Best Buy?

Willett: I worked for global management-consulting firm Accenture for a number of years, where I was the global managing partner for the retail practice. [He was also group chief executive of food retail business.]

While a consultant, I developed a relationship with Best Buy almost 10 years ago when the company became a client of mine. Best Buy asked me to join the team in December 2003.

Best Buy Co.

Headquarters: Richfield, Minn.Annual sales (fiscal 2006): $30.8 billionNumber of stores: 940-plus retail stores in the United States and Canada

CSA: What was your role in creating the supply chain and merchandising “pull model” that Best Buy has become known for?

Willett: We knew we couldn’t beat companies like Dell and Wal-Mart based on price alone, so we needed a point of differentiation. We chose to differentiate ourselves around customer centricity and a superior customer experience. However, we also realized that using a “push model” to merchandise our stores was no longer adequate for the customer-centric strategy we wanted to pursue.

By applying worldwide best practices and my knowledge of the food industry, we developed a strategy based on the food industry’s supply chain. Since the food industry’s supply chain is the retail industry’s most responsive supply chain, we wanted to build our supply chain to mimic these processes. This meant we needed to understand what was selling in our stores and forecast demand to efficiently procure and replenish merchandise.

We were ready to tap a pull model that merchandises stores based on locale and demand. These methods also enabled us to tailor assortments based on what our shoppers want vs. what we think they want.

CSA: What were the challenges in getting this strategy off the ground?

Willett: Our previous supply chain and push model did a good job of replenishing stores. However, we were ready for supply chain optimization. And if we wanted to pursue a consumer-centric merchandising strategy—one that could be tailored based on individuals or specific locations—we needed to optimize all replenishment activities.

The first step was to learn how the customer behaves in each store. Then we needed to tailor our supply chain and replenishment processes to support that behavior and fulfill inventory based on their needs.

While it was a complete transition of how we used to fulfill merchandise, we used forecasting and analysis to make the transition successful.

CSA: Best Buy has also changed its sourcing operations. Can you talk about the company’s new sourcing strategies?

Willett: We’ve made a concerted effort to develop a proficient and locally based sourcing base in China, so we needed the right tools to support this. By deploying a Web-based collaboration tool from Eqos, Best Buy gained a single data repository that gathers all of the requirements it needs for merchandise outsourced from offshore vendors, including those in Asia.

Retailers often struggle with trying to build their own software to handle these projects. Then they either can’t deliver the product on time or it cannot support the cost or scope of the project. I used Eqos while working for Accenture and knew this solution would help us scale our project, focus on what our customers need and meet those needs.

CSA: How are these efforts helping Best Buy take cost and time out of the fulfillment process, and how are you passing these savings on to your customers?

Willett: Since adding the process approximately two years ago, we have improved our gross margins and improved levels of sourcing in Asia. By using collaborative forecasting tools, we have also broken down internal silos.

The process has definitely improved the value of productivity in-house, and we are surpassing our customers’ expectations.

We are still a long way from completing the strategy. In fact, we are still heavily in the technology investment stage and will be for another 12 months or so.

CSA: Besides listening to your customers’ needs, Best Buy also takes its associates into consideration. How have they embraced these changes?

Willett: Very well. My job is to be the leader. In this role, I am only facilitating the activities necessary to create a positive outcome. The real value of a project like this comes from all of the participating members within the organization, not just one person.

Best Buy will be the first to admit that our strategy is still not perfect. While we are still at a very embryonic stage, our goal is to deliver one of the best store experiences in the world.

CSA: So what is Best Buy’s next step?

Willett: I would say we are only halfway through our journey. And as we take this journey, we constantly take a step back and determine whether our ideas and strategies are the same today as when we started. We also revamp our strategies based on the changes in the marketplace.

The world is changing so fast, and the marketplace is converging all the time. The customer has many more choices today, so we need to stay ahead of the game through innovation.

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