Executive Briefings

Best Buy Is Mindful of Best Distribution

Tailored logistics initiatives and multiple channels to move merchandise. An interview with Charles Scheiderer, senior vice president of logistics

Best Buy Co. Inc.

Charles A. Scheiderer
Senior VP of Logistics

Charles A. Scheiderer is senior vice president of logistics for Best Buy Co. Inc. He joined the Minneapolis-based company in 1994 as general manager of distribution and was promoted to vice president of logistics in July 1997. In his current position, Scheiderer's duties include overseeing the company's six major distribution facilities, two entertainment distribution facilities, and 16 district appliance warehouses. He earned his bachelor's degree in industrial engineering at Purdue University and his MBA from the University of Pittsburgh.
With FY 2001 revenues of $15.3bn, Best Buy is the number one specialty retailer of consumer electronics, personal computers, entertainment software and appliances in the U.S. The company operates retail stores and commercial web sites
under the names: Best Buy (BestBuy.com), Magnolia Hi-Fi (MagnoliaHiFi.com), Media Play (MediaPlay.com), On Cue (OnCue.com), Sam Goody (SamGoody.com), and Suncoast (Suncoast.com). The company reaches consumers through more than 1,700 retail stores nationwide, in Puerto Rico and in the U.S. Virgin Islands.


Q. I see where Best Buy now operates approximately 400 stores in 41 states but has a growth target of 550 stores by the end of 2004. What kind of stress does this place on your supply chain, and how do you plan to adjust your strategy to maintain supply-chain efficiency and avoid a deterioration in customer service?

A. We feel most of the stress from growth on the inbound side, going up the supply chain. The challenge for us as we move forward is to continue to enhance the supply chain by working on projects that give us better visibility of the freight that's moving in the pipeline, and by working with our vendors on on-time and right quantity initiatives.

It's also important for us to be looking at multiple channels for moving merchandise inbound. We've done a lot with tailored logistics initiatives, and we'll continue to expand on those. For example, we have our transportation department work with marketing on any specific needs they have. If there's freight that needs to come in a little faster or is of higher value than normal, we may have to customize a solution. For the rest of the supply chain, it's just a matter of us continuing to focus on long-term planning horizon - three years - and determining what we are going to need in terms of capacity, both for transportation and warehousing.

Q. Were your supply-chain operations at Best Buy disrupted by the incidents on Sept. 11?

A. Like any national business, our transportation/logistics operations were temporarily affected by the halt to the airline and travel industry. It was a matter of waiting and being patient for the gridlock to work itself out. But there were other issues involved in moving freight, and our response was to change the channel distribution for shipments that were being slowed down. We always maintain a variety of channels that we use for distribution, and we keep in place the ability to divert product to different methods as needed. We've fine-tuned and updated our approach here to make sure that we have the necessary capacity in our system, and we're working on future contingency plans with some of our motor carriers, particularly on the east coast. There's really not much more you can do than maintain different channels of distribution, recognizing that there may be some delays in having the flexibility to shift affected freight to different channels quickly.

Q. On a more global basis, what do you see as the primary challenges facing supply-chain managers as we move into the new year?

A. Visibility continues to be a critical challenge for supply-chain managers as we enter 2002. Right now at Best Buy we're doing a lot of work on visibility with our vendors on the retail side, much as a lot of other industries already have done in the sourcing of product. At this point in our supply-chain management, we have a better understanding of what the risks are of not having something, and as a result, we no longer can be in the position where we can be surprised by a vendor that just hasn't made a particular product or is in short supply and cannot ship our order. We need to work our inventories down to where we don't have that kind of reserve stock, so we need to be working on the kind of partnerships with our vendors that will enable us to see what is happening ahead of us instead of waiting blindly and then reacting when we get the call.

Q. Do you see the same visibility concerns among other supply-chain managers?

A. I sure do. The manufacturing sector probably has addressed the issue a lot earlier than we have in retail.

Q. Will this require a change in skill sets?

A. It will require us to have a higher degree of trained transportation people than we have in the past. We'll need more systems-oriented people who are savvy with the transportation management systems and know how to ask TMS how to do things. It's an evolving skill set.

Q. You mentioned the need to have more systems-oriented people who are savvy with the transportation management systems and know how to ask TMS how to do things. How has your application of i2's TMS technology enabled Best Buy to make smarter transportation decisions?

A. The best example is in the way we route freight. For example, imagine two vendors, shipping 10 pallets each from warehouses just across the street from each other, and shipping on the same exact day and time. In the old system, we would have sent these as separate LTL shipments as the load planners had no visibility to what the others were doing. Now we have the tools to systemically compare LTL, multi-stop truckload, or load consolidation through a central point. This allows
"real-time" decision making.

Q. What tangible benefits has application of this technology produced in terms of freight costs and customer satisfaction for Best Buy?

A. The goal of the system was not to reduce freight expense, as much as it was to reduce total supply chain expense. To that end, we have continued to reduce time in transit, and enhance shipment visibility.

Q. Has it changed the way you hire for logistics positions at Best Buy?

A. A lot of it is with the systems we acquire. We are working through the technology, and as we acquire the technology, we will get some help on adapting that technology to our people.

Q. How are you coping with the economic downturn at Best Buy?

A. On Dec. 6, we announced 3rd quarter sales of $4.76bn, which is an increase of 27 percent. At the beginning of the holiday season, Best Buy stated that we were cautiously optimistic. Our third quarter sales results reinforce this. Digital products continue to drive sales. Products, including DVD hardware and software, digital cameras, digital TVs and wireless communication services, were 17 percent of sales in the third quarter, up from 11 percent last year. We're committed to our growth strategy of 60 new stores next year and are focusing on our mission of making technology and entertainment products affordable and easy to use.

Q. Do you see any signs of recovery?

A. I'm an optimist. The stock market is up to where it was prior to Sept. 11, and I think there's a lot of consumer confidence out there.

Q. Is this a time for supply-chain managers to be aggressive with their strategies or is it a time to retrench?

A. I personally feel it is a time to be aggressive. We obviously will be in a slower growth period than we have enjoyed in the past several years, and there is the possibility that we could have a recession and no growth. Under those circumstances, supply-chain managers may tend to withdraw initiatives and retrench. However, virtually all the initiatives that people have under way in the supply chain right now essentially are geared to doing more with less - you have less inventory, and you have to be more flexible - and those kinds of initiatives are appropriate for good economic times and bad.

Q. What are the more promising technologies you see coming our way in 2002?

A. The visibility software tools are becoming more readily available. Many companies were working with the software and trying to give visibility to the whole supply chain, from the end customer all the way up to the point of manufacture and supply. Companies such as i2 Technologies have been developing some packages, but they weren't quite there in 2001. However, many of these software companies have products now that are actually working. And I think visibility software is what's going to be happening in the next couple of years across all of our retail businesses.

Q. Because of the economy, there is great pressure on information technology budgets right now. Will these new visibility software capabilities be within the reach of most companies?

A. Yes, they should. They are being marketed, and products are being designed, to fit a variety of levels of business. There's a very good menu to choose from in the marketplace right now. It's good marketing, and good placement for these people who are coming up with the products.

Q. Do you think 2002 will be the year when collaboration finally becomes a verb?

A. I think we'll be closer, but I'm not sure it will be a verb.

Q. How about at Best Buy.... are you collaborating with your trading partners?

A. We're working on it. I see progress on some of the things that our company has done with Microsoft. In terms of supply-chain collaboration, we do have a large number of initiatives under way, but I cannot talk about them because we don't have agreements in place. But we're trying.

Q. What do you see happening in the logistics outsourcing arena during the next 12 months?

A. Logistics outsourcing is a topic people always want to talk about. At Best Buy, we use logistics outsourcing when appropriate. I don't think of it as an initiative; if we can find somebody who can do it faster, better and possibly cheaper, we'll outsource. I do think that there's going to be a bigger need for outsourcing as we design tailored logistics strategies. There will be a wider variety of channels that retailers are going to have to work in, and they'll have to customize those channels for their particular products. And I think that the outsourcing companies are going to have to be very smart in terms of the offerings that they present. They will have to customize the services to fit the particular customer, and they will have to get to know a business very well before they can design and present a service offering that is an advantage.

Q. Does Best Buy currently use logistics exchanges?

A. We've researched them quite a bit, but we've chosen not to use any largely because we haven't seen anything that they have offered that we don't already have.

Q. What role do you see logistics exchanges playing in the current market?

A. I see the private exchanges having a bigger benefit. For a lot of the retailers that are concerned about on-time performance and quick-response capabilities, the logistics exchanges seem to act more as freight brokers. So if I had a lot of stuff to move and I didn't care when it was delivered, I'd be very comfortable using an exchange. But we are reluctant to use an exchange because of the timeliness factor.

Best Buy Co. Inc.

Charles A. Scheiderer
Senior VP of Logistics

Charles A. Scheiderer is senior vice president of logistics for Best Buy Co. Inc. He joined the Minneapolis-based company in 1994 as general manager of distribution and was promoted to vice president of logistics in July 1997. In his current position, Scheiderer's duties include overseeing the company's six major distribution facilities, two entertainment distribution facilities, and 16 district appliance warehouses. He earned his bachelor's degree in industrial engineering at Purdue University and his MBA from the University of Pittsburgh.
With FY 2001 revenues of $15.3bn, Best Buy is the number one specialty retailer of consumer electronics, personal computers, entertainment software and appliances in the U.S. The company operates retail stores and commercial web sites
under the names: Best Buy (BestBuy.com), Magnolia Hi-Fi (MagnoliaHiFi.com), Media Play (MediaPlay.com), On Cue (OnCue.com), Sam Goody (SamGoody.com), and Suncoast (Suncoast.com). The company reaches consumers through more than 1,700 retail stores nationwide, in Puerto Rico and in the U.S. Virgin Islands.


Q. I see where Best Buy now operates approximately 400 stores in 41 states but has a growth target of 550 stores by the end of 2004. What kind of stress does this place on your supply chain, and how do you plan to adjust your strategy to maintain supply-chain efficiency and avoid a deterioration in customer service?

A. We feel most of the stress from growth on the inbound side, going up the supply chain. The challenge for us as we move forward is to continue to enhance the supply chain by working on projects that give us better visibility of the freight that's moving in the pipeline, and by working with our vendors on on-time and right quantity initiatives.

It's also important for us to be looking at multiple channels for moving merchandise inbound. We've done a lot with tailored logistics initiatives, and we'll continue to expand on those. For example, we have our transportation department work with marketing on any specific needs they have. If there's freight that needs to come in a little faster or is of higher value than normal, we may have to customize a solution. For the rest of the supply chain, it's just a matter of us continuing to focus on long-term planning horizon - three years - and determining what we are going to need in terms of capacity, both for transportation and warehousing.

Q. Were your supply-chain operations at Best Buy disrupted by the incidents on Sept. 11?

A. Like any national business, our transportation/logistics operations were temporarily affected by the halt to the airline and travel industry. It was a matter of waiting and being patient for the gridlock to work itself out. But there were other issues involved in moving freight, and our response was to change the channel distribution for shipments that were being slowed down. We always maintain a variety of channels that we use for distribution, and we keep in place the ability to divert product to different methods as needed. We've fine-tuned and updated our approach here to make sure that we have the necessary capacity in our system, and we're working on future contingency plans with some of our motor carriers, particularly on the east coast. There's really not much more you can do than maintain different channels of distribution, recognizing that there may be some delays in having the flexibility to shift affected freight to different channels quickly.

Q. On a more global basis, what do you see as the primary challenges facing supply-chain managers as we move into the new year?

A. Visibility continues to be a critical challenge for supply-chain managers as we enter 2002. Right now at Best Buy we're doing a lot of work on visibility with our vendors on the retail side, much as a lot of other industries already have done in the sourcing of product. At this point in our supply-chain management, we have a better understanding of what the risks are of not having something, and as a result, we no longer can be in the position where we can be surprised by a vendor that just hasn't made a particular product or is in short supply and cannot ship our order. We need to work our inventories down to where we don't have that kind of reserve stock, so we need to be working on the kind of partnerships with our vendors that will enable us to see what is happening ahead of us instead of waiting blindly and then reacting when we get the call.

Q. Do you see the same visibility concerns among other supply-chain managers?

A. I sure do. The manufacturing sector probably has addressed the issue a lot earlier than we have in retail.

Q. Will this require a change in skill sets?

A. It will require us to have a higher degree of trained transportation people than we have in the past. We'll need more systems-oriented people who are savvy with the transportation management systems and know how to ask TMS how to do things. It's an evolving skill set.

Q. You mentioned the need to have more systems-oriented people who are savvy with the transportation management systems and know how to ask TMS how to do things. How has your application of i2's TMS technology enabled Best Buy to make smarter transportation decisions?

A. The best example is in the way we route freight. For example, imagine two vendors, shipping 10 pallets each from warehouses just across the street from each other, and shipping on the same exact day and time. In the old system, we would have sent these as separate LTL shipments as the load planners had no visibility to what the others were doing. Now we have the tools to systemically compare LTL, multi-stop truckload, or load consolidation through a central point. This allows
"real-time" decision making.

Q. What tangible benefits has application of this technology produced in terms of freight costs and customer satisfaction for Best Buy?

A. The goal of the system was not to reduce freight expense, as much as it was to reduce total supply chain expense. To that end, we have continued to reduce time in transit, and enhance shipment visibility.

Q. Has it changed the way you hire for logistics positions at Best Buy?

A. A lot of it is with the systems we acquire. We are working through the technology, and as we acquire the technology, we will get some help on adapting that technology to our people.

Q. How are you coping with the economic downturn at Best Buy?

A. On Dec. 6, we announced 3rd quarter sales of $4.76bn, which is an increase of 27 percent. At the beginning of the holiday season, Best Buy stated that we were cautiously optimistic. Our third quarter sales results reinforce this. Digital products continue to drive sales. Products, including DVD hardware and software, digital cameras, digital TVs and wireless communication services, were 17 percent of sales in the third quarter, up from 11 percent last year. We're committed to our growth strategy of 60 new stores next year and are focusing on our mission of making technology and entertainment products affordable and easy to use.

Q. Do you see any signs of recovery?

A. I'm an optimist. The stock market is up to where it was prior to Sept. 11, and I think there's a lot of consumer confidence out there.

Q. Is this a time for supply-chain managers to be aggressive with their strategies or is it a time to retrench?

A. I personally feel it is a time to be aggressive. We obviously will be in a slower growth period than we have enjoyed in the past several years, and there is the possibility that we could have a recession and no growth. Under those circumstances, supply-chain managers may tend to withdraw initiatives and retrench. However, virtually all the initiatives that people have under way in the supply chain right now essentially are geared to doing more with less - you have less inventory, and you have to be more flexible - and those kinds of initiatives are appropriate for good economic times and bad.

Q. What are the more promising technologies you see coming our way in 2002?

A. The visibility software tools are becoming more readily available. Many companies were working with the software and trying to give visibility to the whole supply chain, from the end customer all the way up to the point of manufacture and supply. Companies such as i2 Technologies have been developing some packages, but they weren't quite there in 2001. However, many of these software companies have products now that are actually working. And I think visibility software is what's going to be happening in the next couple of years across all of our retail businesses.

Q. Because of the economy, there is great pressure on information technology budgets right now. Will these new visibility software capabilities be within the reach of most companies?

A. Yes, they should. They are being marketed, and products are being designed, to fit a variety of levels of business. There's a very good menu to choose from in the marketplace right now. It's good marketing, and good placement for these people who are coming up with the products.

Q. Do you think 2002 will be the year when collaboration finally becomes a verb?

A. I think we'll be closer, but I'm not sure it will be a verb.

Q. How about at Best Buy.... are you collaborating with your trading partners?

A. We're working on it. I see progress on some of the things that our company has done with Microsoft. In terms of supply-chain collaboration, we do have a large number of initiatives under way, but I cannot talk about them because we don't have agreements in place. But we're trying.

Q. What do you see happening in the logistics outsourcing arena during the next 12 months?

A. Logistics outsourcing is a topic people always want to talk about. At Best Buy, we use logistics outsourcing when appropriate. I don't think of it as an initiative; if we can find somebody who can do it faster, better and possibly cheaper, we'll outsource. I do think that there's going to be a bigger need for outsourcing as we design tailored logistics strategies. There will be a wider variety of channels that retailers are going to have to work in, and they'll have to customize those channels for their particular products. And I think that the outsourcing companies are going to have to be very smart in terms of the offerings that they present. They will have to customize the services to fit the particular customer, and they will have to get to know a business very well before they can design and present a service offering that is an advantage.

Q. Does Best Buy currently use logistics exchanges?

A. We've researched them quite a bit, but we've chosen not to use any largely because we haven't seen anything that they have offered that we don't already have.

Q. What role do you see logistics exchanges playing in the current market?

A. I see the private exchanges having a bigger benefit. For a lot of the retailers that are concerned about on-time performance and quick-response capabilities, the logistics exchanges seem to act more as freight brokers. So if I had a lot of stuff to move and I didn't care when it was delivered, I'd be very comfortable using an exchange. But we are reluctant to use an exchange because of the timeliness factor.