Executive Briefings

'Customer Centricity' Drives Best Buy's Supply Chain

What does lettuce have in common with consumer electronics? Quite a bit, according to Robert A. Willet, chief executive officer for Best Buy International. He thinks retailers can learn a lot from the food industry, which he believes has the world's best supply chains. "Most retailers believe their supply chains begin at consolidation centers," says Willet. "Retailers that handle food see their supply chains beginning in the growing fields."For example, he points out that lettuce has to be picked at exactly the moment it has absorbed the optimal amount of water, expedited to the store shelf and merchandised to finicky customers."A supply chain that can manage lettuce effectively, can manage any product," says Willet. "That is why we look to retailers like Tesco for best practices, not to other retailers."Willet spent most of his career working with major food and non-food retailers in Europe. Now he is seeking industry leading supply chain precision for Best Buy, the Minneapolis-based retailer of consumer electronics, home-office products, entertainment software, appliances and related services. Since taking over responsibility for supply chain and IT operations for Best Buy two years ago, Willet has shifted the retailer to a "pull model" that allows each of 930 stores to stock the merchandise its customers are most likely to buy. "The push model that we had is no longer adequate for the customer centricity that we are pursuing," says Willet, who joined the company after consulting with it for several years. He says that Best Buy is 18 months into a three-year transition program to totally integrate its supply chain, so it is truly consumer-driven. The starting point is to have just the right product assortments in each store. To tailor the many different assortments, Best Buy uses sophisticated modeling capability to understand who the actual customers are, what their propensity to spend is, and how much of the annual spend Best Buy is likely to capture.End-to-End ToolsWillet is assembling a series of tools that are not new in themselves, but that are new in the way that they are integrated to solve complex retailing challenges. For example, he says no retailer effectively manages products at the SKU level throughout the entire supply chain, and that is where he wants to take Best Buy. The total solution begins with a forecasting tool linked to a price optimization tool. The output feeds a product assortment tool and an automated replenishment function tailored for each store, where there is also a labor scheduling capability. All of those tools come together to form a holistic demand view that can be translated into a supply collaboration tool linked directly to the manufacturer in Asia. Willet is pressing his supply chain team to move ahead on this project, but he knows that the company cannot digest all of this change at once."We need to do process change, then structural change and finally the technology change-not the other way around," he says.As sophisticated as Best Buy is with its technology, Willet says that its real secret to success is its in-store sales people. "We use technology to enable the sales people to spend more time with their customer rather than the grunt work that can be automated," he says. Best Buy is pushing as much of the so-called grunt work up the pipeline to a manufacturer or to an intermediary, so stock arrives sales-floor ready. There is no sorting, unpacking or assembly. "By working together with our partners, we take cost and time out and we pass on the benefit to the customer, who is the ultimate beneficiary," says Willet.Like most retailers, Best Buy sources the majority of its products from China and other Far East locations, so in 2003 it opened its own sourcing office in Shanghai. "We soon discovered that the biggest problem with the new office was communication," says Jeremy Sacker, who was Best Buy's director of global sourcing operations at the time. "With a 13-hour time difference, an office 7,000 miles away, and a complete lack of technology among the suppliers, effective communication wasn't easy."To solve the communications problem and to manage its global sourcing, Best Buy implemented a solution called Eqos, which Willet used extensively in Europe where he headed up Accenture's retail consulting operations. According to Sacker, now the North American general manager for Eqos based in Burlington, Mass., the web-based solution allows Best Buy to gather all of the requirements for its sourcing events and have one version of the truth when working with every vendor, regardless of where it was located or its level of technology.Sacker describes the Eqos product development solution as "product life cycle management for retail" because it configures the product based on user-oriented specifications and features, rather than on engineering specs, bill of materials or manufacturing oriented elements. Eqos allows Best Buy to specify the product in great detail for its supplier, lock up key components and then collaboratively handle the sourcing function from the request for quote to the store shelf.The Shanghai sourcing office has to develop products and solutions in conjunction with the company's merchandising team back in Minneapolis."Gone are the days when our business is about sourcing commodity products," says Willet. "We have to interpret customer needs, taking those needs to your partner and working with them to develop an appropriate product."

What does lettuce have in common with consumer electronics? Quite a bit, according to Robert A. Willet, chief executive officer for Best Buy International. He thinks retailers can learn a lot from the food industry, which he believes has the world's best supply chains. "Most retailers believe their supply chains begin at consolidation centers," says Willet. "Retailers that handle food see their supply chains beginning in the growing fields."For example, he points out that lettuce has to be picked at exactly the moment it has absorbed the optimal amount of water, expedited to the store shelf and merchandised to finicky customers."A supply chain that can manage lettuce effectively, can manage any product," says Willet. "That is why we look to retailers like Tesco for best practices, not to other retailers."Willet spent most of his career working with major food and non-food retailers in Europe. Now he is seeking industry leading supply chain precision for Best Buy, the Minneapolis-based retailer of consumer electronics, home-office products, entertainment software, appliances and related services. Since taking over responsibility for supply chain and IT operations for Best Buy two years ago, Willet has shifted the retailer to a "pull model" that allows each of 930 stores to stock the merchandise its customers are most likely to buy. "The push model that we had is no longer adequate for the customer centricity that we are pursuing," says Willet, who joined the company after consulting with it for several years. He says that Best Buy is 18 months into a three-year transition program to totally integrate its supply chain, so it is truly consumer-driven. The starting point is to have just the right product assortments in each store. To tailor the many different assortments, Best Buy uses sophisticated modeling capability to understand who the actual customers are, what their propensity to spend is, and how much of the annual spend Best Buy is likely to capture.End-to-End ToolsWillet is assembling a series of tools that are not new in themselves, but that are new in the way that they are integrated to solve complex retailing challenges. For example, he says no retailer effectively manages products at the SKU level throughout the entire supply chain, and that is where he wants to take Best Buy. The total solution begins with a forecasting tool linked to a price optimization tool. The output feeds a product assortment tool and an automated replenishment function tailored for each store, where there is also a labor scheduling capability. All of those tools come together to form a holistic demand view that can be translated into a supply collaboration tool linked directly to the manufacturer in Asia. Willet is pressing his supply chain team to move ahead on this project, but he knows that the company cannot digest all of this change at once."We need to do process change, then structural change and finally the technology change-not the other way around," he says.As sophisticated as Best Buy is with its technology, Willet says that its real secret to success is its in-store sales people. "We use technology to enable the sales people to spend more time with their customer rather than the grunt work that can be automated," he says. Best Buy is pushing as much of the so-called grunt work up the pipeline to a manufacturer or to an intermediary, so stock arrives sales-floor ready. There is no sorting, unpacking or assembly. "By working together with our partners, we take cost and time out and we pass on the benefit to the customer, who is the ultimate beneficiary," says Willet.Like most retailers, Best Buy sources the majority of its products from China and other Far East locations, so in 2003 it opened its own sourcing office in Shanghai. "We soon discovered that the biggest problem with the new office was communication," says Jeremy Sacker, who was Best Buy's director of global sourcing operations at the time. "With a 13-hour time difference, an office 7,000 miles away, and a complete lack of technology among the suppliers, effective communication wasn't easy."To solve the communications problem and to manage its global sourcing, Best Buy implemented a solution called Eqos, which Willet used extensively in Europe where he headed up Accenture's retail consulting operations. According to Sacker, now the North American general manager for Eqos based in Burlington, Mass., the web-based solution allows Best Buy to gather all of the requirements for its sourcing events and have one version of the truth when working with every vendor, regardless of where it was located or its level of technology.Sacker describes the Eqos product development solution as "product life cycle management for retail" because it configures the product based on user-oriented specifications and features, rather than on engineering specs, bill of materials or manufacturing oriented elements. Eqos allows Best Buy to specify the product in great detail for its supplier, lock up key components and then collaboratively handle the sourcing function from the request for quote to the store shelf.The Shanghai sourcing office has to develop products and solutions in conjunction with the company's merchandising team back in Minneapolis."Gone are the days when our business is about sourcing commodity products," says Willet. "We have to interpret customer needs, taking those needs to your partner and working with them to develop an appropriate product."