Retek Case Study : BestBuyLaunch Pad to Customer Centric Supply Chain

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The BestBuy Evolution

Best Buy Co., Inc is founded in 1966, North America's number-one specialty retailer of consumer electronics, personal computers, entertainment software and appliances.

Operates 830 retail stores across US and Canada.

Annual sales $27,433.00 end of Feb, 2005

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10 years Financial Performance 1993-2002

$-

$5,000

$10,000

$15,000

$20,000

$25,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Sales/ Gross Margin

-

100

200

300

400

500

600

700

800

900

1,000 # of Store/ Operating

Profit

Sales

GrossMargin

OperatingProfit

Number ofStore

Growth ≠ Profit

Launch Pad

Launch Pad project started from the crisis in 1996

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In 1996, Best Buy, the largest name-brand consumer electronics retailer in the United State, faced one of the greatest challenges in its history. This $8 billion retailer had grown furiously, tripling its size in three years. But it had done so with very few changes to its operations and business processes. As a result, profitability was dwindling.In 1997, they started ‘company transformation project and set up four strategic goals:

1. Optimized Space and Assortment 2. Promotion Effectiveness3. Precision Pricing4. Strategic Sourcing and Vendor Relations

RMS Retek Merchandise SystemReSA Retek Sales AuditReIM Retek Invoice MatchingARI Active Retail IntelligenceRSS Retek Store System*

Retek Modules implemented at Best Buy

Project ‘Launch Pad’

Company Transformation project was named as ‘Launch Pad’ (1997-2000)

*RSS has been renamed as Retek Store Inventory Management

•Build world class infrastructure

•Provide ‘real-time’ visibility to inventory

•Improved customer service

•Improve top line growth

•Increase data accuracy

•Repeatable, scaleable model that extends to

all current and future business entities

Value Goal for Implementation

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Implementation Phase 2000 2001 2002 2003

Preparation

RMS Foundation

RMS Reatil and Cost

ReSA (Sales Audit)

RMS PO and Inventory

RSS Store Inventory

Integration

Implementation Strategy:Phased in enterprise functionality over time

•Build world class infrastructure

•Provide ‘real-time’ visibility to inventory

•Improved customer service

•Improve top line growth

•Increase data accuracy

•Repeatable, scaleable model that extends to

all current and future business entities

Value Goal for Implementation

Implementation Time line 16 – 24 month with phased approach:

Phase 1 RMS Foundation Data - May 7, 2001(Item, Location, Hierarchy)

Phase 2 RMS Zone Level Pricing - July 10, 2001(Permanent, Promotional, Competitive, Cost)

Phase 2A RMS Store Level Clearance Pricing - October 7, 2001(Clearance)

Phase 3 RMS / ReSA Dot Com Integration - October 18, 2001(eSKU conversion, Sales Audit Readiness)

Phase 3 ReSA Sales Audit Pilot - November 4, 2001 (Trickle Posting, Sales Audit)

Phase 3A ReSA Sales Audit Rollout - February - March 2002 (Trickle Posting, Sales Audit, High Volume, Automation, Restart / Recovery)

Phase 4 RMS Purchasing and Inventory - June 4, 2002(POs, Perpetual Inventory, Stock Ledger, Vendor Deals

Phases Currently In Development

Phase 5 RSW Store Pilot - September 2002(Receiving, Transfers, RTVs, Inventory Management, Item Inquiry)

Phase 5 RSW Store Rollout - February - June 2003(Receiving, Transfers, RTVs, Inventory Management, Item Inquiry)

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Mr. Richard Schulze, Founder, Chairman & CEO stated their

strengths and competitive advantages as ‘Why We Lead’ at the

analyst meeting and Shareholders meeting in 2002. Mr. Schulze

resigned CEO later, so these are his last message for investors as CEO

of Best Buy.

Richard M. Schulze Founder, Chairman & CEO

Innovative Store Design

Process to Profit

Ad Effectiveness Analysis

SOP (Standard Operating Platform) Culture

Knowledge Management

Efficient Logistics

Financial Strength

Why We Lead

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New Approach to Customer Centricity

New Approach – CRM in 2002 defined as Customer Centricity

FY2002

FY2003

FY2004

In 2002, Best Buy announced that they would focus CRM as next step to leverage their competitive advantage and continue company transformation

In 2003, BestBuy defined their CRM as ‘Customer Centricity’ and put it at the center of their growth strategy.

Comprehensive analysis and research had been processed through BestBuy.com 、 promotional coupons analysis, BestBuy defined targeted customer segments and build new offering based on Lab stores and pilot stores.

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1.Discovering potential customer segment and clear definition

Comprehensive survey held through store customers, promotional coupons, market

research company (2002 – 2003)

Based on survey and Lab store analysis, 5 customer segment groups were defined (2003)

2.Defined merchandise assortment and new service offering

Though Lab store operation, merchandise assortment and new service offering were

defined for each customer segments (2003) This is still on going.

3.Launched 68 Pilot Stores

　 68 stores located in California converted to Pilot stores aimed at five specific customer

segments. (2004)

4.Training and building store associates as specialist.

Located associates by segments such as shopping assistant and technology experts.

5.Transform proto type stores to customer centric stores

Plans to accelerate the conversion of its stores to its customer-centricity operating model.

150 – 200 in this year and first Lab stores in China.

New Approach to Customer Centricity

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CCSC Customer Centric Supply Chain: New product and service offering with professionals

Magnolia Home theater Consultants

‘Custom installation’

Business Professionals

‘Supporting small business’

Personal Shopping Assistants

Appliance Experts

New Approach to Customer Centricity

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Pilot stores, Lab stores and Customer Segment

Comparison based on 32 Lab stores and Existing BestBuy Stores

1. Comparable Sales Growth Rate Lab Store 17% vs. Existing Store Average 10% 　・・・ 7%+

2. Average Transaction Volume Lab Store $104 vs. Existing Store Average $100 　・・・ 4%+

3. Conversion Rate Lab Store 57% vs. Existing Store Average 51% ・・・ 6%+

Customer Segment Pilot Stores

1 Small business customer who has specific needs related to growing sales and increasing the profitability of his or her business.

24

2 Affluent professional who wants the best technology and entertainment and who demands excellent service. 16

3 Family man who wants technology that improve his life – and that lasts. 16

4 Busy suburban mom. 12

5 The young, active early-adopter. 11

New Approach to Customer Centricity

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•Forecast error•Projections

Store Allocation• Demand forecasting• Time phased inventory planning• Lead time forecasting• Min / Max• Fringe (buy one sell one)• Rapid replenishment• Space capacity constraints• Returns to DC• New store modeling

DC Allocation• Demand forecasting• Demand aggregating• Inventory balance

– Understock– Overstock

• Space capacity constraints• Time phased inventory planning

Unit Planning

• Demand forecasting• Demand aggregating• Inventory Planning• Event Planning• Transition Planning• Cannibalization

• Store sensitivity• Location activation• Presentation and display management• Profile management

Store Orders

Vendor Purchase Orders• Shipment detail• Order point / Order to logic• Incorporate safety stock,

lead times, cycle stock• Lead time forecasting• Returns to Vendor

Collaboration (CPFR)

• Sales forecast collaboration• Receipt forecast collaboration• Tolerance levels• Trigger point• Forward buy analysis• Frozen forecast period

Planning Summary

• Rollups on hierarchy and alt- hierarchy • Reconciliation with financials

--Future State Footprint--

Reporting•Lead Time•DC/store balancing

•Promotional•Operational measures

•Price moves•Category build comparisons

Best Buy Requirements:Customer Centric Supply Chain

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Best Buy choose Retek again

•Best Buy choused Retek again to support their Customer Centric Supply Chain– Selected Retek Modules:

o Forecasting (Went Live on Oct. 2004)o Allocation (Went Live on Jul. 2004)o ASOo Item Planningo Financial Planningo AIP

– Plan to CRP and implement the full footprint, shift business to the new platform over time

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•Why did Best Buy choose Retek?– Best Buy was an existing Retek customer and knows well

about Retek.– Retek was seen as the default software vendor for Best

Buy’s Customer Centric Supply Chain program– Best Buy heavy focus on implementing “vanilla” product

with configuration versus custom development and found good fit for Retek’s Planning, Forecasting & Optimization Platform.

•What potential benefits are they expecting?– CCSC, Customer Centric Supply Chain is planning to drive

$450M in benefit from the supply chain

Best Buy choose Retek again

©2005 Retek Inc. CONFIDENTIAL

Summary:The BestBuy Evolution

Summary of Retek Modules at BestBuy

Launch Pad Project

2000-2002

CCSC Program Project

2004-2006

RMS (Merchandising System)

ReSA (Retek Sales Audit)

ReIM (Retek Invoice Matching)

ARI (Active Retail Intelligence)

RSS (Retek Store System)

Best Buy Customer Centric Transformation

RDF (Retek Demand Forecasting)

Allocation (Allocation)

ASO 　　　 (Assort Optimization)

Item Plan (Item Life Cycle Plan)

Financial Plan (Merchandise Financial Plan)

AIP (Advanced Inventory Planning)