When I speak to audiences about the increased importance of supply chains in their ability to directly support business outcomes, I sometimes frame the opening as one of the good news, not so good news context. Good news, in that senior management fully understands that the supply chain is not just a cost of doing business, but indeed, a key enabler of business strategy. Not so good, when an internal or external focused disruption, such as an escalating trade war, or grounded aircraft, impacts customers and business financial outcomes.
If readers have not noticed by now, supply chain context is far more frequent in business and general media, and indeed, this Supply Chain Matters blog. Too often, because of today’s increased business challenges, we have highlighted challenged supply chains.
It is important to highlight evolving success cases as-well, since each our part of learning.
In the spring of 2012, U.S. electronics and appliance retailer Best Buy was deep in a business crisis. Back then, the initial popularity of Amazon and online buying was directly impacting this retailer and led to, among other factors, the resignation of its then CEO. The term “showrooming” was prevalent, where consumers would browse a Best Buy retail store to gather a look at a certain product, and then proceed to buy that product online at a cheaper price.
Best Buy was not the only retailer impacted, but it was certainly one that dominated retail industry and general news cycles because of its concentration on high tech and consumer electronics products, smartphones and major appliances. Today, in addition to its online fulfillment presence, the retailer operates more than 1,000 large-format stores in the United States, Canada and Mexico.
Flash-forward to 2019, with a lot of hard work in-between, and we were quick to pick-up on a Business Network CNBC report: Best Buy revs up supply chain ahead of the holiday season. Amazingly, after a reading of the report, you would have thought it would have been published in a supply chain management journal. Then again, this is the news industry of today, with its many variants.
The essence of the report is that after a comprehensive review of the retailer’s business and supply chain network models, a CEO recognized and endorsed the need to invest in an Omni-channel customer fulfillment and logistics capability. The report provides a narrative from Rob Bass, Best Buy’s Chief Supply Chain Officer, indicating that in 2013, the supply chain team did not have the process and people expertise needed to meet the need for meeting online fulfillment, but once the alignment occurs, the organization began to embrace the technology side.
A further determinant for both the online or in-store fulfillment challenge was an analytical realization the bulk of this retailer’s inventory replenishment and fulfillment needs are unit vs. pallet driven, hence the importance of automating and optimizing unit movements as well as re-packs, which drive overall efficiency, cost and fulfillment needs.
In short, what has resulted is a revamped logistics and fulfillment supply network that consists of a combination of regional distribution centers and what are termed Metro E-Commerce Centers (MEC’s). There are currently three MEC’s serving major fulfillment population centers and are located in Chicago, Los Angeles, New Jersey.
According to the report, the three centers allow Best Buy to respond to 50 million people with next-day delivery, including the ability to take orders up to p.m. and ship out next day. That capability matches that of Amazon.
MOC’s have a much smaller footprint than RDC’s but are configured to be highly automated, including the deployment of robots controlling material movements. They are built in a cube configuration, consisting of stacked item storage bins, all of which are sorted, optimized and moved by a number of robots. The centers are equipped to service online orders with next day delivery, including major appliance deliveries.
RDC’s continue to support physical retail store needs while retail stores themselves continue to support select online fulfillment needs. This is best described as a fulfillment network, and the MEC’s serve the purpose of supporting surge online volume needs, typically experienced during holiday and seasonal promotion periods.
Bass is cited as indicating: “There are other places around the country where this solution would be an overkill. … We are always looking at our sourcing algorithm to figure out the right mix.” We certainly appreciated such candor.
In the report, Bass further indicated that Best Buy shopped the globe for the right technology, including custom corrugated packaging machines that could save on empty space and optimize transport costs.
For our technology and IT focused readers who may be wondering, the primary systems integrator for the MEC deployment was Bastian Solutions, a Toyota Advanced Logistics Company. The robots are Bastion AutoStore Black Life, with technology elements from Norway based Hatteland Technology. The systems that operate and manage the MEC’s are integrated with a newly deployed WMS system.
Added and Summary Thoughts
Today, Best Buy reported Q2 financial results and the CNBC headline was a miss on total revenues but earnings beating expectations. The stock cratered not so much on the financial aspects but concerns as to whether increased tariffs will have a negative effect on future results associated with the holiday fulfillment quarter.
That headline would likely be the one that resonates in this week business media cycle.
We have called reader attention to the other headline, because it is the manifestation of why enhanced supply chain capability does matter. It requires visible and active senior business and supply chain management leadership, a comprehensive understanding of business needs and the supply chain’s ability to exceed such needs. Finally, and not the least of which, are process and people readiness, and the appropriate technology.
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