Best Buy Streamlines Global Sourcing With the Help of the Eqos Platform
Low cost production centers like the Far East are attracting a growing number of global retailers to source merchandise direct, to improve margins and offer customers better value for money. But when working a long way away from your suppliers, good communications and process compliance are vital as US electronics chain Best Buy has discovered.
With a 13-hour time difference, language issues and hundreds, indeed, thousands of new products in the pipeline at any one time, sourcing from the Far East presents its challenges to U.S. companies. For North America's largest consumer electronics retailer, Best Buy, the solution has been to implement Eqos' Platform as the backbone of its new global sourcing system: a system which has succeeded in reducing errors and lead times and is simplifying operations for buying teams on both sides of the Pacific.
Why Global Sourcing?
Like many U.S. players, Best Buy has been sourcing increasing volumes of products from the Far East, and specifically China, over the past few years. It began by working through agents and distributors buying an assortment of branded merchandise and has advanced to an expanding private label portfolio by developing products with contract suppliers.
From a business perspective, private label helps Best Buy build a competency short term, and reduces selling, general and administration (SG&A) rates. Equally important, direct sourcing helps Best Buy fulfil its commitment to deliver value, quality and selection to its customers. "We don't try to compete with the premium brands" says Rick Rommel, Vice President for Global Sourcing. "Our goal is to address gaps in category assortment and achieve efficient fulfilment so our customers have the freedom to choose from a broad selection of merchandise."
Rommel emphasises Best Buy's "customer centricity" focus: segmenting its customer base to identifying where value lines can play an important role in building the product assortment, and where premium electronics brands still hold sway. The first tranche of 68 customer-segmented stores opened in California in October 2004 with each outlet targeted at one or two user groups - such as small business users, families, high-tech early adopters, busy Mums or affluent professionals. Supporting the segmentation are Best Buy's private labels. Insignia, for example, was launched in Fall/Autumn 2004 and encompasses a range of PCs and consumer electronics such as televisions and DVD players. Branding for Best Buy national service unit Geek Squad has been extended into a line of premium computer accessories.
To build these product lines, Best Buy's merchandising teams need to work very closely with contract manufacturers: designing and developing unique products and managing production and supply to stores to coincide with marketing plans and seasonal trading peaks. In September 2003, Best Buy opened its own sourcing office in Shanghai. Here, a team of 30 act as the vital link between Best Buy's merchandisers and buyers back in Minneapolis, and dozens of outlying Chinese factories.
Communication
"We soon discovered that the biggest problem was communication," says Best Buy's Director of Global Sourcing Operations. "With a 13-hour time difference and an office 7,000 miles away, staying in touch wasn't easy."
The buying teams were faced with conference calls at odd hours of the day or night, endless e-mails and expanding delays in resolving queries. There were plenty of errors too. "There were times when we were expecting a silver product to be delivered and it was black which simply cannot happen" says Mark Pritchard, Director of Merchandising.
Language, too, was an issue with American English often far removed from Chinese English so that misunderstandings could easily escalate into protracted e-mail exchanges lasting for weeks.
Best Buy Choose Eqos
The search for a suitable IT solution to the problem began almost as soon as the Shanghai office opened and, among other likely solutions, Best Buy Executive Vice-President Bob Willett, suggested Eqos' Platform. Willett, ex-Accenture, was familiar with the platform from his work with UK retailers. "We talked to existing Eqos customers" says Best Buy's Director of Global Sourcing Operations, "and also to analysts, AMR Research, as Eqos is a comparatively unknown company in the U.S. Of the various options we had, AMR recommended that we choose Eqos because we could build what was needed very quickly and the system was flexible so it could adapt as our needs developed and changed.
"For me it was a compelling solution in that it offered flexibility and multiple uses. The retailers we visited in the UK were all using the platform in different ways which was very encouraging. It was also a huge learning experience as Eqos uses a methodology that enables very rapid development which we had never encountered before. Within one or two days of each workshop we held to identify our requirements, Eqos came back with a product. I don't know of any other IT Supplier who could have done that."
Implementation Time
Work began on the Best Buy Global Sourcing system in May 2004 and it went live just three months later. "We felt that this was pretty good especially since we hadn't fully defined the scope of the project when we started" says Best Buy's Director of Global Sourcing Operations. The solution is web-based giving Best Buy staff in Minneapolis and Shanghai a common web portal for exchanging information. The system creates and monitors critical milestones to ensure successful implementation and provides a single common record - of both product images and information - for all project plans. The first phase has focused on product development from concept to placing the initial purchase order with the chosen supplier. That may sound like a simple process but as well as design and supplier selection, it also involves developing product information for Best Buy's own consumer websites, creating packaging materials, and integrating the whole operation with Best Buy's central enterprise systems. "That was a huge piece of work."
The Benefits
By far the biggest benefit has been to give us a one-stop shop for all information," says merchandiser Pam Freeman. "Last year all we had were e-mails, conference calls and Excel spreadsheets, and the time difference was a real problem. Now if we log queries on a Monday night we have the answers back by Tuesday morning and everyone involved can check developments on the website which can be accessed from wherever we happen to be."
Freeman estimates that the system is currently saving her 10-15 minutes on each information request or exchange she has to make with the Shanghai office. "As I'm typically doing 30 requests a day, it saves me a lot of time and reduces the stress levels quite significantly."
In addition, because the information is readily available, Freeman expects to save hours currently spent on creating PowerPoint presentations detailing new product options to the rest of the buying team. "We now have a neat matrix comparing all the different bids and products under review so everyone can see the options available really easily."
Senior Operations Analyst Stacia Smith is equally enthusiastic; she manages many services associated with product development including warranties and FDA compliance: "All the information is in one place which really speeds things up and reduces errors," she says. "We're really only beginning to use the system but already we've been able to schedule timelines and monitor events. We now have solid due dates for product development events and that will certainly cut delays in bringing lines to market."
The Future
Although the Eqos Global Sourcing Solution is still in its first season and products developed via the platform will not be hitting the shops until later in 2005, Director of Merchandising Mark Pritchard sees very clear long term benefits in having a single location for all product information and images: "We'll have an online archive and picture catalogue of everything we develop in consumer electronics," he says. "That will give us good historic information for planning the next generation of products. Although currently its 780-plus stores are confined to North America, Best Buy has publicly stated its aspirations for future global expansion. "As the platform is scalable," says Pritchard, "it will certainly be a factor in enabling our expansion into new geographies. We'll also be able to track necessary product changes to meet different national regulations accurately and easily.
An objective for 2005 is to extend the system so suppliers can directly input production information and bids including quality assurance and social compliance details, to help, over time, identify the most reliable suppliers with whom Best Buy can build long-term relationships. "We would like to use the system to automate our supplier score card," says Best Buy's Director of Global Sourcing Operations.
Packaging designers and manufacturers in both the USA and China may also be linked into the system to ensure more precise control during the design stages. Expansion to Best Buy's Canadian operation is also on the list for next year, as is greater collaboration on demand forecasts.
