Process Management of Retail Based on Best Buy

Introduction

Best Buy Co., Inc. is a multinational retailer of technology and entertainment products and services, accounting for 19% of the US consumer electronic market. It also operates in Mexico, Canada, China, Turkey and the United Kingdom. The company's subsidiaries include Geek Squad, Magnolia Audio Video, Pacific Sales, and in Canada, operates under both the Best Buy and Future Shop label. In China, it operates under both the Best Buy and Five Star label. Best Buy has more than 1,150 stores in the United States, Puerto Rico, Canada, China, Mexico, and Turkey. The company's corporate headquarters are located in Richfield, Minnesota. (Fang, 2010, p.4) The Companies major strength is Multiple channel selling, High inventory turnover ratio, and profitability, whereas high dependencies on few vendors and lack of focus on overseas operations remain major areas of concern.

Strength

Improving the profitability causes high return to the customers thus gaining their confidence. “The company’s operating margin increased from 3.5% in FY2016 to 4.7% in year 2017” (Best buy Co, Inc. SWOT Analysis,2017, p.4). Thus, increasing companies net profit from 2.3% in year 2016 to 3.1% in 2017.

Also, the main reason in increase in the profit of best buy is increase in the inventory turnover ratio. “In FY2017, Best Buy had inventory turnover ratio of 6.2 times as compared to 6 times in FY2016. Its inventory turnover ratio was higher than one of its main competitors, Sears Holdings Corporation (Sears) reported inventory turnover of 4.4 times in FY2017. With the given turnover ratio, the company takes 59 days to sale its inventory as compared to 84 days taken by Sears”. (Best buy Co, Inc. SWOT Analysis,2017, p.4)

Growth Plans

The company’s Growth Strategy plan aims to expand its presence in categories where it is underperforming, like appliances and mobile phones, and to strengthen its presence in high-growth categories. The company believes that main development area is Smart Home market, including devices and services. “Best Buy has rolled out Smart Home Powered by Vivint home automation and security offering in 450 stores” (Bailey,2017, para 2). Through this offering, in-store experts can assist customers in selecting smart home products from Vivint and other partners. Customers can also receive professional installation and monitoring services. Best Buy is also adding 1,500 dedicated smart home employees.

The company is also testing a new service called Assured Living. This service helps customers check in on the well-being and safety of their aging parents. Best Buy considers its “services business” to be a key game changer. Best Buy has launched a new Geek Squad offering called Total tech support. This 24/7 online facility provides support for all of the customers’ technology irrespective of where or when they bought it. This facility is currently available in all the stores of Best Buy in Canada and at 200 stores across ten US cities. The company has established its In-Home Advisor program to US markets and currently has 300 advisors. These professional advisors provide free in-home consultations and help customers in figuring out the right technology solutions. Best Buy has also entered in product categories like 4K TV, by partnering with major vendors. The company’s strategy is to partner with ongoing market leaders like Sony, Samsung, and LG to establish stores within Best Buy locations in order to enhance consumer shopping experience.

Financial Outlook

To support the Best Buy growth plan, the company plans to make key investments in technology and people. “Best Buy delivered $1.4 billion in cost savings over the last five years. And, as previously announced, it plans to drive an incremental $600 million in annualized cost savings by the end of fiscal 2021.” (Best buy blog, 2017, para 4) The company aspires to solve the following financial equation: gradually increase its rate of topline growth, create efficiencies to help fund investments and offset potential pressures, and build more predictable revenue streams from recurring revenues and stickier customer relationships.

Supply Chain Management of Best Buy

In just over two decades, Best Buy Co. has become one of North America's best-known retail brands. Best Buy has been adopted many changes when it comes to supply chain management of the company to expand its growth. Early goods for Best Buy were picked up by hands and it was a very tedious job for employees working there as their average travel time was 7 miles by foot per single employee. Then, new technology was introduced to expand the sales and profit of the company. It was introduced at three facilities in Los Angeles, Chicago and Piscataway, New Jersey, does the heavy lifting now (Lauren Thomas, 2019, para. 2).

Retailers and vendors have special relationships that emphasis on making money. Both have the same aim of selling products and being successful (Course Hero, 2019, p. 8). They maintain a good relationship with vendors so that vendors keep producing products and having the product for their customers. Both retailers have control over the vendors and the vendors have control over the retailers (Course Hero, 2019, p. 8). Best Buy is going in a working with vendors on product design and development instead of waiting for vendors what they are developing. This involvement with vendors has allowed Best Buy to be the exclusive retailer.

The investment plays a crucial role for a company when it comes to supply chain strategy to compete with other companies to make more profit than them and best buy has done well in terms of competing big box retailers like Walmart and e-commerce giant Amazon by investing more (Isabel Blake, 2019, para. 3). Best Buy recently moved their major west coast distribution center to Compton, California to speed up the deliveries with more efficiency and space for big products like television and other appliances (Emma Cosgrove, 2018, para. 2). Shipments are arranged to individual stores’ floor plans to reduce the time involved in rearranging the products in their places (Ken Cotrill, 2006, para. 11). Best Buy have also started a multi-year transformation of their supply chain design to increase their bandwidth for growth and speed (Emma Crosgrove, 2018, para. 8).

Value Chain Analysis of Best Buy

Value chain analysis describes the activities that is within and around an organization. It estimates which value or activity contributes to organizations products or services. Value chain analysis involves primary and secondary activities that improves overall performance of an organization.

Primary Activities

• Inbound Logistics – It is important to develop relationships with suppliers as they support major part of distribution of the product, storing and receiving of the product. There are various challenges that Best Buy faces in everyday product development stages Inbound logistics focuses on every phase of the product cycle from raw material to end finished product.
• Operations – Operations carried out to make product available to the market. When Best Buy receives raw materials it proceeds with machining, assembling, testing and packaging. Analysis of operational activities helps us to improve productivity and maximizing efficiency. Increase productivity can lead Best Buy to achieve consistent economic growth, increase profitability and set powerful competitive advantage.
• Outbound Logistics – Activities involved from and to deliver the product to customers. Activities like warehousing, scheduling, order processing, transportation, delivering to the destination and material handling. when outbound activities are timely managed with optimal costs and product delivery processes put a minimum negative effect on the quality, it maximizes the customer satisfaction and increases growth opportunities for the firm (Byrne, 2018).
• Marketing and Sales – Best Buy highlights its products differentiation and persuade customers by offering better deals then competitors. Creating high quality product and affordable prices will not help Best Buy to reach out in the market. Simple activities like advertising, promotional campaigns, pricing, building loyalty customers and sales force, all this marketing strategies will help Best buy to achieve business objectives, create brand image, compete in the market.
• Services – To develop customer loyalty it is important to provide high quality services to the customers before, during and after sales. To lead today’s market customers, focus on after sale services. It is important to come up with creative ideas to create positive brand recognition.
• Secondary activities – Focuses on coordinating and facilitate primary activities.
• Firm Infrastructure – It manages activities like quality management, strategic planning, accounting activities, legal matters to strengthen its competitive position.
• Human resource Management – It involves different aspects of HR including training. Selecting, performance appraisal. The heavy dependence of Best Buy on employees' talent will increase the importance of this value chain support activity (Byrne, 2018).
• Technology Development – Best Buy realizes the importance of technology in all value chain activities, maintaining data analytics of its customer, upgrading software and carrying out research to create and develop innovative product and services.
• Procurement – It considers inbound, outbound and operational aspects that involves supplies, raw material, machinery, equipment needed to produce finished product. Best Buy should highlight areas where value can be added, cost efficiency can be achieved, differentiation basis can be set, or processes can be optimized (Byrne, 2018).

Operations Cycle

The operating cycle is the average period of time required for a business to make an initial outlay of cash to produce goods, sell the goods, and receive cash from customers in exchange for the goods. This is useful for estimating the amount of working capital that a company will need in order to maintain or grow its business. (Bragg, 2019, para. 01)

Best Buy’s vision is to make life fun and easy. The main strategy of Best Buy is to bring technology and consumer together in a retail environment. Their stores offer consumers meaningful advantages in store environment, product value, selection and service, all of which advance their objectives of enhancing their business model, gaining market share and improving profitability. (Best Buy, 2012, para. 01).

Labor Management:

The study of labor management refers to the rules and policies which govern and organize employment, and how these are established and implemented. They affect the needs and interests of employees and employers. Labor Management regulates the company's internal control, the relationship with employers and the employees who are in charge of the work done in the company. Labor Management of Best Buy is called Time and Labor Center. This tool uses analyzed historical data to estimate future data and is an intelligent forecasting tool. It optimizes the balance of overtime, regular and temporary labor needed to meet daily demands. The system helps the managers and supervisors improve labor efficiency by setting out a specific amount of dollars per department based on last year's sales and reports. This helps the management team reduce overtime and increase service levels. Every associate's actual time for task completion is them monitored in real time, from punch in’s, lunches, and punch outs. (Best Buy, 2012, para. 01).

Planning and Scheduling:

The process of making sure that demand and supply plans are in balance from the aggregate level down to the short term scheduling level is known as Operations Planning and Scheduling. Best Buy uses a Daily Business Tracker Model to track and keep up with sales, in units of hours, to specific categories such as televisions, computers, video games, etc. Since the Daily Business Tracker largely groups Best Buy’s product family, it avoids unnecessary detail in the beginning stages of planning. Because of the use of this business tool, Best Buy is successful in forecasting for future demand and supply as this tool projects statements of income, costs and profits, creates a structure for Best Buy to follow. (Best Buy, 2012, para. 01).

Inventory Management:

Inventory Management is the planning and controlling of inventories in order to meet the competitive priorities of the organization. Best Buy uses RSS (Retek Support System) to control and manage its inventory. This system helps to manage the inventory from getting too high or keeps it from getting to a low level. Balancing the various tasks of inventory management means paying attention to all aspects of any inventory from order process to shrink. Most importantly, this tool understands how long it takes for a supplier to process an order and execute a delivery. Best Buy uses the P system to control their inventory. That is a periodic review system, sometimes called a fixed interval reorder system or periodic reorder system, in which an item's inventory position is reviewed periodically rather than continuously, The RSS system takes up to hour accounts of inventory. That is, every time a product is sold the system removes it from inventory and generates an order at the end of the week for the next shipment. The supply chain is being relied upon to improve the flow of information. (Best Buy, 2012, para. 01)