Supply Chain Frontiers issue #20. Read all articles in this issue
Two major retailers, Best Buy and Inditex Group, originate on different sides of the Atlantic Ocean yet share a common focus on innovation that benefits the customer. And both organizations have developed supply chains that support their innovative approaches to retailing. They described their strategies at the Crossroads 2007: Supply Chain Innovation Summit, this April, in Zaragoza, Spain.
Spanish company Inditex has eight different brands and 3100 stores in 64 countries. This year, for the first time, the rate of sales in the rest of Europe surpassed the rate in Spain. This is a reflection of a new international focus for Inditex in both Central Europe and the Asia Pacific region, explained Lorena Alba, Managing Director of Logistics, Zara, the largest and most popular Inditex brand. Sales volume growth is running at about 20% a year.
Inditex’s supply chain begins and ends with the customer. As is the practice in most fashion retailers, designers send their latest designs to manufacturers and product is delivered to the stores. But at Inditex, designers only have days to respond to demand changes once items are on the shelf.
The operation is driven by customer feedback provided by the retailer’s stores. An extremely agile manufacturing network – manufacturers are based in Spain, Portugal and Morocco - reacts quickly to market shifts. The company’s distribution system, centered on highly automated DCs in Spain, is also designed for speed. Within 10 hours of receiving market information the company can have a truck leaving the DC to arrive at the store in 48 hours, depending on distance. For Europe, this means transportation by road, while U.S. and Asia deliveries require air transportation. “We have to be able to give the stores in Japan the same service as the stores down the street,” said Alba.
Best Buy has more than 1100 stores and counting throughout the U.S., Canada and Europe, said Bob Willett, CEO, Best Buy International and Best Buy CIO. Multiple channels and formats, new product categories including non-food products and services, higher service level demands and increased globalization, are just a few trends that are driving increased supply chain complexity for manufacturers and retailers alike.
In response the retailer is transitioning to what it terms customer-centric retailing. Willett emphasized that this transition is being driven by Best Buy customers and employees - not by the boardroom. The retailer talks to 60,000 customers every few weeks, so it can better understand what consumers want, not what the company thinks they want, he said.
In addition it has empowered its employees to create smarter ways to serve the customer. “It’s what makes us different,” said Willett. “We invest in the individual and encourage employees to bring forward ideas on a weekly, even daily, basis.”
It was from one of these employee ideas that the Geek Squad was born. Based on customer complaints about disappointing support services for PCs, an employee suggested the creation of the Geek Squad, a group of employees who could provide various computer-related services and accessories for residential and commercial clients both in-store and on-site. Best Buy invested money in the idea, and recruited 14,000 geeks, who are now doing 5000 remote diagnostics per day in the U.S., London, Europe and Canada. The company is expanding the Squad’s role to include HDTV hook-up.
The company is aligning its supply chain with the customer-centric strategy. It has upgraded its supply chain processes by integrating learnings from the food supply chain, where products have a much shorter life cycle. It is delivering products shelf-ready to the stores via streamlined inbound logistics management operations and advanced planning systems.
Beyond people, space management is Best Buy’s biggest cost. To optimize space and customer service, the company has instituted an RFID system in every store that allows employees to locate available space, and receive updates on SKU and volume levels. The systems create more time for employees to spend with customers. Willett wants to see check outs disappear completely. The technology is there - the industry is not, he said. A perfect example of how customer-centric culture and technological innovation have to come together to create supply chain success.
The Crossroads 2007 Supply Chain Innovation Summit brought together two flagship events: the 3rd Supply Chain Crossroads Symposium organized by the MIT Center for Transportation & Logistics, and the 3rd Zaragoza Supply Chain Summit organized jointly by the Zaragoza Logistics Center and CTL. For more information on the event, contact Becky Schneck Allen.