H.E. Butt Grocery Company:A Leader in ECR Implementation
Case Analysis Presented by:Yanqing Gu
Dennis KipnisMarzena J Kuhiwczak
Xiangzhong Xu
IS-577 IT Policy and Strategies
Company Background
In 1992 H.E.Butt Grocery was 13th largest grocery retailer in the U.S.
with $3.2 billion in sales;
operated in over 200 supermarkets in central and south Texas.
In 1997 H.E.B. expanded its business across the border into Mexico
Company Background (Cont’d)
H.E.B. is recognized as a leader in retail technology.
Improving efficiency by utilizing technology enables H.E.B. to offer every day low prices while still achieving profits for the value chain.
Key Players
Supermarkets(H.E. Butt Grocery Company)
Vs.
Discount drugstores (e.g. Walgreens)Discount Department stores (e.g. Wal-Mart)
Wholesale-club stores (e.g. Sam’s Club)
Strategies
Use Every Day Low Prices strategy as primary pricing policy
Use information technology to improve efficiency
Implement category management to reduce cost in the distribution process
Use of information technology to support H.E.B.’s strategies POS (point-of-sale) scanning using UNIX-based microcomputers linked to headquarter (HQ) mainframe
Electronic mail to communication
Ordering products by scanning shelf tag on item and transmitting order to HQ using the satellite network
Use of information technology to support H.E.B.’s strategies DSD (direct store delivery) for receiving and invoicing
CRP (continuous replenishment) with vendors that allow them to supply product using warehouse shipment and inventory data rather than receipt of H.E.B. – generated purchase orders
Core Issues: Manual Replenishment Process Pricing Inaccuracy Planning and Forecasting Inefficient Channel Process Scanning Integrity Inventory
Assessment
Assessment (Cont’d)
Manual Replenishment Process Manually inspecting store shelves and entering
orders into a handheld computers terminal Scanning the shelf tags of the items to be
ordered and manually entering the quantity requested
Verifying these items are not in the back room Transmitting the order to the HQ mainframe Routing the order to one of HEB warehouses for
selection, loading, and delivery to the store
Assessment (Cont’d)Pricing Inaccuracy
Scanning system for each store operated independently
Centrally generated price changes were not always updated correctly
Price updates at some stores weren’t performed in the timely fashion due to lack of staff, time, or attention• As a result, customer complaints took place• This issue became of a serious concern for
HEB Management
Assessment (Cont’d)
Planning and Forecasting HEB needed to develop the ability to
forecast store demand more accurately Little historical data has been saved on
the daily item movement by store Preliminary analysis was difficult to
make without history upon which HEB could base initial predictions
Assessment (Cont’d)Inefficient Channel Process
“Forward Buying” concept Retailers would purchase significant quantities of
goods far in advance of demand at discount prices The goods would be offered to the consumers at the
regular prices Promotional allowances and rebates were so complex
that the retailers weren’t able to determine the actual net cost of a product
Alternative approaches to forward buying were sought to dramatically reduce inventory levels across the channel
Assessment (Cont’d)
Scanning Integrity To support CSO (Computerized Store
Ordering) scanning accuracy needed to be improved from 95% to 98%
To improve operating efficiency To improve the capability to forecast store
demand using daily scanner movement To create a more sophisticated planning
and tracking system
Assessment (Cont’d) Inventory– High total channel inventory levels– Low Inventory turnover levels – Limited Storage Space mostly used for• Bulky items sold in large quantities• Promotional items with a temporary
surge in demand– On-shelf inventory• Inventory “buffer” in case a shipment is
missed or warehouse was out of stock
Advice to top management1. Summary of what the organizations
doing right at the present time
2. Major challenges management is facing in the future
3. Action Plan
4. Assessment of risks and benefits
Summary
Category Management (CM)
Continuous Replenishment (CRP)
Change Management Process
Related Information Technology
Introduces the new relationships between retailers and manufactures
Improves the whole channel cooperation Example: not-to-divert commitment
Boosts HEB company’s bottom line significantly
Category Management
Reduces the inventory level Reduces the ordering and logistics costs
in routing supplying the warehouses Reduces the time category managers
required for buying administration Shifting from reactionary mode of
operation to forecasting and planning mode
Continuous Replenishment
Category managers replace buyers Information-based warehouse process
replaces inventory-based processes EDLP strategy replaces promotion-pricing
strategy Store managers need to be more
information-oriented
Change Management Process
Improve the accuracy of POS data
Expand EDI capability from PC-based to mainframe based to eliminate human interaction
Related Information Technology
Conclusion
The combination of the change management process, adopting new information technology, CM and CRP initiatives help HEB company shifting the strategy from promotion-pricing to EDLP, improving the whole channel efficiency, boosting the profit, and staying competitive in the industry.
To stay competitive in the industry and compete with the mass-merchandise chains:
1. Combine CSO(computerized store ordering) with CRP
2. Cross-dock shipments
3. E-shelf Tag
4. Expanding EDI Capacity
Major challenges
Action Plan
Improving accuracy of store POS data to 98% to facilitate CSO development
Combine CSO with CRP to enable the development of fully linked channel
Establish history data Improve the capability of store demand forecast
Enable cross-dock product shipment to lower distribution cost
E-shelf tag to increase price credibility with consumers and improve operation efficiency
Expanding EDI for e-invoicing, e-receiving and e-payment to reduce GA cost
Action Plan (Cont’d)
Assessment of risks and benefitsBenefits Risks
CSO Reduces the inventory level
Reduces the ordering and logistics costs
Shifting from reactionary mode of operation to forecasting and planning mode
Profit might be impacted during the high inflation period
Low-quality POS data may cause stock-out
Cross-dock Reduce distribution cost
Improve efficiency
Low-quality POS data may result wrong shipment
E-shelf Increase price credibility with consumers
Improve operation efficiency
Big initial capital investment (round $40M) may be hard to be justified
E-service Reduce GA cost
Satisfy customer demand
Service could be interrupted if system fails
What have been H.E. Butt’s key system innovations in the past decade? What has been their payoff? What are the keys to their success?
What the technology challenges do the company’s management faced in the future? What advice do you want to give them?
Questions