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H.E. Butt Grocery Company

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Presentation on theme: "H.E. Butt Grocery Company"— Presentation transcript:

1 H.E. Butt Grocery Company
What are the Industrial Characteristics Massive: 376 billion Industry Heavily fragmented with top five companies accounting for only 21% sales Under tremendous pressure from Wal-Mart to become either more efficient or extinct IT based consumer response has the potential for $30 billion in saving Facilitated by Food Market Institute Massive inefficiencies are present in the channel (forward buying and so forth)_ The industry is highly geographically focused.

2 H.E. Butt Grocery Company
H.E. Butt Grocery Company Characteristics It is a mid-size chain with 200 stores, ranked #13 in the country in 1993, with sales of 3.2 Strong commitment to IT H.E. Butt is has a dominant presence in its region (where Wal-Mart is also located) Recently reorganized around category management New incentives system is built around products Wal-Mart contracting with Procter & Gamble for new EDI-based order entry system was a major concern to H.E. Butt.

3 H.E. Butt Grocery Company
Technology & the Industry Logistics Value Chain Old System P&G was particularly pleased to work with with HEB Previous orders were sent by fax 3-4 times a week from HEB warehouse The orders were manually prepared and shipped 6-10 days later. New System All grocery items in HEB’s warehouse were bar coded When an item leaves the warehouse P&G in automatically informed The amount of data to be processed increased by 100% Implementing CRP and EDI with all of its manufactures took H.E. Butt four years (why)

4 H.E. Butt Grocery Company
Old Strategies Forward pricing Warehousing New Strategies Everyday low price The ability to maintain low pricing is a core differentiator A standard, year-long price for each item was negotiated Technology is key enabler for the company to drive costs down as to be able to sustain low prices IT is now a strategic tool because system failure can incur significant losses in sales volume Timing of system investment and implementation was important

5 H.E. Butt Grocery Company
New Strategies With electronic links in place and the standard pricing strategy established, HEB turned over the management of the P&G warehouse inventory to P&G. That is, it transfer ordering decision rights and responsibility. The very notion of what a company is, is being redefined.

6 H.E. Butt Grocery Company
Outsourcing (Win-Win Game) Dramatic reduction in inventory levels and reduced ordering and logistics costs in routinely supplying its warehouse Eliminated 6-10 days from the previous order cycle Deal price (eliminating forward buy) For P&G a more predictable demand and commensurately smoother manufacturing processes, as well as reduced logistics costs

7 H.E. Butt Grocery Company
Number of new Inventory suppliers Turns Cost of storage went down 50%-74%

8 H.E. Butt Grocery Company
Key Success Factors for H.E.Butt Their ability to maintain a low price (its core differentiator) Highly reliable technology – systems failure can incur significant losses in sales volume Properly timed investments in IT curve Application of technology within the firm and across the firms with partners. Continuous IT development and use for improving the organizations operation and industry position

9 H.E. Butt Grocery Company
What next?

10 H.E. Butt Grocery Company
The Nature of Grocery Stores Loyalty card Data Mining Providing information to suppliers

11 H.E. Butt Grocery Company
Conclusion It is difficult and time consuming to execute these revolutionary changes, particularly when the nature or structure of the industry is changing as well. Wal-Mart is a real treat to many store because of its IT capabilities H.E. Butt’s effort to create infrastructure have not only facilitated the execution of today’s opportunity, but created new ones for the future In most cultural change transformation, staff turnover statistics is both discouraging and realistic Improving within the organization and across the organization is important in order to maximize IT opportunities Senior executive active involvement in strategic IT initiatives is crucial to implementation success.

12 Organizational Framework

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