Presentation on theme: "H.E. Butt Grocery Company"— Presentation transcript:
1H.E. Butt Grocery Company What are the Industrial CharacteristicsMassive: 376 billion IndustryHeavily fragmented with top five companies accounting for only 21% salesUnder tremendous pressure from Wal-Mart to become either more efficient or extinctIT based consumer response has the potential for $30 billion in savingFacilitated by Food Market InstituteMassive inefficiencies are present in the channel (forward buying and so forth)_The industry is highly geographically focused.
2H.E. Butt Grocery Company H.E. Butt Grocery Company CharacteristicsIt is a mid-size chain with 200 stores, ranked #13 in the country in 1993, with sales of 3.2Strong commitment to ITH.E. Butt is has a dominant presence in its region (where Wal-Mart is also located)Recently reorganized around category managementNew incentives system is built around productsWal-Mart contracting with Procter & Gamble for new EDI-based order entry system was a major concern to H.E. Butt.
3H.E. Butt Grocery Company Technology & the Industry Logistics Value ChainOld SystemP&G was particularly pleased to work with with HEBPrevious orders were sent by fax 3-4 times a week from HEB warehouseThe orders were manually prepared and shipped 6-10 days later.New SystemAll grocery items in HEB’s warehouse were bar codedWhen an item leaves the warehouse P&G in automatically informedThe 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)
4H.E. Butt Grocery Company Old StrategiesForward pricingWarehousingNew StrategiesEveryday low priceThe ability to maintain low pricing is a core differentiatorA standard, year-long price for each item was negotiatedTechnology is key enabler for the company to drive costs down as to be able to sustain low pricesIT is now a strategic tool because system failure can incur significant losses in sales volumeTiming of system investment and implementation was important
5H.E. Butt Grocery Company New StrategiesWith 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.
6H.E. Butt Grocery Company Outsourcing (Win-Win Game)Dramatic reduction in inventory levels and reduced ordering and logistics costs in routinely supplying its warehouseEliminated 6-10 days from the previous order cycleDeal price (eliminating forward buy)For P&G a more predictable demand and commensurately smoother manufacturing processes, as well as reduced logistics costs
7H.E. Butt Grocery Company Number of new Inventorysuppliers TurnsCost of storage went down 50%-74%
8H.E. Butt Grocery Company Key Success Factors for H.E.ButtTheir ability to maintain a low price (its core differentiator)Highly reliable technology – systems failure can incur significant losses in sales volumeProperly timed investments in IT curveApplication of technology within the firm and across the firms with partners.Continuous IT development and use for improving the organizations operation and industry position
10H.E. Butt Grocery Company The Nature of Grocery StoresLoyalty cardData MiningProviding information to suppliers
11H.E. Butt Grocery Company ConclusionIt 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 capabilitiesH.E. Butt’s effort to create infrastructure have not only facilitated the execution of today’s opportunity, but created new ones for the futureIn most cultural change transformation, staff turnover statistics is both discouraging and realisticImproving within the organization and across the organization is important in order to maximize IT opportunitiesSenior executive active involvement in strategic IT initiatives is crucial to implementation success.