Logistics and Distribution: Getting from Here to There September/October, 2006 - ERI Journal By: Dan Berthiaume, Editor

Long relegated to the mysterious "back end" where products murkily make their way from source to shelf, logistics and distribution have more recently come front and center in the attention they receive from the Extended Retail Industry (ERI). As ERI companies continue to search for internal efficiencies in the face of brutal competition for a shrinking customer base, they are discovering the potential logistics and distribution hold.

The notion that the ERI is "wringing the supply chain for maximum value" has been popular for a while, but what does this vague phrase really mean? The supply chain is a vast collection of practices that extends far beyond logistics and distribution. Some observers go as far as to say that the supply chain has already been wrung for all it's worth.

However, the continued persistence of out-of-stocks across the ERI is just the best known of many factors that prove this assumption wrong. Smart ERI players know that the supply chain in general, and logistics and distribution in particular, are ripe with possibilities for reductions in labor and operating costs, enhancements in inventory availability, and improvements in overall customer satisfaction.

Of course, those possibilities vary with each individual logistics and distribution network. Some ERI companies may obtain significant benefit from automating existing manual processes, while others may gain the most value from radically overhauling the entire logistics and distribution approach. And in almost every case, the more closely the different partners in a logistics and distribution network collaborate, the more smoothly and efficiently it will operate.

For Minnesota-based consumer electronics retailer Best Buy, manual process automation was the key to revamping its method of procuring and distributing repair parts. To acquire repair parts across more than 6,000,000 SKUs for its "carry-in" repair facilities, Best Buy had worked with countless separate vendors while faxing, phoning and manually keying orders. The retailer found these practices time-consuming and less reliable than needed.  

Realizing that centralizing and automating its fragmented, manual distribution network would likely provide the necessary efficiencies and reliability levels, Best Buy decided to implement a virtual distribution system from 3PL National Parts, an existing Best Buy vendor. The National Parts virtual distribution system featured centralized order processing and data management based on Best Buy's business rules. This automated, non-traditional approach would consolidate and centralize Best Buy's repair parts supply chain functions for carry-in repair facilities while allowing the execution of parts distribution to remain flexible and decentralized. Best Buy embraced this concept, and the two companies collaborated to interface National Parts' technology with Best Buy's systems.

"Acquiring the massive number and variety of repair parts required for Best Buy's repairs is a major challenge," says Best Buy Director of Repair Service Dave Telschow. "(The) National Parts (system) allows us to maintain much-needed flexibility in procuring and distribution, while keeping costs down and maximizing timeliness and accuracy.”

Now all of Best Buy's repair parts procurement- and distribution-related communications take place automatically through FTP. Throughout each day, Best Buy transmits a list of parts needed, essentially a parts request for proposal (RFP), to more than 25 vendors who respond to the request with price, availability and location of the part.

Based on business rules established with Best Buy, the system automatically chooses a supplier based on the best combination of price and delivery speed. It then creates and transmits a purchase order to the supplier, who then ships the same day directly to Best Buy's repair facility. From order to invoice, the entire process can take just minutes, and thousands of transactions occur each day.

"Our expectation is to have repair parts shipped the same day," says Telschow. "Using this process, we are able to make more parts available faster than ever before, thus providing superior service to our customers.”

Since automating its repair parts supply network, Best Buy has saved millions of dollars in parts each year. With an automated system that runs 24 hours a day, seven days a week, procurement and distribution options are never limited by time or location, and same-day shipping is now a standard, rather than a goal.

Based on its success with carry-in repair facilities, Best Buy is conducting a nationwide rollout of the National Parts system to expand the automated parts procurement process to cover its "in-home" repair business, seeking to capitalize on many of the same efficiencies as the carry-in facilities.*

These are just a few examples of how forward-thinking ERI practitioners are taking creative approaches to logistics and distribution. The common threads running through all of them are a willingness to collaborate with trading partners and the utilization of real-time data tracking and communications technologies. No matter what specific logistics and distribution solution your organization adopts, it will probably involve at least one, if not both, of these features. The desired end result for virtually any logistics and distribution strategy is the same: an efficient flow of goods at a reasonable cost. No two paths to this end will be identical, but they will all be headed in the same general direction.*

*Excerpts from the September, 2006 article.
About National Parts: A Fidelitone Logistics affiliated company that provides supply-chain management solutions, technology based order management and reverse logistics services to Best Buy's consumer electronics, appliance and PC repair parts

About Best Buy Co., Inc.: Best Buy Co., Inc. (NYSE:BBY) is an innovative Fortune 100 growth company that continually strives to create superior customer experiences. Through more than 940 retail stores across the United States and in Canada, our employees connect customers with technology and entertainment products and services that make life easier and more fun. We sell consumer electronics, home-office products, entertainment software, appliances and related services. A Minneapolis-based company, our operations include: Best Buy (BestBuy.com and BestBuyCanada.ca), Future Shop (FutureShop.ca), Geek Squad (GeekSquad.com and GeekSquad.ca) and Magnolia Audio Video (Magnoliaav.com). We support our communities through employee volunteerism and grants from The Best Buy Children's Foundation.