Best Buy Inventory

Executive summary

The purpose of this report is to analyze the current supply chain practices in the growth of Best Buy. It also describes how Best Buy modifies its business processes, strategies and management to focus on customer-centric approach in order to ensure its efficiency and success of its business.

Best Buy is a multi-national and multi-channel retailer of technology products. The Company operates a group of brands, such as Best Buy, Future Shop, Best Buy Mobile, Best Buy for Business, Geek Squad, and ReClaim. It also offers technology services including technical support, repair, troubleshooting and installation under the Geek Squad brand.

Three levels of supply chain management include strategic planning, tactical management and operational management. Implementing strong strategic and tactical planning can lead to effective operational level processes in the company.

This report not only depicts information about its supply chain management, but also analyzes its competitive strategy. By opting its superior technology and supply chain optimization, Best Buy provides timely and effective services to the customers and operates its supply chain in an informative, evolutionary and efficient way.

The areas of procurement and distribution are highlighted. It describes how its procurement process and distribution system affected its business.

Two common inventory management strategies are the just-in-time method and materials requirement planning. The report also shows Best Buy how to use efficient and appropriate control of inventory to transfer these benefits to competitive advantage.

At the same time, challenges and risks have emerged from the Best Buy supply chain. Key challenges in its current supply chain management will see in the areas of increasing customer demands and expectations, reducing costs and racing with technology. Measures must be implemented in order to mitigate its risks.

In order to operate as efficiently and cost-effectively as possible, Best Buy must continue to improve the weakness of supply chain of a company.

Introduction

Best Buy was incorporated in the state of Minnesota in 1966 as Sound of Music Inc. Today, it is the world’s largest multi-channel consumer electronics retailer with stores in the U.S., Canada, China and Mexico. Best Buy products include mobile phones, tablets and computers, large and small appliances, televisions, digital imaging & entertainment products, and related accessories. It also offers its consumers technology services including support, repair, troubleshooting and installation (under the Geek Squad brand). Best Buy also operates e-commerce operations, retail stores and call centers and conducts operations under a variety of names such as Best Buy (Bestbuy.com, Bestbuy.ca), Best Buy Mobile, Five Star, Future Shop, Geek Squad, Magnolia Audio Video, and Pacific Sales.

Best Buy operates as two reportable segments: domestic and international. The Domestic segment is comprised of all operations within the U.S and the International segment is comprised of all operations outside the U.S. and its territories.

Best Buy’s business, like that of many retailers, is seasonal. Historically, Best Buy has realized more of its revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Europe, Canada and Mexico. While some of the products and services offered by Best Buy can be considered as essential, others are viewed as discretionary purchases. As a result, their financial results are susceptible to changes in consumer confidence and other macroeconomic factors, including unemployment and consumer credit availability.

Additionally, there are other factors that directly impact Best Buy’s performance, such as product life-cycles and the competitive retail environment. According to their 2014 Annual Report, Best Buy’s value proposition is “to offer: (1) the latest devices and services, all in one place; (2) knowledgeable, impartial advice; (3) competitive prices; (4) the consumer's ability to shop Best Buy wherever and whenever they like; and (5) technical and warranty support for the life of the product.”

Business processes

Best Buy’s core business is to distribute a broad selection of products - predominantly from third-party suppliers to the end users. As a result, Best Buy’s success depends on their vendors' and their ability to successfully introduce new products, services and technologies to consumers. The level of success they achieve is dependent on such factors as the frequency of product and service innovations, how accurately they predict consumer preferences, the level of consumer demand, availability of merchandise, and the related impact on the demand for existing products, and the competitive environment. Consumers continue to have a wide variety of choices in terms of how and where they purchase the products and services Best Buy sells. Failure to accurately predict and adapt to constantly changing technology and consumer preferences, spending patterns and other lifestyle decisions, could adversely affect Best Buy’s revenues and profitability.

In order to ensure product availability and to avoid stock outs, Best Buy carefully monitors and manages their inventory levels to match quantities on hand with consumer demand as closely as possible. Key elements to their inventory management process include: continuous monitoring of historical and projected consumer demand, continuous monitoring and adjustment of inventory receipt levels, agreements with vendors relating to reimbursement for the cost of markdowns or sales incentives, and agreements with vendors relating to return privileges for certain products. Needless to say, any disruptions in supply from any of their key vendors could have a detrimental effect on Best Buy’s bottom line. As a result, an integral part for the effective and efficient operation of Best Buy as a business is dependent on their ability to manage information systems. Best Buy relies heavily on their management information systems to manage all key aspects of their business, including demand forecasting, purchasing, supply chain management, point-of-sale processing, staff planning and deployment, website offerings, financial management and forecasting and safeguarding critical and sensitive information. The failure of their management information systems to perform as anticipated, or to meet the continuously evolving needs of their business, could significantly disrupt

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