The retail grocery store sector is part of a bigger industry classified by the government as the retail industry. The retail industry as a whole is less than six percent organized by unions. In other words it is substantially non-union. On the other hand, the retail grocery store sector of the retail industry is substantially unionized, especially the big supermarket chains.
Grocery stores ranked among the largest industries in 1998, providing just under 3.1 million wage and salary jobs. There are about 131,000 grocery stores operating throughout the nation. With the exception of the large supermarket chains most grocery stores are small; over 60 percent employ fewer than 10 workers. The nation's large supermarket chains sell most of the groceries to the consuming public. Out of the total industry sales of $461.1 billion in 1999, a mere 20 companies with slightly less than 16,000 stores cornered $326.7 billion of the sales or 71 percent of total sales. The concentration of sales and profits are very high in this industry and they are in the hands of a small number of large companies (REAP).
H.E. Butt is a grocery store that has been in the market for a long time, and they have established themselves as a leader in the industry. But to remain a leader, and to be able to gain a larger share in the market, HEB has to perform and be more cost effective. As more and more companies fight for the same dollar, it is not enough to be selling well to be survive, you have to be able to be efficient in all aspects of business and to be able to delivery the best service possible, because prices are too similar. But if a company can provide the best service with the best price, they will be able to achieve maximum growth and survival in the industry.
HEB has a comfortable market position, but the new trends with the low-cost nationwide chain of Wal-Mart pose as a serious threat to HEB. A change in the way HEB did business was necessary for them to be able to adapt and compete. Technology and the best use of that technology would be needed. HEB was a pioneer in technology in their field, but as most pioneers, they are the ones who learn from mistakes the hard way (HEB).
The challenge was to find the best possible management solution for HEB itself and be able to implement that system to make HEB more efficient and profitable, especially against mass-merchandise chain stores that provide products at generally lower costs than that of grocery stores.
1) HEB is the 13th largest grocery retailer in the US with over 200 stores.
2) HEB managed over 1300 vendors and their products.
3) The entry of mass merchandise chain stores (Wal-Mart, Sam's Club, Walgreens) posed as a large threat. To remain profitable against these stores, HEB would have to improve its all around performance, in the whole channel and line of business.
4) HEB practice forward buying, which provide low cost of goods and good profit, but results in large inventory
5) Many manual process were still done in the company, inventory checking, stock ordering; inefficient pos systems.
6) HEB has used technology over the years to provide better service and increase margins: a) POS Systems - using scanners were incorporated, but had a poor efficiency rating with the scanners. Also pricing was independent per store, allowing problems with universal costings and the inability to change prices immediately provided poor customer satisfaction. b) Electronic communication for internal and external communication provided better access to information and better decisions. c) A network, infrastructure that connects all offices with HQ d) The incorporation of managers with the foresight to try and use new Management techniques and ERP systems.
HEB has also utilized many different forms of ERP's in the different areas of its business to be make its market position stronger and increase profitability:
1) Everyday Low Cost, a process of providing all products at generally low costs was a technique to encourage customers to continually buy from HEB. This gave them the price advantage over their similar rivals and provided them with the ability to compete with mass merchandise stores. This provided lower profits at greater amounts. But to become more cost effective, changes would need to be made to the overall channel of business.
2) Category Management, the process of providing a single person to handle a specific category and manage that category, the products and the suppliers in that category. a) CM makes managers more effective. By giving few managers more power of their respected categories HEB operating profits increased significantly. b) But the move cost buyers their jobs, as fewer buyers were needed. c) "CM were HEB's primary profit centers".
3) Continuous Replenishment, a special partnership with its primary suppliers, in which the stock level and sales monitoring are done by the suppliers, and the suppliers handle the shipment and delivery and amount of delivery to HEB according to warehouse shipments and inventory data instead of purchase orders.
* Lessens inventory since suppliers would have a detailed idea of stock amounts and amount of sales. They were able to provide stocks when needed.
* The smaller inventories saved money. By requiring less stocks funds could be more wisely utilized.
* Products were delivered at a more reliable rate and this reduced the possibility of running out of stock (Stock-outs).
* Provides HEB with a long term fixed low price for products, which makes price monitoring and profitability analysis easier.
* CRP required a more efficient scanning and information system, as any data errors causes delays or overstocks or stockouts. The amount of data being sent also accumulates drastically, requiring faster more reliable channels of information transmittal.
CRP also provides a change in relationship between supplier and retailer as a deeper partnership is needed, with more trust involved. More processes are done automatically through EDI, but the relationships needed to be more personal.
* CRP also allowed the transition from responding to consumer buying to sales forecasting.
* Every Day low price is a practice that provides the customers with generally lower cost for same products sold in different stores. This allowed the customer to save overall, but required HEB to become more efficient to allow profitability.
4) Efficient consumer response, was a technique to better manage the products that the consumers wanted the most and to provide those products to the clients.
A more enterprise wide solution compared to CM and CRP, it encompassed the processes and capabilities of these two systems and provided an automated system of flow of information through out the channel. It also had goals to effectively manage store assortment, product promotions and introductions which was handled by CM and Efficient replenishment which CRP handled.
* The system is inclusive of supply chain management, from the supplier to distributor to the store and then to the client. It provided information that the partners could use to predict sales.
* CSO or computerized store ordering was the next step in the process, allowing sales data to automatically facilitate inventory orders from warehouses and suppliers.
* ECR provided a more accurate tracking and forecasting system that benefited all the parties involved from manufacturer, retailer and customer. By providing better prices, product variety with reliable stock availability.
* By integrating more and more parts of the channel into information technology, like electronic shelf tags for fast and accurate pricing. Costs and profits could be increased.
* EMS or efficient marketing service was incorporated to more efficiently use the data that they have been gathering to be able to better predict and understand consumer needs and wants. The filtering and analyzing of data to make it useful was EMS.
* EMS also provides the capability of minimizing inventory to the bare essentials, which results in lower inventory costs and fewer people needed resulting in fewer jobs.
Evaluation of possible solutions.
Developing a complex solution for an enterprise wide system such as HEB is a long step by step process. The ECR is a growing system that effectively makes the processes in the channel more efficient. This incorporates the strengths of CM and CRP. The integration of such systems initially are a good stepping stone for the company, then the eventual integration of all the systems allows for better service, happier more loyal customers, cheaper products, more efficient inventory management and overall higher profitability for the HEB. ECR will eventually provide electronic integration for sales orders, invoicing, and even payment. They system provides the ability to effectively work during the peak times and has enough flexibility to work under inflation times.
ECR is the best solution for HEB. It has implemented a solid infrastructure to handle the processes that it does at the moment. But eventually it will have to upgrade to faster technology like fiber and broadband to handle its growing demands. The hardware systems need to be able and reliable enough to handle the current process and future requirements. So for this it is recommended that the POS, scanning and inventory system be the focus of upgrades as this will be the life blood of HEB. Its reliability and efficiency and capability to handle growth and expansion will be the succeeding factor for HEB. The invoicing and payment systems are a very logical transition for HEB in its current track of development. And these systems will be crucial to efficiency.
The development and training of the people involved will need to be a current concern, because as technology replaces the business functions of the company, fewer people will be needed and more technical people will be integrated to maintain the current systems. It would be best if the people who are incorporated now, who understand HEB and the way of business should be the ones who should be technically able to handle the systems in the future. The focus on electronic shelf tabs, are not a major concern, and seen to be as an unnecessary cost.. The delivery or distribution system of HEB should also be a major concern, as more personnel and resources will be available, this should be maximized to provide highest cost efficiency.