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H.E. Butt Grocery Company

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

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H.E. Butt Grocery Company

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  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 1991 4 11.6 1993 26 22.4 1994 36 38.6 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 • www.PeaPod.com. • 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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