1. H.E. Butt Grocery Co.: A Leader in ECR Implementations
Case Study

2. Industry Focus Huge, $376B industry
heavily fragmented
top 5 companies account for only 21% of sales
Grocery chains under great pressure from Wal-Mart type store to become more efficient
Massive inefficiencies present in channel
forward buying
poor inventory management

3. Industry Focus (cont.) Industry is highly geographically focused
top 3 companies in each region have 70% of market
Food retailing industry is an industry where technology has potential to effect significant restructuring

4. Company Focus Mid-sized food retailing chain
200 stores and 7 warehouses
ranked #13 in country
sales of $3.2B
strong commitment to technology
Dominant presence in region (Wal-Mart also located in this region)

5. Company Focus (cont.) Heavy growth in sales/employee in last decade
Growing in org. complexity as it handles more products and faster inventory
Recent commitment to EDLP strategy
Recently reorganized around “category management”
led to replacing all but 1 of its buyers

6. Company Focus (cont.) HEB’s new incentive plan is built around profits
HEB is concerned with Wal-Mart’s contract with P & G for new EDI-based order entry system
Little room for failure given their size and position in market place with Wal-Mart

7. Porter's Value Chain Manufacturers Stores Distributors
Firm Infrastructure
Human Resource Management
Technology Development
Procurement of Resources
Factory/
Warehouse
Storage/
Shelves
Competitive
Advantage
Manufacturers
Stores
Distributors

8. Porter’s Five Forces Model
Interaction between opportunities and threats
Threat of new entrants
Bargaining Power
of Buyers
of Suppliers
Threat of Substitute Products or Services
Rivalry Among Existing Competitors 7

9. Key Success Factors at HEB
Ability to maintain low pricing (core differentiator)
Use of technology to drive costs down and sustain them (technology seen as key enabler)
Highly reliable technology (system failure can lead to significant sales losses)
Properly timed investments in the tech curve

10. HEB Technology Initiatives
Unix Mini-computers linked to POS and then linked to HQ via VSAT system
, automated attendance reporting, automated DSD, Motorola hand radios
Ordering done by scanning labels and entering quantities into computer then uploading, still largely manual checking

11. HEB Technology Initiatives (cont)
CRP and EDI
PC pilot with P & G
moved to m/f
grew to 60% of orders
improved stockout levels, transportation costs, elliminated forward buying, lowered inventory costs
some up front costs for vendors

12. Efficient Consumer Response
See
One aspect was to link POS to CSO to implement CRP
Optimize retail space and selection
Maximize promotions in value chain
Maximize new product introductions

13. Situation at HEB at end of case
1994, 60% of inventory handled via CRP
96% of orders handled via EDI
Generating 100X more data
Warehouse stockouts dropped from 6% to 1%
Potential problem of POS accuracy
90-95% accurate; can’t support on-line access
Threat of new entrants?
Any barriers needed?

14. Update to HEB case Major initiative to improve scanner accuracy
improved scanner maintenance
replaced older scanners
disqualified vendors for poor bar coding
improved accuracy to 99.98% by end of 1995
increased data 1000x
asset and inventory responsibility moved down the value chain
pay via AFT

15. Update to HEB case (cont.)
1998 HEB initiated Peapod
designed for two income families
PC-based home grocery shopping
depends more on efficient warehousing rather than shopper-friendly stores
Loyalty cards started by Tom Thumb
HEB debating whether to start one
system cost vs. cost of not knowing customers

16. Update to HEB case (cont.)
HEB began performing “basket analysis”
1997 FMI report encouraged them to reduce number of products carried
HEB elliminated 700+ items
Basket analysis showed many of these items were present in the most profitable baskets
allows data mining for Lays vs. Pringles analysis
HEB restored these items and added 700 more in the gourmet area

17. Update to HEB case (cont.)
Moved to 12th largest grocery chain
largest private company in Texas
Expanding into Mexico and Louisiana
Chosen retailer of the year 1996
1998 sales increased to $7B with 7.7% growth

18. Lessons Learned from Case
Revolutionary changes take time
threat of Wal-Mart always there
Creating an IT infrastructure can lead to future opportunities
High staff turn-over with cultural change
Previous IT successes can determine level of success in future IT projects
Cross-industry collaboration can work