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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
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.

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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.

H e butt grocery company2
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)

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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

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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.

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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

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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%

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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

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H.E. Butt Grocery Company

  • The Nature of Grocery Stores

    • www.PeaPod.com.

    • Loyalty card

    • Data Mining

      • Providing information to suppliers

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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.