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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

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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.
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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)
h e butt grocery company4
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.