i2 To Power Best Buy

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i2 To Power Best Buy
S. McVey - June 29, 2000

Event Summary

Consumer electronics supermarket Best Buy, Inc. announced it would license a suite of supply chain management applications from i2 Technologies to help it integrate strategic planning with merchandise and financial planning, enhance its ability to sell merchandise over the Internet, and link operations of its online and retail stores. Best Buy will implement i2's applications for demand planning, supply chain planning, logistics planning, and e-commerce capabilities and perhaps others. Since introducing its first cavernous superstore in 1989, the Minnesota-based discount retailer has grown rapidly to over 350 stores in 39 states. The company now hopes to replicate the success of its brick-and-mortar business in cyberspace.

The scope of the i2 project encompasses the major nodes along Best Buy's supply chain beginning with demand planning. Point-of-sale (POS) integration will be incorporated into the process to predict customer buying patterns and help plan promotions. The resulting forecast will then be handed over to i2's supply chain management application, which will make best use of inventory at multiple internal and third party locations to meet the demand. Logistics planning will help ensure that merchandise moves efficiently between locations, such as warehouses and retail outlets. It is unclear whether i2 or a partner will provide software to support the delivery of Internet-ordered merchandise to the customer door.

Market Impact

The Best Buy deal provides further confirmation of i2's relevance to the retail industry segment, in spite of its perception as a high tech electronics mainstay. Best Buy joins other high profile retailers like Barnes & Noble, Home Depot, and Pepsi, who help i2 achieve 30% of its license revenue from consumer goods and retail companies. Like Best Buy, Barnes & Noble will use i2 solutions to support both its retail locations worldwide and online site.

Though Home Depot currently does not offer goods online, the $40 billion home improvement retailer plans to do so in the future and is preparing its catalog for web deployment, a task that the i2/Aspect combination is eminently capable of supporting. While Best Buy and its new partner have a great deal of work ahead, the win will breed further success for i2, which will continue to penetrate the CPG/retail market to balance its presence in high tech by as early as 2001. Of course, i2 will meet other pure play SCM competitors in the online retail sector as evidenced by Manugistics' win at Amazon.com, which will use NetWORKS to fuel its worldwide fulfillment expansion.

User Recommendations

For brick-and-mortar retailers like Best Buy who are building on-line markets for their goods, the addition of an Internet channel presents a host of difficulties. The simpler tasks include constructing the customer storefront, setting up the product information (part numbers, pictures, specifications, etc.), and processing the orders with payment/credit validation. The chief complexities lie in developing the back-end processes and technology infrastructure to support goods reservations and order fulfillment for the additional on-line channel that leaves room for the brick-and-mortar side of the business. The new system to support the on-line channel must either supplant the existing legacy system or link to it effectively in order to share forecasts and inventory information so that previous goods allocations are respected. These challenges should not deter companies from making an acquisition to support both channels, but should serve to set reasonable expectations about the time and effort required for a successful implementation.

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