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.