EPC/RFID in Action at Best Buy Paul Freeman RFID Director, Best Buy April 11, 2005 April 15, 2005 1
About Best Buy Best Buy Co., Inc. (NYSE: BBY) Fortune 100 growth company $27 Billion in sales revenue 830 retail stores across the United States and in Canada connect customers with technology and entertainment products and services that make life easier and more fun We sell: consumer electronics, home-office products, entertainment software, appliances and related services. A Minneapolis Minnesota based company, our operations include: Best Buy Future Shop Geek Squad Magnolia Audio Video 2
Today s presentation Best Buy s EPC/RFID Program Where does Best Buy see ROI from EPC/RFID? Our requirements for Item Level EPC/RFID tags 3
Benefits Shared Item Location and Event Data Shared Item Attribute and Sales Data WWRE Physical Flow Physical Flow Physical Flow Suppliers Best Buy Supply Chain Best Buy Store Customers Supplier Benefits Supply chain visibility Lower distribution costs Improve order accuracy and fill rates Increase product sell through Promotion effectiveness Reduce shrink and theft Lower returns processing cost Streamline warranty claims authorization Customer insight Distribution Benefits Increase distribution velocity and capacity utilization Lower distribution cost Improve SC execution and inventory accuracy Dynamic sorting, allocation, and network balancing In-store Benefits Improve Customer Encountered In-stocks and space utilization Reduce store stocking and farming labor Reduce discounting Improve pricing and promotion efficiency Dynamic automated planograming Consumer Benefits Pass-through cost savings Rich product detail via electronic signage Merchandise location, availability & selection Self check-out VIP treatment and loyalty benefits Express warranty and returns Long term asset protection (fraud, loss) 4
Best Buy RFID Program Structure and Key Deliverables Internal Readiness High level value targeting RFID Demo Lab RFID internal Education Strategy development Facility testing Pilot planning Pilot Implementation & run Rollout planning Rollout Implementation Production cutover Supplier Readiness Supplier discussions, planning Supplier impact analysis benefits & costs Clear comprehensive requirements and timeline Quarterly Vendor Milestones & review Location selection and preparation Pilots and tests with select early adopters in FY06 SKU Product selection for pilot Test design and execution Blueprint for supplier data exchange model EPC/RFID Value Creation (R&D) EPC Global participation Item level work group Hardware, software work group Internal training & education Retail RFID execution Item level & smart shelf R&D Involve key technology partners Program management and execution 5
Supplier Pilot Overview, Starts January 2006 Pilot suppliers represent 80% of total shipment volume All major product categories represented Pilot runs in parallel with current processes for shipping, routing, receiving, packaging, labeling, and invoicing. Suppliers place RFID tags on cartons and pallets Suppliers send carton and pallet EPC information to BBY via Advanced Ship Notice (EDI ASN-856) EPC reads will be captured at RFID enabled dock doors. Reporting will compare EPC reads to ASN and actual PO receiving. EPC reads, read rate, tag, and ASN performance reporting will be shared with suppliers via portal 6
End-state Vision What can happen over the next 48 months? You might have your new car paid off Your Son or Daughter maybe starting college You will hit the day after Thanksgiving sale at Best Buy 4 times EPC/RFID has broad marketplace adoption 7
Day in the Life with EPC Retail Store Operations In the Store Back Room At the Store Shelf On the Store Floor At the Checkout Lane RFID readers automatically confirm receipts and update store inventory as product is unloaded. RFID-enabled smart shelves can predict, identify, and report shelf stock levels to store employees. Opt-in programs allow customers access to in store promotions and improved customer service. Serialized EPC codes increase the speed and accuracy of customer checkout and returns processing. Reduce store labor cost Lower labor cost; increase customer encountered in stock Increase customer satisfaction, & revenue Improve customer service; reduce returns fraud 8
Day in the Life with EPC Merchandising At the Store Shelf On the Store Floor At Best Buy Corporate With the Supplier RFID can be used to develop insight into consumer behavior, and shape our assortment to serve our customers. RFID-enabled smart shelves enable visibility on sales performance by store. RFID-enabled smart shelves can report on actual versus originally recommended store plan-o-grams. Data from RFID-enabled smart shelves correlate sales to promotions and product placement. Increase revenue and margins Increase revenue and margins Increase revenue and margins Increase revenue and margins 9
Day in the Life with EPC Inventory Planning For Replenishment In Demand Planning Working with Suppliers In Inventory Control RFID provides real-time, accurate inventory data that can be used to optimize store replenishment. RFID captures real time demand and inventory information across multiple tiers of the supply chain. RFID provides a low cost means for exchanging the data inputs for demand and inventory planning. Store and distribution center RFID provide real-time, accurate inventory at the serial number level. Increase forecast and inventory accuracy Increase forecast accuracy and revenue Decrease operating cost Reduce DC and corporate labor costs; increase revenue 10
Day in the Life with EPC Fulfillment At the Receiving Door During Put Away During the Pick Wave At the Shipping Door RFID readers automatically confirm receipts and update inventory as product is unloaded. RFID enables directed put away both to distribution center shelves and also crossdock locations. RFID-directed picking allows material handlers to focus on product movement and eliminate data entry tasks. RFID eliminates the need to manually scan barcodes and enter data for outbound shipments. Reduce labor cost; increase inventory accuracy Increase DC velocity and inventory accuracy; reduce labor cost Increase inventory accuracy and revenue; reduce labor cost Increase DC velocity; reduce labor cost 11
Sources of Value 12
EPC/RFID Sources of Value 1. Lower Cost of Data Capture 2. Increased Data Accuracy and Granularity 3. Higher Distribution Velocity 4. Enhanced Track and Trace Ability 5. Lower Cost of Data Access & Collaboration 13
Sample Business Opportunities at Best Buy Business Opportunity How RFID Helps Value Lever Distribution Labor Customer Availability and Inventory Optimization Customer Encountered Instocks RFID readers at shipping and receiving bays reduce the labor required to handle and distribute products. Higher accuracy of perpetual inventory data improves forecast accuracy and replenishment quality. RFID portals differentiate product location between sales floor and stockroom/up-stock locations (CA vs. CEIS). SG&A COGS Revenue Inventory Revenue Event and exception Management Merchandising, assortment, and space optimization Returns, service, and warranty processing Supplier Management RFID captures and reports real-time exceptions in the distribution network RFID can be used to track location-specific sales within the store and correlate placement-to-purchase statistics. Serialized EPC tags provide immediate identification and dispensation for return, service, and warranty products. RFID enables the systemic receipt and reconciliation of ASNs and receipt confirmation. Inventory Turns Customer Availability Revenue Close Rate Sales per SF COGS SG&A SG&A 14
Retail Requirements 15
Best Buy Requirements for the RFID Industry Suppliers should only have to apply one RFID Tag The RFID Tag needs to provide benefit as far up and down the value chain as possible Manufacturing, Transportation, Retail, Consumer It must improve on, and replace current solutions Bar Code, Loss Prevention Systems It must be reliable 100% accurate read rate It must be affordable Hardware, Software, Tags 16
Our requirements for EPC/RFID Tags Supply Chain Footprint Pallet Case Item 17
Our requirements for EPC/RFID Tags At Shelf Level The same RFID tag must work at the shelf location at the Item Level 18
Our requirements for EPC/RFID Tags At Point of Sale The same RFID tag must read at the Item Level through POS 19
Our requirements for EPC/RFID Tags Loss Prevention The same RFID tag must read through the front door LP systems 20
Our requirements for EPC/RFID Tags Item Authentication The same RFID tag must read at the Customer Service Counter when product is returned 21
Today s presentation Best Buy has an established EPC/RFID Program Best Buy sees strong benefits from EPC/RFID There are retail needs for Item Level EPC solutions 22
Thank you for the opportunity to share what Best Buy is doing, and for your time Questions? 23