Supply Chain and Sales Growth: What the Best Buy Case Teaches About Going Digital

The pandemic triggered two significant shifts in the retail market. First and foremost, the lockdown caused the closure of physical stores and forced businesses to rethink their business models and strategies. Urged to go online and digital, some players succeeded, others failed. Secondly, technologies have become indispensable. Learning, working, and entertaining — everything is done within the same walls of our homes. This new lifestyle increased the demand for devices and equipment.

Retailers were forced to seek new ways of doing business. Specifically, how to ensure proper product provisioning in the prevailing circumstances, how to provide a seamless customer experience, and how to make an entire online shopping journey a positive experience. Also, employees were supposed to work differently. The strict confines of one’s job were blurred, giving the way to agility and flexibility.

Best Buy has undergone considerable changes within the last decade. The intent to evolve and correspond to reality pushed the brand towards technologies. Let’s analyze Best Buy’s developments, outcomes and draw conclusions.

Supply chain and sales: where’s the link?

Supply chain optimization creates added value for clients. This in turn provides a sustainable return on the company’s operations. According to Deloitte, core supply chain capabilities involve planning, sourcing, making, and delivery. I offer to emphasize the planning aspect, and later on, you will understand why I decided to do so.

What is planning in the context of supply chain? It is about predicting the future needs to find balance between supply and demand. As far as the strategy is concerned, businesses need to take into consideration the available capabilities of their system, asses how flexible they are to instantly react to changes and risks. Corporate departments need to work synergetically for supply chain planning. Full integration is necessary for leveraging all available resources, optimizing costs, and delivering superior value. Robust data architecture, intelligent analytics, and data-based decision-making can achieve the desired balance.

Best buy sales: the challenges remain

According to MPRnews, in 2020 Best Buy reported 20% sales growth as compared to the same period of 2019. At the same time, the company’s shares fell drastically within the first three weeks of Q3 2020.

During CES 2021 Best Buy CEO Corie Barry made the following comment:

“Unfortunately, some of the key product areas especially around working and learning from home, but also cooking and entertaining from home, we just could not keep the gear in stock. For example, nobody knew there’d be a run on webcams. Suddenly it became the hottest item. It was definitely a challenge to make sure we had all the products people needed.”

In her later interviews, Corie Barry also mentioned that the company had made significant investments in its supply chain in order to tackle the large-scale demand.

In other words, Best Buy has been working on enhancing its supply chain operations. At the same time, the company found it difficult to predict the future demand for certain product lines and as a result, have the necessary items in stock. The company’s CEO explains the existing issue by Covid-related causes, as just another pandemic-induced disruption. I offer to go back in time and assess the 2016 situation. It turns out, the problem is not new.

In 2016 which was a pre-pandemic, Best Buy reported serious issues in product availability with one holiday season. The obvious supply chain malfunction resulted in a 1% YoY revenue decline in Q4. At that time, the most popular items were mobile phones, drones, wearables, and those were in deficit. Best Buy experienced a $ 200 million revenue loss.

Again we see how supply chain flaws trigger a chain reaction. Inventory shortage led to omnichannel efforts’ failure. Best Buy introduced same-day order delivery through a mobile application. Here, things were not going well, and customers were furious and frustrated with the service. The products purchased via the application were simply absent in stores. Therefore, not only online sales were catastrophic. Even the extremely satisfied clients did not have a chance to buy additional products.

All in all, Best Buy has had a systemic problem which is not related to the Covid (though it helped). Apparently, the retailer lacks proper infrastructure and robust analytical tools to keep up with the market winners.

What can be done

Judging from the dynamics and weak areas, Best Buy might want to consider applying artificial intelligence capabilities, but only where they are really necessary. When integrated rationally and knowingly, AI can pump up the online store, boost client flow and conversion and enhance the overall efficiency at the end of the day. AI has a vast area of application, and we are expecting its further broadening.

Let’s start with targeting. Predictive analytics can reach out to the Best Buy’s customers when, where and how they want. AI-based software is increasingly used by retailers to collect exhaustive knowledge about their clients, shopping behavioral patterns. This information travels to the online stores to point at the positions preferred in the nearest future.

AI provides insight, ability to forecast and plan. Structured reports built by AI algorithms help create a perfect pitch to generate leads. Machine learning, NLP, and chatbots will aid in nurturing relationships with the audience via deeply personalized interaction.

AI also comes in the form of image recognition. Customers could definitely enjoy the option of uploading their images and search relevant products and suggestions via the app. This option is extensively used by giants such as Amazon, Taobao, Alibaba and there is a 100% probability its application will only increase.

One thing that seriously affects sales is cart abandonment. You are most likely familiar with the phenomenon yourself: a slight inconvenience can be a trigger closing the page. Around 70% of online sales are finished before checkout. AI automation comes in handy: the algorithms send an instant follow-up to identify the reason for cart abandonment. The managers, armed with this information, are aware of the exact area that needs fixing.

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Author: Rocky Osborn

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