Operations Management and the Demise of Best Buy Essay
Operations Management and the Demise of Best Buy
This project will discuss the inventory methods, customer service, and overall operations of Best Buy and how through better operations management the company can be operated. We will use examples from the text book, class discussion and group discussion. We will also consult with trade journals and internet articles.
Best buy was founded in 1996 in Richfield, Minnesota by Richard Schulze as an electronic specialty store. The company has gained 19% of the consumer electronics sales market. Best buy operates over 1150 stores worldwide and has several different brands and subsidiaries including Geek Squad, Magnolia audio video and Best express. Best buy has generated over 40 billion dollars in revenues in North America, 3 billion in Europe and 1.5 billion in China. Best buy experienced great revenues when its rival Circuit city went out of business and did very well up until the economic downturn of 2008 and 2009.
Problems and current situation:
The company continues have to have fierce competition from Verizon, ATT, Apple Wal-Mart and most importantly “Amazon”. The completion for customers is only getting fiercer with the online retailers like Amazon continues to take more and more market share away room Best Buy.
Downfall of Best Buy:
Why is best buy going out of business now?
In one sense Best Buy is its own worst enemy; there has been number of issues with best buy. Some of the stated issues are:
1. Poor product knowledge and lack of product availability:
For example at the beginning of the semester I wanted to buy a new laptop. I went to the Best Buy closest to the school and I knew what I wanted and how much I was willing to pay. I had research the Best Buy website and found it online but did not have time or patience to wait. So I went to the store and they did not have the laptop I wanted. I found a similar laptop that performed just as well but it’s not what I wanted.
2. Higher prices:
Best Buy cannot compete on price any longer and the customers know this full and well. For example if you found the attest technology gadget in best buy for 100 dollars and online for 75 dollars, where would you buy all thing being equal. Of the answer is you would buy it online. Especially if it’s a product you are familiar with. This only makes Best Buys show rooming problem even worse.
3. Poor Customer satisfaction:
Satisfying a customer is a major key to make business, but best buy seems loosing this key. Some recent surveys show that Best Buy has been doing its best to leave the troops unhappy. Major factors for this are the higher prices, poor customer service, and lack to inventory management. In this era of Cut-Throat Competition, Best buy is losing its grip in the electronic market. Corporation like Amazon, eBay are spreading its business very fast leaving no scope of mistake for its competitors. Best buy has lacks product for display in there show rooms, says my personal experience. Entering the stores and unable to spot the latest products of high end American brands like apple, doesn’t impress anyone. Specially, when you have the access to all kind of electronic product on websites like Amazon that too with all kind of technical details.
Best Buy need to develop its inventory management so as to display and deliver products to their customers on time. Focusing the blunders where company made apologies to thousands of customers for not delivering products for Christmas which were orders on thanks giving, Best buy’s reputation is in jeopardy Another trouble which Best Buy is facing is – it is unable to provide a free home delivery unlike Amazon and EBay. Also these online websites provides facilities like picking the product from the customer’s place if the customer wishes to return the order. This has deprived Best Buy from a huge crowd to potential customers. There is a severe need that best buy should make some strategies to develop a system of free home delivery. One more factor which bothers most to a lay man is paying high prices.
Best Buy must work out some plans to compete online websites and also some emerging electronic store which intend to sell products keeping low margin money. Serving the customer in better way seems like a past policy of Best Buy. When a company’s customer experience starts to drop, it’s time to sell the stock. I’m afraid that may have happened at Best Buy, especially when I look at their new customer satisfaction surveys. Moments when the customer representative have no clue to the technical aspect of the product has become common. May be some training sessions for the CR’s may come out fruitful. Dominant trends are consistently conspiring against their business model; Best Buy must accept this fact.
Out of which buying products from your house sitting on a couch, interests every customer. Moreover the innovative high graphic design and sophisticated virtual display of product is making things work better for online sellers and buyers but a hard nut for companies like best buy. Best buy has been trying aggressively to flourish its market in places like UK, China and may be, this has led Best Buy to get distracted from its home ground of performance. Seems like its high time for Best buy to re-engineer its business module and work hard on customer satisfaction sector.
(Sources: American Customer Satisfaction Index and Devil’s Advocate Group analysis) Many store focus on customer service, but Best Buy does not care. According to “http://www.resellerratings.com/store/Best_Buy” Best Buy one of the lowest customer rating on customer service. I myself had a bad experience when I bought a Dell laptop on Best Buy online. The laptop will crash (blue screen) when I use more than 30 minutes. First, I thought the software I tried to find the problem, but not found anything. When it crashed too many times, I decided to restore the Windows. It still crashed then I decided to exchange the laptop at Best Buy Saugus (close to my house). I met a lady there then explained the problem. After that she took my laptop to test. When she came back she refused to accept laptop return.
She told me there was nothing wrong on that laptop. I told her I cannot use that laptop it crashed if I use more than 30 minutes. I had used that laptop for 5 days and the return policy is 15 days (now change to 30 days), so I can exchange. She replied if I want to return and exchange I have to pay 15 percent restocking fees. I asked her why, she replied because I returned a good laptop. I kept explaining her about the laptop problem, but she did not listen to me then she called another customer “Next customer”. I was very angry.
4. Lack of Employee’s Knowledge and the use of technology: Best Buy has sufficient number of employees to serve the crowd of customers. Majority of the best buy’s employee does not have the best convincing power at first glance. They employees do not have sufficient knowledge about the product and are not updated with the updating of technology. From my personal experience I found that some of the employees do not have sufficient knowledge about the products. I went there to buy an Apple Mac Book Pro. I had used apple products since a long time so I asked them some technical queries. And out of my 7 queries they were able to solve only 4 of my queries, and on asking about the rest they replied me that we are extremely sorry but we do not have an answer for this.
Then I went to apple store and placed the same 7 queries on their desk and I got the solution for all my 7 queries. The department also faces problems of over stock and out of stock of materials. Best buy is also not updated with the technology of automatic request of placing orders. There are problems when the materials go out of stock and the customer is in need to that particular material only. Being a competitive world the customer won’t wait for couple of days to get that material from best buy instead would go to any other store and get that material.
These problems can be solved if technologies are used to a good extent. Comparing Wal-Mart and best buy Wal-Mart uses an automatic re-order technique for all its materials. For example: 100 counts of chips are ordered and the details are placed in their database. As the counts of the chips from their database go below 30 the system automatic places a re-order of 100 counts of chips. Using this way they never face an over stock and out of stock problems. The database is up to date with the latest entries of the inventories.
5. Inventory management:
On the management side of the company it has big problems with its inventory management as well as its compensation policy. Best buy was very slow to enter the online market and has not done well in making its website very good. The company inventory system should change to a more perpetual inventory similar to Wal-Mart. And it should have a compensation system based on good sales as well as good service. A better Human resource policy based on production would better serve the company. The company must also find a way to capture the customer in the store and not has the customer use the store as testing center to later buy over the internet. The company has failed to make this happen; better sales training as well as customer service training could offset this. Additionally Best has got to rid of selling DVD’s, and CD’s.
They are taking up way to much space in the stores and they are selling fast enough due to them being obsolete. The company has tried to change this buy opening Best Buy mobile stores in shopping malls similar to cell phone providers. This has reduced cost associated with operating the big box store that best buy has been known for. This also reduces square footage to help in making the company more profitable. If they can continue to use this placement strategy they might be able to save the company. All in all this improvements may help the company in the short term. In the long term Amazon will prevail and put Best Buy out of business.
6. Online- a bad decision:
Nowadays, the numbers of customers shopping online increase significantly. It is more convenience save time and money. Many retailers are focusing on Online shopping including Best Buy, Wal-Mart, Target, Sear, Home Depot, Loews, Amazon, Newegg, and so on. Many Online stores do much better than Best Buy. Best Buy Online has many weaknesses including: shipping fees, price management, inventory management, and customer service. Best Buy does not care much about shipping fees. The shipping fees is too expensive if compare to other stores. For example, If I want to buy Number Hunt (baby toy), it cost $10.50, plus shipping $6.14, and plus tax $0.65. Total cost would be: $10.50 + $6.14 + $0.65 = $17.29 If I buy three Number Hunt, Best Buy will charge the shipping fee three times ($6.14 x 3 = $18.42).
The total for three Number Hunt would be $51.87. If I buy from Amazon it costs $9.99 plus $4.99 shipping. Total $9.99 + $4.99 = $14.98. If I buy three Number Hunt, Amazon will not charge shipping free because the total over $25.00. The total for three Number Hunt would be $9.99 x 3 = $29.97. This example ( $51.87 VS $29.97) show me that Best Buy online store cannot compete with big online stores like Amazon.com or Newegg.com at all. Best Buy should talk to shipping companies to get the same shipping deal like Amazon or Newegg otherwise Best Buy will become a showroom. Another problem, Best Buy Online has to compete with other retail store like Wal-Mart, Target, Sear, Kmart, Home depot, Loews and so on. The small stuff like toy customers most likely would buy from Walmart.com, because the price always cheaper than Best Buy and Wal-Mart charge flat rate shipping. It means whether customers buy one or five items they pay the shipping for the first item only.
Whey Best Buy charge every single item? Best Buy has price match policy to compete with other stores, but the policy does not work on Best Buy Online. Best Buy has small AT&T in side and an Apple retail store. If customers want to buy I-phone 5 in store, Best Buy will sell to contract customers only. On other hand, customer can buy an I-Phone 5 without contract on Best Buy Online. It costs $699.00 ($50 more expensive that Apple Store). Why Best Buy sell $50 more expensive than Apple store? On customer point of view, it does not make any scene to buy an I-Phone 5 without contract form Best Buy Online at all. That problem make customers decide to shop at Apple directly rather than via Best Buy Apple store. Best Buy Online does not have a good inventory management to manage the inventory. Many customers could not receive what they order, because Best Buy Online does not have in their warehouse to ship. Here a quote from resellerratings.com “awful.
Service was bad, rude, and nasty. Didn’t have the product I wanted and told me they did. I had to wait 2 weeks to get it. I called and they said, there was nothing they could do. The entire district was out. That is awful inventory management to let 15 stores go out of a product. Will not be shopping here again” Sometimes there are plenty order items in the local Best Buy Store, but Best Buy local stores could not ship the item that was order on Best Buy Online. It is not a good business practices. Best Buy should allow local store to ship the item if Best Buy Online warehouse run out of stock to keep the customers happy and get the item that they ordered. Another alternative solution, Best Buy could adopt just on time inventory management to manage the inventory.
If Best Buy wants to survive and be a best place to buy electronic product online, they should implement the shipping fees, price management, inventory management, and customer service. Best Buy Online has lost many customers. If the customers keep leaving Best Buy Online like that Best Buy Online would be out of business like Circuit City. It is not too late, but the implementation should take an action soon.
In conclusion we feel that Best Buy would have to make a huge investment in operations management, training, inventory management and customer service to turn around the company. We feel collectively the end of Best buy is coming soon due to the above factors and more importantly the online retailers. Because of the deficiencies in Best Buy the company will not be able to recover from its flaws. We feel that the consumer will continue to use the Best Buy for showroom purposes and then buy online. The investment in time and dollars needed to change the company will not be worth it in the long run