The principle objectives of the firm
The H.E. Butt Grocery Company which is one of the largest grocery stores in Texas operates with the following principle objectives.
- To be a market share in the sale of grocery in East and Southern Texas
- To be of customer services in provision of commodities to its customers through price reduction
- To be result oriented where all employees have to be part of it.
- To increase their profits through cost reduction strategy through the adoption of the every day low price (EDLP).
- Use information technology to improve he efficiency of the company
- Operate using low product prices with the aim of achieving long-term company’s strength (Clark and Croson 3)
- To reduce channel cost through the use of CRP
Market conditions under which H.E. Butt Grocery Company operates
H.E. Butt Grocery Company operates under competitive market conditions. The company reduces the prices of the commodities to achieve a great market share. This is seen by the fact that it operated in a large geographical representation with a lot of customers and was ranked 13 in the US (Clark and Croson 23). It is also clear that the use of the CRP and CM where initiatives’ of the ERP which where to be used to increased competition in the market hence achieving efficiency. The company also operates under a very technologically advanced market. This is witnessed by the application of new technology to reduce cost as well as increase the market share.
How the firm evaluates and quantifies its product demand
The demand of the H.E. Butt Grocery Company is evaluated by the use of POS data that was used to collect data on the customers’ purchasing power and habits (Clark and Croson 4). By knowing the purchasing index and habits it is easy to evaluate and quantify that demand of some products. By analysing the data collected it was possible for the company to determine who has stopped purchasing. This data can show demand of the products, because demand of a product is the willingness to buy a commodity at a given price. The company also use the traditional way of knowing the available stock in the back stores and in the shelves. For instance, through counting of the inventories used in a single day it is possible to determine that demand of a particular product. If the products stocked in the shelves gets exhausted quickly then the company can evaluate the demand of that particular product. According to (Clark and Croson 5) inspecting the shelf and back room stock it is possible to determine what is missing and what is not moving. This way the recordings of different products would be used to evaluate and quantify demand of the products. After verifications on the products absence or presence in the store message would be relayed to the management on the inventories demand rate.
How the company determine its output and pricing for its products
To determine the prices of the commodities at the retail stores HEB established a pricing strategy that would increase profits. Instead of using the traduitional methods of promotions, H.E. Butt Grocery Company started using the Every Day Low price (EDLP) strategy (Clark and Croson 4). It the company combined the mixed EDLP with promotional pricing strategy. This method of operating at low costs determined the pricing of the HEB products. This strategy was meant to encourage easy movement of sales of products especially the perishables and snacks. The strategy stimulates sales movements in the company, increasing output through profits making. The idea was a simple marketing strategy based on the idea that customers would be more willing to purchase a product if it is under promotions or the prices are low on a daily basis. Promotions attract customers so are low prices increasing the frequency and the rate of purchasing hence profit making. Since checkers undercharged the customers on produce goods, the store used “self-service weighing and labeling systems” (Clark and Croson 4). This would encourage customers’ loyalty and honest hence high output.
HEB Company’s cost structure and how does it manage its corporate cash flow
The relative proportion of the variable cost and the fixed cost in an organisation is referred to as cost structure. The HEB cost structure is dimensional on both the variable and fixed costs. The company has invested heavily in automation equipments, which is fixed investment. This has helped the company reduce its variable costs through cost reduction and increase in reliability and efficiency in its automated equipment. The company’s primary objective is to use technology to reduce cost and increase profits. So it has applied this principle in its cost structure by ensuring all different retail stores and depart are automated. It has also used CRP systems to reduce variable cost in carrying out inventory orderings. The company has developed and adopted EDLP system that ensures that customers get goods at reduced prices. This pricing strategy increases the sales of the company leading to profits. The company also operates with the objective of achieving a long-term strength in the market. Accompany that operates with a projection of high sales like HEB is likely to have a higher contribution margin ratio. This is witnessed with the large volumes of sales that lead to direct proportion in profits margins. HEB has a blend of both the variable and fixed costs. Through the establishment of programs that are not likely to change in the next 25 years has enabled it reduce fixed costs. The management of these two types of costs ensures that a company survives in during the times of downturns and when it is doing well. This is the case witnessed in the HEB Company.
Management of a corporate cash flow ensures that an organisation stays in business. The HEB uses cash flow measuring where it has adopted of retail select card that stores POS data (Clark and Croson 4). It also uses the EDLP system and promotional system to allow increase in sales. Through this programmes it is able to improve receivables and be able to pay any debts with the earned money rather than using its savings. HEB is able to manage its payables through the use of CRP and EDI (Clark and Croson 20). These programmes enable the company to communicate with the vendors in advance before getting inventories. The company also concentrates on maintain its market share through improvement in its services. This has been achieved through employees training on the new management systems. To cut some costs the company has branded some of its products. It has also improved products pricings to reduce unnecessary expenses (Clark and Croson 4). The company also ensures that unmoving stock is got rid of, because it restricts the cash flow through sales.
Type of risks the corporation face and how they mitigate these
The company was faced with the risk of getting the required trust from the retailers and manufacturers (Clark and Croson 3). This was because if the adoption of the new system that allowed the use of ECR and the managers had no trust since they were used to the win lose situation. The concept of the ECR was to bring I n a win-win situation in the management and running of the retail stores. This risk was overcome through the use of CRP which took long time to convince the vendors on its advantages. The programs took more than a year to fully make the vendors aware of its applicability and usefulness. Through joint cooperation trust was gained and the programs installed benefiting both the chain stores and the vendors
The company had a weak network system that they operated under. It was impossible in the first to gain access to the head quarter and report on matters directly. Communication between the managers and the headquarters was also very poor at the time. This strengthens this chain stores adopt a new technology that allowed interlinking of the stores. According to Clark and Croson (3) HEB had to install a “VSAT –based communication system linking all the stores to the HQ computers during the 1990s”. This was meant to strengthen the network that was weak at the moment. The system also allowed an increased flow of communication internally through application of VSAT. Cost was reduced and minimised; this encouraged the application of the new technology. To improve the communication, the company also adopted the use of emails where they could work from home (Clark and Croson 3). They also used the Motorola handsets so as to improve communications between different chain stores. This also increased the sales and communication of the companies.
The company faces the risk of pricing accuracy on some of its products in different retail stores (Clark and Croson 4). This was because the pricing was not centrally generated but each operated independently. Changes made would sometimes fail to be effected on the shelf pricing leading to consumer complains (Clark and Croson 4). This problem was not caused by negligence but rather due to low number of manpower. In other occasions checkers were reported of undercharging the customers after using the lower price scale of some product. This was applied on produce items that were hard to different the pricing. to mitigate this problem, HEB proposed the use of “self –service produce weighing and labeling system” (Clark and Croson 4).
Because o the increase in sales volume through the use of reduces costs, the company was faced with the risks of stock outs (Clark and Croson 5). This made it impossible to restock between 4p.m and 7p, because of the great number of customers. This led to low sales because replenishing of inventories at this period was not allowed. The company adopted an automated inventory control system that would reduce stock outs (Clark and Croson 6). The adoption of computerized system ensured that the time on ordering products and delivery in the stores was reduced from the normal 24 hours to 12h hours or less (Clark and Croson 6). Because the traditional rule of thumb of not warehousing products that were less than pellet was no longer applicable the store ad problems replenishing stock. To reverse this company allowed warehousing this products and reducing jobbers’ costs that were 20% on the cost of the product (Cark and Croson 6). The company also adopted a program where it would print its own electronic price tags (Clark and Croson 20). This reduced the cost as well as complains from customers. To ensure that the shelf prices were available in time, the company required four days to fully change the prices (Cark and Croson 20). This made the services to customers ‘easy and instance of consumers complications on pricing were nullified.
The company was also faced with problem of shrinkage. Shrinkage in the retail business means a situation where a cashier charges a product on a more reduced price intentionally with the aim of colluding. To reduce this risk which was rampant, the company adopted a new system where the soft ware would track the movement of goods (Cark and Croson 20). This reduced shrinkage and increased efficiency in the chain stores. There was also a problem of substitution of goods and products (Clark and Croson 20). This was done by DSD vendors who would substitute the goods with others available. This created a problem while scanning the products leading to loss of time as well o products. Products were lost in the sense that the cashier would give the freely to reduces the time wastage on one customer. To counter this risk, HEB adopted a new DSD system where all the vendors would scan al their product during the offloading in the receiving area (Clark and Croson 20). It also reduced shrinkage of goods from the time they left the warehouses to the time they reached the stores. The ordering system of products was low so was the pricing accuracy. The company adopted the use of POS data with the aim of improving the ordering process (Clark and Croson 20). The company also ensured the use of POS scanners which had an efficiency of 95 to 97%.
Impact of globalization in the company’s decision making process
Globalization has had several impacts on the decision making process of H.E. Butt Grocery Company. For instance emergence of technology ensured that the company could make a centralised decision making. This has been achieved through the installation of programs and software where communications can be made though emails. Managers instead of waiting in office have started to enjoy work flexibility where they can make decisions from. This has seen the company grow and reduce the time that was made to have decision makings. Information can be relayed from the retail stores branches to the headquarters. This has increased the decision making process reducing time wasting as well as reductions the cost of operations. From the case study it is clear that communication made it possible for the company and its venders. For example, Irvin was able to assist implementation of CRP Clark and Croson (13), because she was able to communicate with managers, vendors and other teams through voice mailing and the use of emails, while she was in maternity leave.
Through the use of CRP the H.E. Butt Grocery Company has been able to communicate freely and faster with various vendors. This has been influenced by the change in technology where the company uses Electronic data interchange (EDI) (Clark and Croson 11). This has enabled the movement of warehouse data to the required destinations at a high speed. With different retail stores, the company has been able to increase the rate of data transfer of ordering to more than 100times. This has improved the decision making on how ordering process can be carried. Costs and time has been cut through the adoption of EDI and the CRP systems. Efficiency and effectiveness in terms of operations and decision making has been enhanced through mutual cooperation. This has been facilitated by the ne w technology adopted by HEB.
The process of ordering inventories was eased and made quicker. Through the use of CRP time wasting was reduced and decisions on ordering made easier (Clark and Croson 14). The CRP program allowed different vendors communicate with different retail managers on issues of orders being made. This improved the availability of inventories to the customers I different retail stores. Managers become proactive in the ordering decision making process saving time and money. By 1991 the purchasing system was improved and the time used in buying reduced (Clark and Croson 14). So was the inventory management that was improved leading to high levels of inventory levels management. The adoption of CRP encouraged EDLP agreements with vendors (Clark and Croson 14); this reduced the time used in negotiating with vendors on reduction of costs or administering of low or high promotional prices. This ensured that enough time was left for serving customers with the aim of making profits.
Opportunities and challenges faced
Globalization does not always have positive impacts on organizations and companies. With the emergence and adoption of ECR which was a joint venture between many retail providers, competition was increased. This saw the management o the HEB shift its focus from ECR implementations and seek ways of reducing and managing the competition threat (Clark and Croson 18). The merchandise super stores entered the market with the threat of toppling the HEB chain retail stores. This was facilitated by internal factors like technology that was available to all an in one place leading to concentration. Decision making was shifted from implementation of ECR to effective and progressive competition with the new entrants (Clark and Croson 18).
Another challenge that faced HEB was full implementation of the ECR. According to Clark and Croson (19) Implementation of ECR was more than technological adaptation or innovation. The problem was how to change the process of organizing structure and process was the largest problem. This was because the organization had employees who were resistant to change. T also required finances to train employees on the new programs which would mean cost.
Constraints under which H.E. B operates
One of the constraints that the H.E. Butt Grocery Company operated under was inventory storage capacity (Clark and Croson 7). Upon the delivery of the products in the warehouses of HEB by the distributors especially on Thursdays, congestion in the warehouse would be enormous. This was because the inventories made on a single day would require the same warehouse space as the ones of a full week. Any means to reduce this constraints led “to artificial peaks in the warehouse operations and the total chain of supply” (Clark and Croson 7). This made the operations in the warehouse hard to operate. To counter this HEB established policies that encouraged distributors to deliver products to the warehouses in the days of order and not before. For deliveries that were made before the stipulated date was penalised for discouraging this behaviour.
Backhauling of the deliveries also created a constrain t to the procurement and logistics department. Some times the trucks with the deliveries would be packed in without any records being put into place. According to Clark and Croson (7) the company was faced with instances where the required goods would not be easily located because the parking of the trailers was not recorded. T o meet this constraint, the HEB improvised a technical method that ensured that the drivers had to be assigned to a parking space that was numbered (Clark and Croson 7). This encouraged easy tracing of the merchandised trailers because the numbers were numbered and input in the data base. It also ensured that the driver had a radio transmitter that would be attached to the trailers easing the location of the trailer.
Forecasting/management tools used by HEB
HEB use the POS data collected from its buyers to do marketing and planning for the future (Clark and Croson 3). This method enables the company determine the demand and forecast on future expectations and the consumer turnover. It also uses a report card to determine the performance and behaviours of workers (Clark and Croson 21). This management tools is able to keep the track of its employees. So far the POS has been successful but the report card has received a lot of criticism from various managers as it is seen a method that derails morale. Through the use of ERP and CM the company has been able to increase its sales as well as making profits.
An analysis of the key industry fundamentals and key variables for the industry historically
In the 1990s the retail grocery stores across the US reached the maturity stage. Most the companies were faced with the problem of ineffectiveness. To increase profits and competiveness a joint venture on new ides was initiated. The Efficient Consumer Response was proposed and put into practice in 1993 (Clark and Croson 2). This was proposed with the aim of increasing competition as well as saving $30 billion. A number of technological advances and adoption was proposed but the retail owners were reluctant at first. But seeing progress in Wal-Mart who sold products at low prices and made profits, other retail stores followed suit. The groceries stores adopted new technology leaving the old traditional methods and systems. Use of POS scanners, internet and Electronic Data Interchangers (EDI) reduced the cost of operation as well as speeding the services. This gave the companies a competition edge with each willing to adopt the new technology. To survive the competition heat the companies lower their prices with the aim of keeping a market share. The companies in retail groceries used technological variables where the better the technology the better the company was positioned. Pricing of commodities was also considered so as to gain a market share that would enable the m gain adequate profits. This was done through various methods that encouraged price reductions hence profit making.
Historical analysis of both the industry and company
The industry has been competitive from the beginning. The emergence of other merchandise and retail stores in the 1990s increased competition among the companies. From the statistics given the HEB is ranked number 13 among the most competitive retail stores in the U.S (Clark and Croson 23). The company faces a stiff competition from the retail stores because they all use automated systems that are technologically advanced. The ration of the sales between the HEB and Kroger stores was 1 is to 7. This means that for every single sale in million was seven times more for Kroger stores. With the introduction of new technological innovations the industry has been able to increase competition and save an approximate of $30 billion (Clark and Croson 2). Through automated inventory system, the HRB has been able to reduce the cost by up to 30% (Clark and Croson6). The company has been able to expand its ordering from vendors up to 96%. The company through an integrated information channel it has been able to improve the logistics and distribution channel. This has been attributed to the application of cyclical improvement strategy.
Works Cited
Clark, Theodore, H. & Croson, David. C. H.E. Butt Grocery Company: A Leader in ECR Implementation. Web. England, UK: Harvard business school, 1994. Print.