Part and Parcel

Apparently, Best Buy can’t get too much of a good thing. The electronics retailing giant recently extended a 10-year-old contract with Fidelitone Logistics that keeps repair parts flowing to the chain’s stores and service centers.

Wauconda, Ill.-based Fidelitone “virtualizes” Best Buy’s parts supply chain. In other words, it centralizes and automates ordering, shipping and storage of the more than six million bits and pieces Best Buy needs to keep the gadgetry and appliances it sells in working order.

Fidelitone’s mission includes supporting the retailer’s Geek Squad City, a sprawling operation in Brooks, Ky., where technicians reportedly fix 3,000 laptops daily. It also watches over the flow of parts to and from the retailer’s roughly 1,000 stores.

Before signing on with Fidelitone in 2000, Best Buy struggled to keep parts in stock by faxing, phoning and manually keying in orders. Now, when Best Buy technicians repair a product, they scan the bar code of each part they use to remove it from inventory; Best Buy IT systems mesh tightly with the Fidelitone systems that take over from that point, says Fidelitone president Josh Johnson. All communication between the systems takes place via file transfer protocol (FTP).

Throughout the day, Best Buy transmits a list of the parts it needs — essentially a parts RFP — and invitations to bid are sent to more than 75 manufacturers or distributors that have established relationships with Best Buy and Fidelitone.

Suppliers respond by quoting price, availability and location of the parts and, based on the business rules established by Best Buy, the system automatically chooses the one that best meets the combination of price and turnaround time. It generates a purchase order and transmits it to the supplier, which then ships directly to Best Buy’s repair center or store. From order to invoice, the process can take just minutes, and thousands of transactions occur each day.

Delivering superior service
“Our expectation is to have repair parts shipped the same day,” says Dave Telschow, Best Buy’s director of repair service. “Using this process, we are able to make more parts available faster than ever before, thus providing superior service to our customers.”

Direct shipping reduces the amount of inventory Best Buy keeps on hand, limiting the need for storage space in Best Buy distribution centers. It also eliminates some of the labor involved in handling the parts and cuts transportation costs by reducing the number of times the company moves parts.

No supply chain is complete, however, without careful attention to the reverse flow of used or defective parts and products for refund or credit. Fidelitone can streamline this process by shipping directly to the supplier, eliminating any need to route the part back through a retailer’s distribution center.

Such efficiencies represent “a huge victory” for retailers, says Johnson. “That’s the way we’ve tried to define what we call the virtual supply chain.”

Using this virtual supply chain makes sense only when it complements – rather than obstructs – a company’s business goals. Fidelitone acts as a consultancy to help companies sort out what they want from their supply chains, says Johnson, who continues to be surprised that so many retailers fail to contemplate the issue unless a logistics provider urges them to delineate their objectives.

A retailer might, for example, embrace the goal of having parts in hand on the first day they’re needed 97 percent of the time. From there, the logistics provider and retailer can work backward to determine how – or if – virtualization will work.

Combining communication systems
What often worries retail supply chain managers the most is reducing storage capacity. Johnson has heard the concerns often enough to quote them exactly: “I can’t get rid of my warehouse,” the retailers say. “What if Sony doesn’t ship me that day? What’s the back-up plan?”

Once those misgivings are alleviated, Fidelitone can begin to integrate the chain’s communications systems with its own. “Tell us how you can communicate with us, we’ll figure out how to communicate with some of those vendors,” Johnson says. “Every one of those vendors has a different methodology of communication that we have to adapt to on the back end.”

The combined systems not only improve the flow of goods in the supply chain but also enable retailers to see the chain with more transparency and, therefore, operate more intelligently. “They’re able to make better decisions about how to make a customer’s life happier,” Johnson says.

For example, Best Buy could choose to replace a product because the systems show waiting for a part would take too long to meet a customer’s expectations.