Best Buy Purchasing and Supply Chain Management Strategy

Introduction

Headquartered in Richfield, Minnesota and founded in 1966, Best Buy Co., Inc. is a leading retailer in electronics and other consumer products that competes throughout North America and Mexico. As of early 2019, Best Buy operated nearly 1,200 large-format stores as well as 51 small-format retail locations (Company profile, 2019). Despite its success in growing market share, the company faces the same existential threats as other major retailers, most notably from e-commerce operators such as Amazon (Wack, 2017).

This paper reviews the relevant literature to develop an informed and timely discussion of Best Buy's competitive environment and an analysis of how its purchasing and supply management strategies contribute to competitive advantage. It also examines Best Buy's approach to building supplier relationships, driving innovation, and improving quality and reputation, before summarizing key findings in the conclusion.

Best Buy's Competitive Environment

Best Buy competes as a retailer of technology products and services, as well as a wide array of other consumer products, across its North American and Mexican markets in two main business segments: (1) domestic and (2) international (Company profile, 2019). Beyond its physical retail outlets, Best Buy also offers products through its websites under the Best Buy, bestbuy.com, GreatCall, Geek Squad, Best Buy Mobile, Best Buy Direct, Magnolia, Pacific Kitchen and Home, bestbuy.ca, bestbuy.com.mx, and Best Buy Express brand names (Company profile, 2019). The company also offers a range of consumer products and services through mobile apps and a network of call centers (Company profile, 2019).

The company's top leadership team has been highly successful in tracking changes in consumer trends, and Best Buy's combination of a big-box store format and specialty retailing has made it one of the top major retailers in the world. Murphy (2009) emphasizes that:

Today, with annual revenue exceeding $25 billion and more than 780 stores in the U.S. and Canada, Best Buy is North America's number one retailer of consumer electronics, personal computers, entertainment software, and appliances. It was named Forbes's 2004 Company of the Year and has been cited by AMR Research as having one of the nation's best-run supply chains. (para. 2)

At present, however, the company also planned to close all 250 of its smaller retail stores in the United States — those dedicated to mobile phone sales — while its Canadian operations were unaffected (Ong, 2018). A growing number of industry analysts caution that these store closures may just be the tip of the iceberg, especially given the broader trend of big-box store closures in recent years (Wack, 2017). The existing retail market has become increasingly competitive, due in large part to the proliferation of e-commerce retailers such as Amazon (Chan, 2011). Against this backdrop, it is clear that Best Buy is at a critical juncture in its corporate history, and that the company must implement and sustain purchasing and supply management strategies that contribute to its competitive advantage.

Purchasing and Supply Management as Competitive Advantage

On one hand, Best Buy operates in a political climate that has generally been conducive to big-box retail. Mitchell (2009) emphasizes that "the playing field has been tilted by government policy, which, for more than two decades, has fostered and underwritten the expansion of big-box retailers while systematically undermining the survival of independent businesses" (p. 35). Nearly half of all U.S. states have some type of tax relief or loophole provisions that encourage large-format stores like Best Buy to open new retail outlets within their jurisdictions, based on the expectation that these retailers will create hundreds of new jobs and attract additional businesses to the area (Mitchell, 2009). On the other hand, these advantages have not prevented the closure of other big-box retailers operating in states with such tax loopholes (Chan, 2011), though Best Buy has so far avoided this outcome — with the exception of the aforementioned mobile phone store closures.

It is reasonable to suggest that this undesirable outcome looms large in the minds of Best Buy's decision-makers, making the need for robust purchasing and supply chain management strategies all the more pressing. To this end, the company has taken advantage of its purchasing clout and economies of scale to negotiate substantial discounts from supply chain partners, enabling it to undercut main competitors and smaller retailers (Mitchell, 2009). As Mitchell (2009) notes, companies like Best Buy "win not by being better competitors, but by using their size and power to gain an unfair advantage. They pressure suppliers to give them special deals that are not available to independents" (p. 36).

In addition, the company employs a purchasing and supply management strategy in which its mega-stores are stocked well beyond the capacity of local economies to sustain — in an effort to eliminate even modestly competitive local independent retailers (Mitchell, 2009). As Mitchell (2009) explains, "They do this because they know that by flooding a market with excess retail capacity, it is a lot easier to capsize independent retailers [because] no matter how well-run or popular, independents often lack the deep financial resources to withstand a sustained attack by a global corporation" (p. 36).

While this strategy has attracted a growing body of scholarly criticism regarding the adverse effects of big-box stores on local economies, Best Buy's continued success in establishing and growing businesses across different regions and internationally demonstrates that the company recognizes what consumers want and has positioned itself to deliver. Chan (2011) notes that "while any new retailer needs time to bed in, this highly competitive sector is a particularly unforgiving environment. On the flip-side, Best Buy is hardly new to this game — it has a 22% market share" (p. 29). Alongside its marketing capabilities, Best Buy's world-class supply chain management team has directly contributed to its impressive success, as discussed further below.

Conclusion

Today, Best Buy Co., Inc. is a leading retailer competing in North America and Mexico, with more than 750 retail stores. The company's wide array of value-priced products and services, combined with its world-class leadership team, have helped fuel its growth and enabled it to survive — and even thrive — in a competitive environment that has driven many top competitors out of business in recent years. Complementing its stellar marketing efforts has been the company's focus on developing a streamlined supply chain network and forging long-term relationships with its supply chain partners. The research consistently indicates that these efforts have been central to helping Best Buy achieve and sustain a meaningful competitive advantage.

References

Chan, R. (2011, June 29). Best Buy. Marketing, 20.

Corporate responsibility and sustainability. (2019). Best Buy Co., Inc. Retrieved from https://corporate.bestbuy.com/sustainability/.

Best Buy supply chain. (2019). Best Buy Co., Inc. Retrieved from https://www.bestbuy.com/site/help-topics/ca-transparency-act/pcmcat263000050003.c?id=pcmcat263000050003.

Company profile. (2019). Yahoo! Finance. Retrieved from https://finance.yahoo.com/quote/BBY/profile?p=BBY.

Mitchell, S. (2009, September–October). The big box swindle: The true cost of the mega-retailers. Multinational Monitor, 27(5), 34–39.

Ong, T. (2018, May 1). Best Buy is closing all 250 of its mobile stores in the U.S. The Verge. Retrieved from https://www.theverge.com/2018/3/1/17066232/best-buy-close-all-mobile-stores-may-us.

Thomas, L. (2019, August 28). Best Buy revs up supply chain ahead of the holiday season. CNBC. Retrieved from

Wack, K. (2017, June 29). Credit card issuers face peril from rise in store closures. American Banker, 182(124), 37–39.

Wamba, S. F., & Boeck, H. (2011, April). Enhancing information flow in a retail supply chain using RFID and the EPC network: A proof-of-concept approach. Journal of Theoretical and Applied Electronic Commerce Research, 3(1), 92–95.