Monthly Archives: March 2012

Best Buy Experience? Not At Best Buy! Part I

It would appear that Best Buy is in trouble. And not just because Storefront Backtalk has been covering one problem after another on their web site about how Best Buy is Making the Same Data Mistakes Again, while being the latest example of a Black Friday Fiasco, and offering free Wi-Fi Porn to minors in its store. It is in trouble because they obviously cannot get a handle on their IT, despite trying to be a major provider of computers and electronics across North America.

But first, let’s recount the problems Storefront Backtalk has already told us about.

1. They’re still living in the Wild West and making the same data mistakes again.

How could an organization end up with “50 or so applications running on the cloud with absolutely no governance whatsoever”? That just boggles my mind. Maybe it’s the CTO in me, but I couldn’t even imagine 5 applications running untethered on the cloud. And not just because I’m not all that fond of clouds, which do have their uses when correctly applied, but because it doesn’t matter where your applications are — they still need to be managed, backed-up, and secured. It is, or I thought it was, just good old-fashioned common sense.

2. They sold product they did not have in their latest Black Friday Fiasco.

Not only did Best Buy take way more orders than it could fulfill for certain items on Black Friday, but it waited until a few days before Christmas to cancel those orders. Talk about a crushing blow to a customer, who has already been charged, and who thinks that special Christmas gift they bought a special someone is on its way. And talk about an insult when, instead of refunding the purchase, you send the distraught customer a Best Buy gift card. This is definitely a violation of trust. But even worse, one might be able to argue that this is a violation of the Uniform Commercial Code as the acceptance of payment can be argued to constitute a contract, which would mean the seller (Best Buy) would be obligated to transfer and deliver under Sec. 2301 or terminate with reasonable notification under Sec. 2309. The question is whether or not terminating almost a month later after accepting payment is “reasonable”. I’ll leave that to the lawyers, but note that as if this wasn’t bad enough, even in January, they cannot say what happened. This leaves one to surmise that they have some major IT problems, and won’t own up to them, which is not a good thing in the doctor‘s book.

3. It’s inability to implement simple Wi-Fi security resulted in a South Carolina store showing pornographic images on its large-screen TVs three (3) times in twenty-four (24) hours in it’s latest Wi-Fi Headache.

And one time, on February 12, the images were displayed at the Greenville location to children in the store for a full 30 minutes! And Best Buy has not offered a definitive explanation as to what happened. The story was changed from “two individuals accessed our store’s wireless signal to broadcast inappropriate content on a smart television display” which would require a wi-fi hack (unless they didn’t secure it in the first place) to “accessed a product display wireless signal” which would mean that just the “smart” TV’s were hacked to receive signals directly from a mobile phone. Further details indicated that “one of the signals in our store wireless system, specifically the one for product displays, was accessed”. But was that the case when Best Buy was “inviting people to come in and select whatever they wanted on their device and show it on the big screen”. Regardless of what happened, it looks like “store management didn’t have an immediate way of halting the porn displays” and that’s a serious problem. Especially when it has still not addressed how it will prevent this problem from happening again. But the worst part of this story is when a customer subjected to the images asked to speak to a store manager, the associate told him “You want to see the manager? You go get him. He’s over there.”. When it comes to customer service, how much worse can it get?

And that’s the real problem with Best Buy, as will be elaborated tomorrow in Part II.

If The Only Budget Airline in China Can Profit In This Global Economy …

… why are North American airlines up sh*t creek with only one paddle?

Every year, another North American airline is in financial trouble, and while a bail out may not be required, usually a bankruptcy and restructuring is, or at the very least a merger (or acquisition) to increase revenue and “balance the books”. I’m a little dumbfounded. Yes, the cost of fuel is rising, as is the cost of labour, but the amount of money flowing into air travel is still near an all time high and with the increasing globalization of our society, that’s not going to change. As a result, the doctor finds it hard to believe that every major airline isn’t as profitable as a well-run bank (and given that banks, more-or-less, “mint” money, it’s pretty hard to lose money as a bank — unless you’re run by people who are the reason us IT folks invented ID 10 T errors). In 2010, only 7 of the top 10 North American Airlines were profitable, and only 3 of these made a profit margin that was respectable. While the average profit for profitable airlines was 3.46%, the average profit for the bottom 4 profitable airlines was a mere 2.06%. To put this in perspective, that was the average net profit of Grocery Stores (NAICS 4451) in Canada in 2008. Or, in other words, you’d see the same return in the lowest margin retail business on the planet as you saw in these airlines. (See the summary in the following table.)

Airline	Passengers	Revenue (2010)	Net Income (2010)	Profit Margin
Delta	163 M	31.78 B	593 M	1.87%
United	141 M	16.34 B	-651 M	-3.98%
Southwest	135 M	15.7 B	178 M	1.1%
American	106 M	22.17 B	-471 M	-2.12%
US Airways	60 M	11.9 B	502 M	4.22%
Air Canada	32 M	10.79 B	361 M	3.35%
Republic	31 M	2.65B	-14 M	-0.5%
JetBlue	26 M	4.5 B	86 M	1.91%
Alaska	25 M	3.8 B	251 M	6.6%
WestJet	20 M	2.6 B	137 M	5.2%

That’s why every CEO and COO of every major airline should definitely read this recent piece over on the Knowledge @ Wharton China site which provides a transcript with Wang Zhenghua of Spring Airlines: Making a Low-Cost Strategy Fly High. While the best North American Airline made 6.6% profit, Spring Airlines made 14.7% profit! And he made this profit in a local market dominated by state-owned heavyweights while being the only airline in China that doesn’t use the TravelSky booking service, the state-owned monopoly, to sell tickets. In the article, Wang gives away some great wisdom in the article, which is relevant not just for airlines, but transportation providers in general.

The following are some of the key points Wang makes about Spring Airlines.

Quote	Wisdom
Spring Airlines has aimed to offer low fares by operating efficiently and making flying more affordable for the average Chinese traveler.	Specifically Spring Airlines has a a cost that is, on average, 30% less than its peer group. Spring Airlines has recognized that the biggest market is in the middle — not the upper class or premium business traveller, as both of these are in decline, or the poor, who can’t afford to fly — and that’s where a smart, budget, enterprise focusses, especially when no one else is doing it well. (It focusses on leisure travellers and price-conscious business travellers, which are the growing markets.)
Low-cost travel is a global trend.	A smart company aligns itself to mega-trends, and, when possible, adjusts for current mini-trends (which, in Spring Airlines’ case, is no extras or frills, like meals, that only add to the total cost).
[Low-cost flying] comprises 70% of the short-haul market.	That’s why only 4 of Spring Airlines’ 54 flights are (long-haul) international. Don’t invest where the business is not.
Cost-conscious business travellers [are our target customers].	It’s 70% of their business and the logical focus. That’s why they launched a business economy service focussed on this customer segment that offers them food, a special shuttle for boarding, and a seat at the front of the aircraft, which they want and will pay a slightly higher price for.
The nature of this industry is that the relationship between supply and demand is changing constantly and quickly.	Demand fluctuates between high and low seasons, weekdays and weekends, and even morning and evening travel. So unlike with other goods and services, consumers’ demand for air tickets fluctuates greatly. Thus, the airline industry needs a more flexible, open market approach to operate.
Some companies actually consider delaying payments — having a so-called “no interest loan” — to be an operating strength. But we never do that because we believe our credibility is our life.	Credibility is all you have when times get tough, and can be the difference between life and death.
Be cautious in boom times; face the challenges in the bear times. … It’s just focus and down-to-earth, hard-core efforts that have made us what we are today.	Growth doesn’t last for ever, and those that don’t realize this fact are doomed to crash with the market.
Rather than spending heavily on ads, we focus on internal management, and carrying out strict evaluations of our suppliers and running internal training programs.	A focus on Talent and Transition, and not Buzz and PR. And just when I thought all trace of good business fundamentals had disappeared! Wang Zhenghua is brilliant. I wonder, could he be China’s Peter Drucker?

Supply Chain Disaster Management

Earlier this year, EBN Online ran a good article on Managing the Variables in a Supply Chain Disaster that outlined the basic steps a global company can use to get started on planning for a disaster.

It’s obvious, with all of the recent natural disasters, political disasters, and economic disasters, that a supply chain natural disaster is coming your way. It’s just a question of what, when, and how it is going to impact your supply chain. That’s why you need to plan. So where do you start?

According to the author, start by getting all of the departments together — IT, operations, sales, warehousing, administration, and management — to help map out the entire upstream and downstream supply network and determine where the different risk points are and what risks are most likely to materialize. And, as Jim Lawton points out in this Industry Week article on Country Risk — What You’re Overlooking, you have to not only focus on your suppliers and the countries they are located in (whch contribute to the political, economic, and commercial risks that are faced by your organization), but your suppliers’ suppliers and the countries they are located in.

Then run a variety of “what if” scenarios to see how the company could recover if supply is interrupted, a warehouse goes up in smoke, a supplier becomes unavailable, freight rates or tarriffs rise substantially, preferred raw materials or components get banned for regulatory reasons, or something else possible, but not predictable, happens. If there is no way to recover, something has to be done now before it’s too late for your suppy chain, and maybe your entire organization. For example, if all of the company’s supply for a certain component is from South Korea, and supply from South Korea gets cut off, there would be no recovery. The company either has to find a secondary source of supply from another country, or a way to use a slightly different component to accomplish the same task.

If a moderate increase in freight rates or tarriffs would prevent the company from being able to source a raw material at a price that would allow the company to turn a profit on the finished product, then the company has to identify alternate, cheaper, transportation methods, a way to further save on raw material costs, or a way to increase the value, and thus the selling price, on the finished product. If a raw material gets banned from usage in the product the organization plans on importing into Europe, then the organization has to have a way to produce the component using a different raw material, which could require a different design or manufacturing method, which could add cost as well.

The short of the story is that disaster planning is more than just identifying the upstream supply network and more than just identifying what could go wrong, but also identifying how a recovery could be initiated if necessary.