Paul Freeman RFID Director, Best Buy April 11, 2005 Freeman RFID Director, Best Buy April 11, ... availability & selection •Self check-out ... and inventory accuracy •Dynamic sorting,

April 15, 2005 1

EPC/RFID in Action at Best BuyPaul FreemanRFID Director, Best Buy

April 11, 2005

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About Best Buy

• Best Buy Co., Inc. (NYSE: BBY) • Fortune 100 growth company• $27 Billion in sales revenue

• 830 retail stores across the United States and in Canada• connect customers with

technology and entertainment products and services that make life easier and more fun

• We sell: • consumer electronics, • home-office products, • entertainment software, • appliances and related

services. • A Minneapolis Minnesota based

company, our operations include: • Best Buy• Future Shop• Geek Squad• Magnolia Audio Video

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Today’s presentation

• Best Buy’s EPC/RFID Program

• Where does Best Buy see ROI from EPC/RFID?

• Our requirements for Item Level EPC/RFID tags

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Shared Item Location and Event Data

Shared Item Attribute and Sales Data

•Pass-through cost savings

•Rich product detail via electronic signage

•Merchandise location, availability & selection

•Self check-out•VIP treatment and loyalty benefits

•Express warranty and returns

•Long term asset protection (fraud, loss)

•Supply chain visibility•Lower distribution costs•Improve order accuracy and fill rates

•Increase product sell through

•Promotion effectiveness•Reduce shrink and theft•Lower returns processing cost

•Streamline warranty claims authorization

•Customer insight

•Increase distribution velocity and capacity utilization

•Lower distribution cost•Improve SC execution and inventory accuracy

•Dynamic sorting, allocation, and network balancing

Suppliers Best Buy Supply Chain Best Buy Store Customers

Physical Flow

Physical Flow

Physical Flow

WWRE

•Improve Customer Encountered In-stocks and space utilization

•Reduce store stocking and farming labor

•Reduce discounting•Improve pricing and promotion efficiency

•Dynamic automated planograming

Consumer BenefitsIn-store BenefitsDistribution BenefitsSupplier Benefits

Benefits

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Internal Readiness

Supplier Readiness

EPC/RFID Value Creation

(R&D)

Supplier discussions, planningSupplier impact analysis –benefits & costsClear comprehensive requirements and timelineQuarterly Vendor Milestones & reviewLocation selection and preparation Pilots and tests with select early adopters in FY06SKU Product selection for pilotTest design and executionBlueprint for supplier data exchange model

High level value targetingRFID Demo Lab RFID internal Education Strategy developmentFacility testingPilot planningPilot Implementation & runRollout planningRollout ImplementationProduction cutover

EPC Global participationItem level work groupHardware, software work group

Internal training & educationRetail RFID execution

Item level & smart shelf R&D

Involve key technology partnersProgram management and execution

Best Buy RFID Program Structureand Key Deliverables

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• Suppliers place RFID tags on cartons and pallets

• Suppliers send carton and pallet EPC information to BBY via Advanced Ship Notice (EDI ASN-856)

Supplier Pilot Overview, Starts January 2006

• Pilot suppliers represent 80% of total shipment volume

• All major product categories represented

• EPC reads will be captured at RFID enabled dock doors.

• Reporting will compare EPC reads to ASN and actual PO receiving.

• EPC reads, read rate, tag, and ASN performance reporting will be shared with suppliers via portal

Pilot runs in parallel with current processes for shipping, routing,

receiving, packaging, labeling, and invoicing.

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End-state Vision

• What can happen over the next 48 months?• You might have your new car paid off• Your Son or Daughter maybe starting

college• You will hit the day after Thanksgiving sale

at Best Buy 4 times• EPC/RFID has broad marketplace

adoption

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Day in the Life with EPC – Retail Store Operations

On the Store Floor

Increase customer satisfaction, & revenue

Opt-in programs allow customers access to in store promotions and improved customer service.

Lower labor cost; increase customer encountered in

stock

At the Store Shelf

RFID-enabled “smart shelves” can predict, identify, and report shelf stock levels to store employees.

Improve customer service; reduce returns fraud

At the Checkout Lane

Serialized EPC codes increase the speed and accuracy of customer checkout and returns processing.

In the Store Back Room

Reduce store labor cost

RFID readers automatically confirm receipts and update store inventory as product is unloaded.

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Day in the Life with EPC – Merchandising

On the Store Floor

Increase revenue and margins

RFID-enabled smart shelves enable visibility on sales performance by store.

At Best Buy Corporate

Increase revenue and margins

RFID-enabled smart shelves can report on actual versus originally recommended store plan-o-grams.

At the Store Shelf

Increase revenue and margins

RFID can be used to develop insight into consumer behavior, and shape our assortment to serve our customers.

With the Supplier

Increase revenue and margins

Data from RFID-enabled smart shelves correlate sales to promotions and product placement.

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Day in the Life with EPC – Inventory Planning

In Inventory Control

Reduce DC and corporate labor costs; increase

revenue

Store and distribution center RFID provide real-time, accurate inventory at the serial number level.

Working with Suppliers

Decrease operating cost

RFID provides a low cost means for exchanging the data inputs for demand and inventory planning.

In Demand Planning

Increase forecast accuracy and revenue

RFID captures real time demand and inventory information across multiple tiers of the supply chain.

For Replenishment

Increase forecast and inventory accuracy

RFID provides real-time, accurate inventory data that can be used to optimize store replenishment.

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Day in the Life with EPC – Fulfillment

During the Pick Wave

Increase inventory accuracy and revenue; reduce labor

cost

RFID-directed picking allows material handlers to focus on product movement and eliminate data entry tasks.

At the Shipping Door

Increase DC velocity; reduce labor cost

RFID eliminates the need to manually scan barcodes and enter data for outbound shipments.

During Put Away

Increase DC velocity and inventory accuracy; reduce

labor cost

RFID enables directed put away both to distribution center shelves and also cross-dock locations.

At the Receiving Door

Reduce labor cost; increase inventory

accuracy

RFID readers automatically confirm receipts and update inventory as product is unloaded.

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• Sources of Value

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EPC/RFID Sources of Value

1. Lower Cost of Data Capture 2. Increased Data Accuracy and

Granularity3. Higher Distribution Velocity4. Enhanced Track and Trace Ability5. Lower Cost of Data Access &

Collaboration

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Sample Business Opportunities at Best Buy

Business Opportunity How RFID Helps Value Lever

SG&ACOGS

• RFID readers at shipping and receiving bays reduce the labor required to handle and distribute products.

Distribution Labor

• Higher accuracy of perpetual inventory data improves forecast accuracy and replenishment quality.

Customer Availability and Inventory Optimization

RevenueInventory

• RFID portals differentiate product location between sales floor and stockroom/up-stock locations (CA vs. CEIS).

Customer Encountered In-stocks

Revenue

• RFID captures and reports real-time exceptions in the distribution network

Event and exception Management

Inventory TurnsCustomer AvailabilityRevenueClose RateSales per SF

• RFID can be used to track location-specific sales within the store and correlate placement-to-purchase statistics.n

• Serialized EPC tags provide immediate identification and dispensation for return, service, and warranty products.

Merchandising, assortment, and space optimizatio

Returns, service, and warranty processing

COGSSG&A

• RFID enables the systemic receipt and reconciliation of ASNs and receipt confirmation.

Supplier Management SG&A

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Retail Requirements

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• Suppliers should only have to apply one RFID Tag• The RFID Tag needs to provide benefit as far up and

down the value chain as possible• Manufacturing, Transportation, Retail, Consumer

• It must improve on, and replace current solutions • Bar Code, Loss Prevention Systems

• It must be reliable• 100% accurate read rate

• It must be affordable• Hardware, Software, Tags

Best Buy Requirements for the RFID Industry

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Our requirements for EPC/RFID Tags

• Supply Chain Footprint• Pallet• Case• Item

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• At Shelf Level • The same RFID tag must

work at the shelf location at the Item Level

Our requirements for EPC/RFID Tags

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• At Point of Sale• The same RFID tag must

read at the Item Level through POS

Our requirements for EPC/RFID Tags

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• Loss Prevention• The same RFID tag must

read through the front door LP systems

Our requirements for EPC/RFID Tags

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Our requirements for EPC/RFID Tags

• Item Authentication• The same RFID tag must

read at the Customer Service Counter when product is returned

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Today’s presentation

• Best Buy has an established EPC/RFID Program

• Best Buy sees strong benefits from EPC/RFID

• There are retail needs for Item Level EPC solutions

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• Thank you for the opportunity to share what Best Buy is doing, and for your time

• Questions?