Tightening the supply chain

By Marcy Magiera -- Video Business, 6/30/2006

JUNE 30 | LOS ANGELES—At the Entertainment Supply Chain Academy conference here last month, Alison Casey, business director of U.K. research concern Understanding & Solutions, gave one of the most engaging and down-to-earth research presentations I’ve seen.

Casey clearly illustrated the current dynamic between retailers and suppliers, with an emphasis on the growing clout of major retailers, particularly Wal-Mart and others of its ilk here in the U.S.

U&S sees the growing influence of retailers as one of three major factors impacting the home entertainment supply chain, along with contracting theatrical windows and the mushrooming number of titles being released to market.

As key retailers grow, so do their demands on suppliers, making it more important that all supply chain functions become more efficient. Retailers are looking for digital solutions to inventory management challenges, including in-store burning for catalog titles, and need support in their transition to digital, Casey says.

At the same time, U&S predicts physical media will continue to be the dominant home entertainment delivery vehicle through 2010 and much longer. This means suppliers need to continue to fine tune their pricing, manufacturing, shipment, inventory tracking and returns processes as major retailers put an even greater emphasis on moving product in and out of stores quickly.

U&S predicts mass merchants and Internet retailers will grow their share of home entertainment sales through 2010, increasing pressure on the supply chain.

Largely driven by mass merchants, the average new release DVD now sees 50% of its sales in its first week on shelves, with another 30% in weeks two through four and the last 20% over the rest of its lifetime.

Casey emphasized this to show why suppliers need to work even more closely than they already do with retailers on forecasting and vendor-managed inventory systems for replenishment. If a studio misses sales because its title isn’t on shelves on time and in sufficient quantity during its first week of release, those sales are not likely to be recaptured.

At the same time, U&S reports that retailer returns are creeping up, making returns handling a key difference between studios.

Returns have historically averaged 15% to 20%, but U&S predicts they’ll average 20% to 25% in 2006, based in part on 30% returns in January of this year and a few key releases that took 60% returns in 2005.

Most returns are now being reworked in inventory, with only faulty or damaged units moving out of circulation.