Studios look at supply chain efficiency

Wal-Mart, Best Buy promote RFID tests

By Susanne Ault -- Video Business, 6/23/2006

JUNE 23 | LOS ANGELES—As the DVD format matures and sales flatten, the studios are placing increased importance on supply chain management as a way to squeeze more profit out of each title.

“Over the last four years, we are taking a completely different view of the supply chain,” said John Quinn, Warner Home Video’s executive VP of service management and mega process owner (MPO), during a panel discussion at the Entertainment Supply Chain Academy 2006 conference here last week. “It used to support sales and marketing, and now it has become integral to the bottom line at Warner.”

At the conference, executives debated the best way to keep discs at optimum in-stock levels at retail while avoiding returns, with much of the discussion centering on the potential of radio frequency identification (RFID) tags.

Best Buy senior VP Daniel Currie laid out a formal video pleading for studios to embrace the high-tech radio inventory tracking system. In the presentation, Best Buy emphasized how its customers could be better served. At an RFID-equipped store, shoppers could swipe loyalty cards at various kiosks and see exact locations of desired product, and item warranties could be immediately activated at check-out.

In one in-store Best Buy test with videogames, said Currie, “We saw over an 18% increase in revenues and a 14.1% increase in units sold.”

Wal-Mart has already mandated a 2006 1,000-store implementation of RFID, which helps ensure that adequate amounts of titles are properly shelved through critical street weeks.

Studios are using RFID for DVD in about 10 of Wal-Mart’s 500 current RFID pilot locations, say sources. But studio use of RFID is limited to tagging DVD cases for warehouse-only tracking. Procter & Gamble and other Wal-Mart vendors, in contrast, have product under constant RFID surveillance on the chain’s store shelves.

At any point in the supply chain, RFID can tell when a DVD has moved from manufacturing plant, off a truck, to a store backroom and eventually onto a retail display shelf. Title sales are analyzed in real time, which refines the replenishment process and clamps down on returns later.

“Today, about 75% of all out-of-stock product is really shelf-outs,” said Paul Mackinaw, principal consultant at RFID enabler Verisign. “Hannah’s Candle realized an entire shipment of its product was not received at [Wal-Mart]. But [through RFID], the company discovered its product was sitting in a lost truck in Wal-Mart’s parking lot. RFID helped Hannah find it.”

Mackinaw noted that RFID can help a company reduce out-of-stock situations on a product by 50% and increase sales between 5% and 8% by preventing the loss of impulse sales.

Certain RFID applications should additionally help prevent theft.

Yet the sheer cost in individually adding radio frequency tags to all DVD product has slowed studios’ RFID adoption.

Currently, most major studios use computerized vendor-managed inventory systems to track inventory stock levels. Although VMI can tell studios title stock levels at a certain store on an hourly basis, there is still room for better supply chain efficiency.

“We want to use technology to understand more about what is happening” with stock at all times, Warner’s Quinn said. “We think RFID is exciting.”

Studio execs from Sony Pictures Home Entertainment and 20th Century Fox Home Entertainment, among others, have formed a group to regularly, and seriously, talk about RFID, added sources.

Sony is testing RFID internally on its pricey consumer electronics products, which are vulnerable to thieves, said Michael Frey, Sony Entertainment Distribution executive VP during his ESCA presentation. The company is studying advanced supply chain technologies, as all of its divisions’ distribution activities were integrated last year under Frey. Between 2004 and 2006, Sony’s product shipments have soared 155%.

Execs at tech providers ADT and Oat Systems explained how studios could get their toes wet with RFID: A studio could simply tag one endcap holding titles, which would require just one tag for the whole display, rather than item-by-item tags.

“This would be a manageable first step into putting in that first layer of infrastructure,” said Randy Dunn, ADT RFID sales and marketing director. “There is pressure from Wal-Mart and Best Buy to do this. And now the studios can be involved.”

Efficient supply chain management has become more important as the number of titles released each year has skyrocketed. According to Alison Casey, business director at research concern Understanding & Solutions, 11,849 individual titles were released in 2005, many of them in multiple SKUs. That’s up from 528 titles at DVD’s inception in 1997 and 7,351 in 2002.

As a result of more titles being released each year and rising expectations for first-week sales—an average of 50% of sales occur in the first week for new releases—retail returns also are growing, Casey said at the conference. She predicted suppliers should expect return rates of 20% to 25% this year, up from a recent historic average of 15% to 20%.

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