Young

The movie studios have been running sophisticated VMI programs to manage customer replenishment for a decade, and WebConcepts has been in the business of developing the VMI solutions used by many of the major studios for almost as long.  Looking back over this time, it is apparent that there are still opportunities to improve. While the results of VMI have been overwhelmingly positive, there are identifiable issues, ranging from data problems to deficiencies in forecasting, that prevent VMI programs from achieving their full impact on the retail supply chain. WebConcepts founder and Chairman Ray Young offers an insight into the challenges he sees facing the industry’s VMI programs and outlines his vision of what lies beyond VMI for the studios.

Ray, based in your experience what are some of the leading problems facing today’s VMI programs?

From a VMI perspective, most of the nagging problems are data issues.  Keeping perpetual inventory accuracy at a high level is especially troublesome because it has a direct and potentially dramatic impact on replenishment calculations independent of forecast accuracy.  It is reported that perpetual inventory records are 75% accurate when you accept a discrepancy of 5 units. The accuracy of perpetual inventory data degrades to 50% when you do not accept any mis-matches. Our software solution, which is integrated with client’s ERP system, provides inventory visibility at critical transfer points in the supply chain and allows intelligent reconciliation of studio-held inventory with the retailer’s perpetual inventory.  Overall, though, better inventory accuracy is needed to improve the efficiency of the business process – this is something that MRP processes brought to light ages ago, and the same holds true for VMI.

Additionally, there are problems keeping a wide variety of data in synch between the partners.  Planograms, product assortments, store activity dates, event plans and even product IDs are critical data points for VMI and Demand Management processes, but they are prone to human error in both creation and communication.  We have developed tools in our solutions to help identify the issues via exceptions, alerts and retail analytics. Ultimately the synchronization problem must also be addressed as a business process improvement.


Okay, let’s answer the obvious question:  what’s beyond VMI?

We believe that the primary opportunity for improvement lies in the demand management process.  VMI is a mature and well-managed process, but it relies on a quality demand signal to drive the process. Today, virtually every Media and Entertainment company is challenged by ever-higher customer expectations, increased product proliferation, stricter regulations, changing market dynamics and the ongoing impact of the Web – all of which are compelling them to reexamine and refine how they forecast and manage demand. As many are learning, building a process that drives growth involves far more than installing a sophisticated forecasting solution.  Keeping inventory levels low, driving costs down and maintaining high customer satisfaction in a Web-based global marketplace requires companies to proactively forecast and simultaneously manage supply and demand dynamically – supported by best-of-breed techniques, technologies and practices.

Let’s describe that process – what’s involved?

Successful demand management requires a multichannel, multilevel approach that exploits information from every link in the supply chain, which for most enterprises represents a complex group of factors.  Still, many organizations elect to implement solutions that fail to take into account the varied and often subtle factors that can directly affect the success or failure of their value chain. When one considers the increasingly virtual and volatile nature of the home entertainment supply chain, this can have dramatic implications. Forecasting demand is no longer measured in days and months; it is gauged in hours and minutes. If an organization’s process for collecting, disseminating and utilizing data takes too long, or if the data is redundant, inaccurate or irrelevant, you have a smaller window of opportunity to act on meaningful information with greater bottom line impact.  The ability to generate a nearly instant forecast that can be applied the same day is increasingly essential to strengthening the bottom line, gaining market share, keeping inventory lean, and continually meeting and exceeding customer expectations

That involves a tremendous amount of data.  How do you organize that many inputs to create a meaningful and immediate analysis?

Today, this calls for obtaining the proper balance and accurate interpretation of internal, external and fact data. Numerous sources, some of which overlap, must come into play:


What’s the difference between forecasting and demand planning?

Demand planning is a broader process that has enabled companies to more accurately forecast what their industry, market and customers will require. This is not a new concept, but for first-generation Internet-dependent enterprises, demand planning has permitted them to link and integrate processes across networks, enabling closer collaboration among previously isolated parties.  The demand planning enterprise can  respond dynamically to market and consumer trends, and deliver a better, more rewarding experience across the value chain.  With properly configured advanced tools, technologies and forecasting methodologies, businesses will be able to view a broader range of relevant facts and make more informed and  context-sensitive predictions, model independent and dependent demand among products and channels, and generate accurate and meaningful forecasts based on the most recent data, causal factors and events. This can go far in helping to fulfill the demands of a more challenging customer base.  As opposed to demand forecasting, demand planning allows you to better leverage past product performance, more effectively predict and manage replenishment, properly align price and profit margins and maintain a leaner, more profitable supply chain overall. Successful organizations are beginning to focus on managing demand, rather than simply reacting to it.

Specifically, what type of data and tools are involved here?

Demand management takes supply chain management to the next level by enabling an automated “ecosystem” that simultaneously maps demand forecasting against factors like supply restrictions, customer commitments, inventory counts, financial predictions, as well as patterns of behavior that can affect demand at any given time.  Demand management is a more proactive approach than its predecessor – relying on highly sophisticated quantitative analytics and advanced modeling techniques to preset tolerance levels, predict and pinpoint problem areas, monitor and adjust strategies dynamically, and achieve real-time visibility and synergy across all channels.

How does an organization begin the process of building a demand management system such as the one you describe?

Organizations looking to migrate to a demand management model should seek a Web-based solution that provides high levels of scalability, economy, usability, availability, functionality and synergy with existing inventory management and VMI solutions . Such a platform should support a real-time “feedback loop” that is designed to enable an enterprise to dynamically forecast against a number of variables, such as supply, customer orders, inventory, and financial objectives.

A comprehensive demand management solution should enable a business to:

• Synchronize global planning

• Forecast only the products and components that make sense from a profit and/or strategic perspective

• Utilize best-of-breed statistical forecasting techniques

• Employ a forecasting tool that balances performance and scalability

• Apply event-based planning

• Perform real-time data synchronization.

• Employ rules-based modeling

• Simplify multidimensional analysis with easy-to-use tools

• Afford a seamless workflow

• Benefit from an open, services-based, 64-bit architecture and a common Web interface

• Utilize industry-standard databases

• Employ automated, closed-loop, industry-specific workflows based on best practices

• Gather predictive intelligence with “proactive” demand indicators

• Enable more efficient collaboration with all internal stakeholders and external partners.

When undergoing a supply chain transformation, companies should keep in mind three key points:

What is WebConcepts specifically doing to take its studio customers to the “next generation?”

As a solution provider, we recognize that this transformation is both a challenge and an opportunity for us as well as for our customers.  We feel it is essential to lead the way by providing solutions and service strategies that will enable our customers to make the transition successfully.  That means we must be doing at least two things on the product front: providing seamlessly integrated Demand Management and VMI Replenishment solutions capable of extremely fast and high frequency demand planning and replenishment cycles, and providing support beyond forecasting to enable true Demand Management.   Access to such technology will allow the studios to continue their impressive record of Supply Chain Management performance and wring the last ounce of benefit and tangible return from their decades-long investment in VMI.

Additionally, because of the dynamic nature of the business and inevitable shortfalls in execution, systems can come to the rescue by offering relevant Retail Analytics capabilities. We’ve begun to go beyond simply offering analytic tools and have developed a strategic alliance with a highly skilled analysis group in India to offer Services for Retail Analytics. When we end the day in the U.S., the analysts in India take over and have actionable reports ready the next morning. This truly provides 24X7 intelligence support for managing the supply chain.


And what about the other businesses—particularly the ever-expanding gaming sector?

The historical legacy of VMI platforms at the studios is not available for many of the new home entertainment players, primarily the gaming companies, to build on.  Additionally, the volume scale of these businesses demands a different service offering for solutions.  Large scale licensed implementations are out of reach for many, if not most, of these firms.  Tailor-made, multiple service options, ranging from Software as a Service to fully-outsourced models, must be made available to reach these new market segments to help them grow.