Entertainment UK (E.UK), part of the Woolworths Group, is one of the largest retail wholesalers of home entertainment products, supplying Britain’s best known retailers with nearly a quarter of the UK’s music and video, as well as supplying direct to the public via the Internet, kiosks and catalogues. The entertainment wholesale and publishing businesses saw operating profit rise last year by 16.8% to £49.3M. The E.UK retail operation saw overall sales rise 10% to £1.2Bn.
With customers including Tesco, Woolworths, WHSmith and MVC, E.UK has been an innovator in the use of a vendor managed inventory model working on behalf of retailers to ensure that each gets the appropriate product selection, in the right quantities, at the right time. CDs and DVDs have short product lifecycles so E.UK requires accurate demand forecasting to prevent exposure to any stock loss and lost sales in a £5.5Bn market.
E.UK acts as an intermediary between entertainment suppliers – like Warner or Universal – and retailers aggregating products from multiple suppliers into single store shipments. However, it identified that the efficiency of its supply chain had substantial room for improvement, leading to rising returns and escalating distribution costs.
This was partly put down to inappropriate functionality in certain systems. E.UK chose TXT e-solutions to introduce new forecasting and new replenishment software. Competences and understanding of the retail sector’s logistics were also key reasons in driving the choice.
Together with E.UK’s market intelligence for predicting best sellers, and historical EPoS sales data for nearly 3,000 stores, the TXT solution produces as many as 100,000 store replenishment orders a day. To ensure that the shelves remain fully stocked and stores are automatically replenished, information exchange must be fast with retailers and suppliers, and there is only a three-hour processing window each night for forecasting and demand planning.
The initial forecast and allocation is a really critical process in such a highly seasonal and volatile market. This led to intelligence and innovation within the underlying forecasting engine, such as the use of historic profiles (mined from the data warehouse) and the simultaneous analysis of store seasonality, daily selling patterns, market seasonality and product clusters, for instance.
TXT offers merchandise planning and replenishment solutions focusing on products with a very short lifecycle and sometimes no history. Under these circumstances, sales forecasts, allocation and replenishment management is carried out using techniques which can incorporate sales trends, store behaviour, seasonality as well as best practice forecasting capabilities. The initial allocation and the daily re-forecasting and replenishment allow them to determine the right product in the right store at the right time in a fast moving environment.
E.UK’s vendor-managed inventory (VMI) initiative maximises sales whilst controlling movements of stock up and down the supply chain. For most customers, VMI involves integration to both head-office and in-store back-office systems, so everyone can effectively share trading data and get a single version of the truth. It uses EDI (Electronic Data Interchange) technology combined with TXT forecasting and replenishment systems to maximise on-shelf availability; minimise stock keeping costs; plan for seasonality fluctuations; provide regional and individual store focus; and provide a pre-ordering facility.
The company also boasts a new 29,500sq m distribution centre (DC) in Greenford, Middlesex which is capable of despatching in excess of 200 million units per year with more than 99.9% accuracy.
Early tests during 2004 in a pilot customer revealed that not only were stock turns improved (typically by 25%), store returns levels fell by 20%, and store availability was maintained above 98%. Now that the technology has been fully rolled out, the retailer’s in-store inventory has since been reduced by about 23%, whilst in-store availability has remained strong. During the peak sales period at Christmas, E.UK sales rose by about 3%, while returns dropped by about 8%.
Annually, a returns reduction of around 20% is anticipated and already well on target. The impact of this on the distribution centre and supply chain costs is significant, given that returns costs are about twice that of outbound. Pence per unit DC cost reductions have already been recorded.
Other benefits include improved store availability through use of local trends at regional and store-specific level; improved customer activity planning, and in-store execution, through provision of the future inventory picture; and earlier customer communication of upstream supply issues
E.UK has already seen significant bottom-line benefits driven from the advances made in re-engineering its demand planning and forecasting processes with TXT. The project is proving extremely successful in a very competitive industry. E.UK is well on target to achieving its objectives of improving service with lower costs and lower inventories.
The project’s success has encouraged E.UK to look at technology for incorporating the promotional impacts on stock management, given that advertising or a celebrity endorsement can have a huge impact on influencing sales. The implementation of TXT’s promotion planning module is about to start, with a go-live date set for early 2006.