Synchronizing Operations Across the Value Chain with Real-Time Information
by David Baum
Jack of All Games (JOAG), the largest video game distributor in the United States, reports success with its vendor-managed inventory (VMI) program. The VMI program came about after JOAG completed an intensive business intelligence initiative that involved collecting point-of-sale data from thousands of stores and analyzing data on which titles customers were buying. JOAG then approached retailers with the opportunity to share this information.
Eric Clark, vice president of business systems and technology at JOAG, says, "Retailers want us to keep their shelves filled, so our challenge is to determine the optimum quantity of each title based on the demand trends, local demographics, and a number of other constantly fluctuating variables."
JOAG recently installed Oracle's Demantra Demand Management, a software package that allows warehouse managers to sense demand in real time by capturing point-of-sale information from retailers. JOAG runs the information through Demantra's analytical engine and develops a fulfillment strategy for replenishing its retailers' stock.
Read how JOAG's VMI program has been very well received and helped retailers achieve significant boosts in profitability.
A couple of years ago, Jack of All Games (JOAG) approached its retailers with an offer that was hard to refuse. As the largest video game distributor in the U.S., JOAG collects point-of-sale data from thousands of stores. Its analysts had just completed an intensive business intelligence initiative, during which they amassed loads of data on which titles customers were buying. JOAG executives saw the opportunity to share this information with their retailers as part of a vendor-managed inventory (VMI) program.
"Retailers want us to keep their shelves filled, so our challenge is to determine the optimum quantity of each title based on the demand trends, local demographics, and other constantly fluctuating variables," explains Eric Clark, vice president of business systems and technology at JOAG. "Retailers are looking for insight into what gamers will buy next."
JOAG supplies video games to more than 20,000 retail stores across the U.S. The company's state-of-the-art distribution facilities, centralized location, and highly refined distribution process have become a model for others in the industry. JOAG recently installed Oracle's Demantra Demand Management, software that enables warehouse managers to sense demand in real time by capturing point-of-sale information from retailers. JOAG runs the information through Demantra's analytical engine; compares it to actual video game titles on the shelves, in the back rooms, or in transit; and arrives at a fulfillment strategy for replenishing retailers' stock. As a result, JOAG's retailers aren't overbuying, and JOAG is sending them the titles that are likely to be purchased quickly.
In most VMI programs, the supplier takes responsibility for maintaining customer inventory levels. The concept initially took off in the grocery industry but VMI is gaining traction in many industries for its ability to manage demand, increase sales, lower inventories, and reduce costs. Yet many companies have difficulty figuring out how to exchange real-time information, let alone create information systems that can sense demand signals from customers.
"When suppliers don't know what, when, and how many products will be bought, they stockpile inventory," says Maha Muzumdar, vice president of supply chain marketing at Oracle. "If the value chain were synchronized by intelligently sharing information, suppliers would have visibility into demand signals, allowing them to supply products as customers order them. Synchronizing information across the value chain reduces costs, improves efficiency, and accelerates order fulfillment."
The Right Fit
Ideally, as inventory goes off the shelves, vendors should replace it immediately—assuming those vendors have visibility into what's being consumed and have created a logistics system to automatically replenish the goods. Software such as Demantra helps them automate many of these decisions. According to Clark, executives selected the Demantra software because they liked its advanced forecasting capabilities, comprehensive handling of point-of-sale data, and vendor-managed inventory capabilities. "Demand planners and forecasters are always trying to improve the accuracy of their forecasts," explains Muzumdar. "Oracle Demantra enables JOAG to introduce causal factors into their forecasts, such as price, seasonality, and social trends."
Causal factors have been a staple in the retail industry for decades. Price is the most obvious causal factor that retailers consider. But JOAG knew that regionalization is another area to explore. For example, downhill skis sell better closer to the mountains. Surfboards sell better near the ocean. In JOAG's case, baseball games such as Major League Baseball 2K7 sell briskly in cities that have major league ball teams, especially at certain times of the year. The Demantra software lets the company adjust these causal factors and set multipliers to account for specific variables, such as which type of game sells best during the playoffs or when to promote particular titles based on the standings of certain teams.
"A retailer might have just sold five baseball video games, but based on certain causal factors, we might recommend that they replenish them with ten more to reflect escalating demand," Clark explains. "It's all about prepositioning products that are expected to sell quickly. We've found that properly accounting for causal factors can dramatically improve the accuracy of our planning and forecasting processes."