Entertainment UK, the distributor of more than a quarter of the UK's CDs and DVDs, is saving £2.5m a year after rolling out a sophisticated demand-forecasting system.
Mike Quintana, Entertainment UK's business development manager, said the system has allowed the company to reduce its stock levels, and has led to 3% fewer returns and a 1.2% improvement in the availability of CDs and DVDs.
"We have now been running the model 'in anger' for 15 months. We have reduced the cost per unit for distribution even as volumes have risen. In the first year alone we have saved more than £2.5m," Quintana said.
Entertainment UK developed the Oasis system with TXT e-solutions, an Italian firm that specialises in demand and supply-chain management. Oasis is based on SAP, Oracle and IBS software, and takes data from JDA, IMI and other applications.
Quintana said the shift to downloading music meant physical music and video titles now have a peak sales period of four weeks, with up to 50% of sales crammed into the first week.
"As a result, instead of there being two primary promotion periods at Christmas and Easter, there are now 50,000 promotions a year," he said.
At the same time, the retail price of CDs and DVDs has halved in 10 years, cutting margins in the supply chain. It is now more critical than ever to have the right product in the right store in the right quantity with the right promotion in the first week, said Quintana.
"The entire process is driven by the forecast for the first week, and we update the model based on the first day's sales," he said. Entertainment UK called in Imperial College to vet the robustness of the Oasis algorithms.
Oasis gives Entertainment UK the capacity to make 1.5 million store dispatches per day. Customers include Sony, Penguin, Disney, Amazon, Asda, Woolworths, Play.com and Microsoft.
Quintana said Entertainment UK chose TXT because of its experience in the Italian fashion industry. "There are similarities between high fashion clothing and music and videos," he said.