Strategies
Consider Example 5-1 (attached) and discuss strategies that could help Newbury Comics and SoundScan Inc. solve the misalignment problems
Only this Source:
;Kaminsk, S., Simchi-Levi, D., Simchi-Levi, E. (2008). Designing and Managing the Supply Chain: Concepts, Strategies and Case Studies, (3rd ed.). New York: McGraw-Hill Irwin. Pg 163-164
EXAMPLE 5-1
The following article illustrates the dangers of sharing information.
Of all the people Mike Dreese met at 1997’s Gavin in the Pines convention-a big recording industry show held in New Hampshire that year-it was the rep from rackjobber Handleman Co. that made the biggestimpression. Dreese recalls watching this guy strut, practically beating his chest as his boasted about the fantastic information his company was getting on regional sales of CDs. Now Handleman, the largest buyer of music in thecountry, knew exactly what genres of music were sellingwhere and when, the rep gloated. The data helped the company know exactly what to stock ln the record bins it serviced in giant mass-market retailers like Wal-Mart and Kmart. By combining these new data with its own figures,Handleman could determine just how man, units of. say, Korn’s debut album or the latest from 2 Skinnee J’s it should place in the racks at the Wal-Mart on Route 1A in Lynn, Mass.And this new bounty of information came from one source:SoundScan Inc.,a private company that electronically tracks and tallies every single record sold by some 85% of music retailers in the country.SoundScan then crunches the numbers and sells reports to the record labels,promoters, and managers.
Mike Dreese couldn’t believe it. He knew where some of the information was coming from. It was coming from him. Every Sunday night for the past six years, he’d steadfastly reported, direct from his IBM AS/400 minicomputer, the sales of his now-20-store record chain, Newbury Comics- location by location,label by label, artist by artist-to SoundScan’s powerful server in Hartsdale, N. Y.
From the start, Dreese had concerns about releasing his numbers electronically through a third party, even though he says that SoundScan founders Mike Shalett and Mike Fine had assured him that his figures would 90 to the record labels only In aggregate form.But now he’d heard a Handleman rep say that the information Newbury Comics was giving to SoundScan was helping the giant retailers that it competes with every day. “The rep indicated that Handleman had this wonderful way of gettinginformation to help them program Wal-Mart’s CD bins” says Dreese, leaning across his battered metal desk, which he bought used in the late 1980s for 30 bucks. “It made me realize to what an extent a company likeWal-Mart was benefiting from the precise regional data that it could never compile on its own”
Dreese had to act-but not too hastily.After 19 yearsin the business, he knew better than to casually risk the promotional support-the price-and-position dollars, the artist appearances, the cooperative advertising-that the labels bestowed on retailers that reported to SoundScan. And he wasn’t about to do himself in on an impulse. So he waited and thought and reconsidered. But, Dreese says,about three months after he’d returned from the Gavin convention m Holderness, N.H., he picked up the phone and called SoundScan. “I asked them if they had in fact ever engaged in consulting arrangements with retailers,” he says,”and they said in fact that they had”
Dreese knew what he had to do. “The letter Isent was your basic bombshell letter,” he says. “It just said, ‘As per our contract, as of June 1998, we will no longer be a SoundScan reporter ‘” Mike Dreese had pulled the plug.
This was not the way it was supposed to be.Sharing information, the conventional wisdom goes, gives your business a competitive edge-no matter what industry you’re in and no matter where you fall in the supply chain.And any technology that can facilitate that sharing (be it point-of,-sale systems linked to modems, asin the case of the music industry,or radio-frequency transponders connected to PCs, as in the case of the beef industry) only sharpens your chance for success.Source: Thea Singer, “Sharer Beware,”Inc., March 1, 1999
So, what went wrong? Indeed, since information sharing is so critical for effective supply chain management, why did SoundScan Inc., a major player in the music industry. and Newbury Comics have such a breakup? The answer has to do with the misalignment of incentives in the supply chain. As the example indicates, Newbury Comics benefited from price support received from the record labels inexchange for providing the data. They were assured that only aggregated data would be sent to the record labels. However, if the data aggregator is engaged in consulting with various retailer, these data can be a powerful tool that can help these retailers better manage their inventory and distribution channels
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Only this Source:
;Kaminsk, S., Simchi-Levi, D., Simchi-Levi, E. (2008). Designing and Managing the Supply Chain: Concepts, Strategies and Case Studies, (3rd ed.). New York: McGraw-Hill Irwin. Pg 163-164