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Trans World Entertainment Fine-tunes Ability to Maintain Leadership Positioning in Music Retailing
"4R Systems has the smartest consultants I've ever worked
with — bar none."
— Julian Van Erlach, VP
Supply Chain, Trans World Entertainment
Trans World Entertainment Corporation is one of the largest specialty music video retailers in the U.S., operating nearly 1,000 mall-based and freestanding stores under FYE, Coconuts Music & Movies, Strawberries and other brand names. The company offers a wide selection of entertainment products, including compact discs, prerecorded audio and videocassettes, DVDs and related accessories that represent an inventory challenge in keeping pace with changing consumer demand.
Supply Chain Challenges
4R began working with Trans World on a consulting basis in the Fall of 2000 to analyze and improve the music retailers' in-house systems for inventory management. Much of this work focused on ways to reduce store inventory while maintaining high in-stock levels for products in sudden, great demand.
When new music titles first become available, there is usually a rush of customers who want to purchase them right away. Running out of product in the intensely competitive music retail industry not only means lost sales, but also, in effect, pushes customers out the door and into competitors' stores.
At seasonal peaks such as Christmas or Valentine's Day, stockouts have similar dire consequences, as customers are often unwilling to make substitute selections. CD sales during seasonal peaks often reach 3 to 4 times the level of the prior or following weeks. Remaining in stock for these seasonal surges without carrying excessive — and potentially obsolete — inventory was one of Trans World's chief concerns, especially with popular titles that tended to fall out of favor without warning.
High Impact Results
4R worked closely with Trans World to develop the best system for forecasting weekly demand for each SKU at each store. 4R also designed and implemented a new approach to setting model stock for each SKU at each store, and automated the handling of special cases that previously had to be adjusted manually.
To test the improvements, Trans World ran an eight-week trial program, using 244 top music titles. Forty-one of these titles were managed under the 4R approach, with the balance under Trans World's existing system. SKUs in the 4R test group and legacy system group were matched by sales volume and type of music to provide side-by-side comparison.
In the eight-week trial, the 4R SKUs averaged 0.76 percent stockouts, compared with 1.39 percent for the legacy system group. Trans World's target in-stock rate for these SKUs was 99 percent — a target that the 4R group easily met while the legacy group fell short.
Store inventories of the 4R SKUs averaged 2.4 weeks of supply, or about 1/3 below the 4.8-week average supply for the legacy SKUs. This improvement was even more dramatic for the highest volume titles, where TransWorld's existing process proved excessively conservative. 4R's leaner stock of these items reduced not only inventory carrying costs, but also obsolescence risk.