The publishing company Random House recently achieved revenue growth by adjusting its supply chain focus from cost savings to sales growth. The organization was having difficulty optimizing its operations and supply chain management because of how its orders arrived, reported Supply Chain Digest. Instead of accepting this problem, the company used data collection and analysis to develop a solution.
Random House explained that book stores typically only stock a few copies of a certain book and order more every week or when they sell out of the item. This means that a title can remain out of stock for days or even weeks until a new order is placed, received and processed by Random House. This costs the company money on potential sales that weren't achieved because readers were unable to purchase the book at the store.
The company decided to review its supply chain and distribution processes, and learned a few lessons as a result of this effort, explained Supply Chain Digest, that are helpful for other organizations to understand:
- Constraints can be overcome if executives are aware of the barriers that prevent change: Control and influence are two different variables.
- Current metrics may not be aligned with company goals. For example, Random House shifted from reducing logistics costs to increasing sales, which led to larger profits.
- Complex problems can be simplified and answered. While the company encountered stumbling points along the way, it was ultimately able to work through these issues.
Reducing delays in replenishment cycle
After completing a review of its supply chain and distribution frameworks, Random House discovered that faster and more reliable fulfillment would drive sales growth. This meant that the company needed better in-stock positions at the shelf and lower retail inventories to position the company as a preferred supplier, explained Supply Chain Digest.
To move in this direction, the company redefined its replenishment times. Instead of only considering the pick, pack and ship process, it also began to factor in the retailer order cycle. It realized that if retailers could place orders daily instead of weekly, this would eliminate a number of days from its replenishment cycle.
"The fear of such a move, of course, was that in the end this change would negatively impact the all-important cost per unit metric," explained Supply Chain Digest. "But when viewed from a sales growth perspective, Random House believed small increases in costs would pay big dividends in revenue. As it turned out, the sales growth was achieved big time, while the cost increases predicted was less than expected."
For example, the company's book sales to the retailer Target have gone up 70 percent since the program started, explained the news source.