Movie Madness

Movie Madness

The Supply Chain and the management thereof is the most important process in business today. The supply chain is how a product is created, manufactured all the way to a final consumer purchase. Determining this supply chain and making modifications can be the single biggest change to any industry. In this section, the supply chain management strategies of the movie rental industry will be discussed by first looking at what is a supply chain and how it applies to eBusiness. A further look at the history of the movie industry supply chain will be discussed with a subsequent discussion on 3 industry examples: Netflix, Blockbuster and Intelliflix.

Supply Chain

Schnieder (2004) defines the term supply chain as being "all the activities undertaken by every predecessor in the value chain to design, produce, promote, market, deliver, and support each individual component of that product or service." (pg 207) This means that for Widget Inc that sells artificial pre-lit Christmas trees then there are multiple supply chains for the various components such as the tree lights, the wire for the branches, the plastic for the artificial needles and the final packing for the trees.

Therefore the purchasing department for Widget Inc has to consider these individual supply chains to ensure the company gets its parts in a timely manner and for a cost that does not inflate the final product cost. Supply chain management is frequently managed by a company's purchasing department who, as described by Schnieder (2004), "has been tasked with buying all these components at the lowest price possible" (pg 207). The question can then be asked, how does eBusiness affect supply chain management?

The Internet allows the procurers to easily seek out suppliers of desired components, negotiate pricing and place orders for the components. The ordering process can be the key step in the procurement process as it allows a company to maintain a Just in Time production process by allowing companies to automatically place orders through Electronic Data Interchange (EDI) and through website ordering processes.

Utilizing automated ordering helps reduce costs for all the companies in the supply chain as companies do not have to devote human resources to performing those tasks of placing, receiving and processing orders and processing invoices and payments. Another benefit of eBusiness websites is that companies can monitor their orders to see what stage it is at and track the delivery through websites such as Fedex.com or UPS.com which are two shipping websites that offer delivery tracking.

It has been briefly shown that a supply chain covers all aspects of component or service production and that eBusiness has helped supply chain management through the automation of tasks that leads to reduced costs for all companies and increased efficiency and timeliness of component supply.

Industry Supply Chain History

The home video and game retailing industry has been remarkably slow to adopt e-business strategies, especially when consider the industry product is technology. In 1977, a cottage industry was established with the creation of the industry's first official company, Magnetic Video (Entrench, 2005). Andre Blay the company founder persuaded 20th Century Fox to license 50 titles for direct sales. Marketed as Video Club of America, Blay took out a two page spread in TV Guide. The titles were offered in the two formats of the time, Beta and VHS, and with 13000 responses, the company broke even in two months (entrench, 2007). The "industry" was focused on sales in the beginning; however, in 1978, Movies Unlimited offered the ability to watch the movie before purchase. Fotomat created the ability to phone in orders which would be claimed the following day.

The rental strategy was formally structured by Walt Disney Production introduction into the industry in the early 1980's. Walt Disney would release a title to a retailer for 13 weeks, and the retailer was permission to rent it out as many times as desired. The United States Supreme Court issues its groundbreaking decision in the Sony Corp. v. Universal City Studios, Inc. case, which affirms the rights of consumers to videotape television programs for "time-shifting" purposes. By ruling that Sony was not guilty of copyright infringement for enabling consumers to record programs, the court legitimizes the VCR and set the stage for the widespread adoption of the device.

This rudimentary and fragmented evolution of the supply chain in the home video industry created a patchwork of delivery methods to the end user. Orders were placed in person, by mail, or over the phone. Most delivery in the beginning was done at retail stores, however, the mail system did aide is sales. The retail strategy becomes the norm for rental. Rentals are made on location for a specific time period and returns are also on location. In 1998, Netflix revolutionizes the industry with the first online DVD rental service.

This allowed the company to eliminate the liability of retail space expense, along with allowing customer to queue their orders. The website removed the need of retailers, shop employees, and the delivery routes used by the companies to disseminate their product. Customers can now place an order, the order is process automatically, and sent via mail.

Netflix

Netflix, Inc. is a well-established, primarily internet-based operation whose business is the online renting of DVDs to consumers. The company was unique from the onset, being the first large establishment to offer no due dates, late fees, or shipping fees for its rentals. The service, which launched in 1999 and presently has a library of over 90,000 movie titles, has distribution centers strategically located around the country--enabling the company to keep shipping times to approximately one business day.

Though other rental establishments, namely Blockbuster, Inc., have mimicked the service of online rental distribution, Netflix has continued to expand on its current offerings through the leveraging of technology. Subscribers to the service may instantly view a selection of movies (with a growing library of 5000+ titles) directly over the internet on their home computers; a service that simply was not feasible only a few years ago.

This service, as well as others, has proven that Netflix is focused