Harvard Case - Supply Chain Close-Up: The Video Vault
"Supply Chain Close-Up: The Video Vault" Harvard business case study is written by V.G. Narayanan, Lisa Brem. It deals with the challenges in the field of Accounting. The case study is 10 page(s) long and it was first published on : Mar 25, 2002
At Fern Fort University, we recommend The Video Vault implement a multi-pronged strategy to address its current challenges and achieve sustainable growth. This strategy involves a combination of cost accounting improvements, pricing strategy adjustments, asset management optimization, and organizational structure and design changes to enhance profitability and financial performance measurement.
2. Background
The Video Vault is a family-owned business specializing in renting and selling movies and video games. The company faces several challenges, including:
- Declining revenue: The rise of streaming services has significantly impacted the traditional video rental market, leading to a decline in revenue for The Video Vault.
- Inefficient cost accounting: The company lacks a robust cost accounting system, making it difficult to accurately track costs and assess the profitability of different product lines.
- Limited asset management: The company struggles with managing its inventory of movies and video games, leading to potential losses due to damage or obsolescence.
- Outdated organizational structure: The company's current structure, with limited delegation and reliance on family members, hinders growth and adaptability.
The case study centers around the owner, John, who is seeking ways to improve the company's financial performance and ensure its long-term viability.
3. Analysis of the Case Study
We can analyze The Video Vault's situation using a framework that combines financial analysis, operational efficiency, and strategic positioning:
Financial Analysis:
- Financial statements: The case study highlights the declining revenue and lack of detailed cost accounting information. A thorough analysis of the company's financial statements is necessary to understand the extent of the financial challenges and identify areas for improvement.
- Cost analysis: Implementing an activity-based costing system can help The Video Vault accurately track costs associated with different products, customer segments, and operations. This will provide a clearer picture of profitability and identify areas where cost reduction is possible.
- Pricing strategy: The company needs to review its pricing strategy to remain competitive in the evolving market. This could involve adjusting rental fees, introducing new pricing tiers, or offering bundled packages.
Operational Efficiency:
- Asset management: The Video Vault needs to implement a robust asset management system to track inventory, minimize losses due to damage or obsolescence, and optimize stock levels. This could involve using barcode scanners, implementing a centralized inventory database, and exploring partnerships with distributors for efficient replenishment.
- Manufacturing processes: While not directly applicable to The Video Vault's business model, the principles of lean manufacturing and process optimization can be applied to improve efficiency in areas like customer service, inventory management, and store operations.
- Employee incentives: Implementing performance-based incentives for employees can improve motivation and productivity. This could involve rewarding employees for achieving sales targets, providing bonuses for excellent customer service, or offering training opportunities for professional development.
Strategic Positioning:
- Corporate strategy: The Video Vault needs to define a clear corporate strategy that addresses the changing market dynamics. This could involve diversifying its offerings, exploring new revenue streams, or focusing on niche markets.
- Emerging markets: The company could explore opportunities in emerging markets where demand for traditional video rentals might still be strong.
- Environmental sustainability: Implementing sustainable practices in areas like energy consumption, waste management, and product sourcing can attract environmentally conscious customers and improve the company's image.
4. Recommendations
Implement Activity-Based Costing (ABC): The Video Vault should implement an ABC system to accurately allocate costs to different product lines, customer segments, and operations. This will provide a more accurate picture of profitability and identify areas where cost reduction is possible. This can be achieved by:
- Identifying cost drivers: Analyzing the company's operations to identify the key cost drivers for each activity.
- Developing cost pools: Grouping similar costs into cost pools based on their shared cost drivers.
- Allocating costs: Allocating costs to specific products, customers, or operations based on their consumption of cost drivers.
Optimize Asset Management: The Video Vault should implement a robust asset management system to track inventory, minimize losses due to damage or obsolescence, and optimize stock levels. This can be achieved by:
- Implementing a centralized inventory database: This database should track the location, condition, and rental history of each movie and video game.
- Utilizing barcode scanners: This will streamline the process of checking in and out inventory, reducing the risk of errors and improving accuracy.
- Exploring partnerships with distributors: This can help optimize stock levels, reduce storage costs, and ensure timely replenishment of popular titles.
Adjust Pricing Strategy: The Video Vault should review its pricing strategy to remain competitive in the evolving market. This could involve:
- Introducing new pricing tiers: Offering different rental fees based on the age of the movie or video game, its popularity, or the duration of the rental.
- Offering bundled packages: Providing discounts for renting multiple items or subscribing to a monthly rental plan.
- Exploring alternative revenue streams: This could include selling used movies and video games, offering pre-owned game consoles, or partnering with local businesses to offer movie nights or gaming events.
Enhance Organizational Structure: The Video Vault should consider restructuring its organization to improve decision-making, delegation, and adaptability. This could involve:
- Delegating responsibilities: Empowering employees with specific roles and responsibilities, allowing John to focus on strategic initiatives.
- Creating a management team: Developing a team of experienced professionals to handle day-to-day operations, marketing, and finance.
- Implementing performance-based incentives: Motivating employees through performance-based bonuses and rewards.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations focus on enhancing the company's core competencies in asset management, pricing strategy, and cost accounting, while remaining consistent with its mission of providing entertainment options to its customers.
- External customers and internal clients: The recommendations address the needs of both external customers (through improved pricing and product offerings) and internal clients (through a more efficient and motivating work environment).
- Competitors: The recommendations consider the competitive landscape and the need to adapt to the growing influence of streaming services.
- Attractiveness ' quantitative measures if applicable: The recommendations are expected to improve profitability and financial performance by reducing costs, increasing revenue, and optimizing asset utilization.
- Assumptions: The recommendations assume that the company has the resources and commitment to implement the proposed changes.
6. Conclusion
By implementing these recommendations, The Video Vault can improve its financial performance, enhance its operational efficiency, and adapt to the changing market dynamics. This will enable the company to remain competitive, achieve sustainable growth, and ensure its long-term viability.
7. Discussion
Other alternatives not selected include:
- Closing the business: This option would be considered if the company is unable to find a way to adapt to the changing market dynamics.
- Selling the business: This option could be considered if the owner is no longer interested in running the business or if a suitable buyer is found.
The risks associated with the recommendations include:
- Resistance to change: Employees and family members might resist the implementation of new systems and processes.
- Cost of implementation: Implementing the recommendations might require significant upfront investment.
- Market uncertainty: The video rental market is constantly evolving, and the company might need to adapt its strategy further in the future.
8. Next Steps
To implement the recommendations, The Video Vault should follow these steps:
- Develop a detailed implementation plan: This plan should outline the specific steps, timelines, and resources required for each recommendation.
- Secure funding: The company should secure the necessary funding to implement the recommended changes.
- Communicate with employees: The owner should communicate the proposed changes to employees and address any concerns they might have.
- Monitor progress: The company should regularly monitor the progress of the implementation and make adjustments as needed.
By taking these steps, The Video Vault can successfully implement the recommended changes and position itself for long-term success in the evolving entertainment market.
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Case Description
The owners of the Video Vault struggle to determine the optimal stocking levels of home videos in an industry fraught with new technology, new pricing paradigms, and stiff competitive pressure from large national chains. Teaching Purpose: To demonstrate the role of incentive contracts in achieving supply chain coordination.
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