Best Buy Close To Adopting New Supply System

Best Buy, which announced last year that it would scrutinize its supply chain to improve efficien

Best Buy, which announced last year that it would scrutinize its supply chain to improve efficiencies, is close to announcing how it will stock its stores with music, sources say.

After running two separate tests -- one in which Handleman Co. racked about 50 Best Buy stores, and the other in which the major vendors co-managed their own inventory with Best Buy -- the chain is said to be close to choosing the latter route.

In order to facilitate a vendor-managed inventory system, sources say, Best Buy is close to signing a deal with Detroit-based Vision Information Services. VIS makes software that enables music vendors to see their inventory in each store and make suggestions to Best Buy concerning stock.

At this week's NARM convention in San Diego, Gary Arnold, Best Buy's senior VP of entertainment, acknowledged the tests and said the chain is considering VIS, but he added that "no contracts are signed." VIS executives couldn't be reached for comment by deadline.

If Best Buy closes a deal with VIS, each of the majors would be required to supply shelf-ready product to the chain's stores. In addition to concerns about supply expenses, the majors are wary about who would assume the cost of preparing product to be shelf-ready -- the manufacturers or Best Buy.

For Best Buy's part, the savings could be huge, considering the chain would get direct shipments from the majors and would no longer need to stock music products and have hundreds of millions of dollars tied up in inventory in a warehouse.

Also, the chain would no longer have to assume inventory risk, since presumably the suppliers would be responsible for any overstocked titles.

For the majors, this could turn out to be the first retail account that would let them truly be partners in managing inventory, something that could serve as a display test for other accounts.

In other news, sources say that as part of Kmart's effort to explore how it might improve its supply chain, the retailer will run a 45-store test with Alliance Entertainment Corp., beginning in either late September or early October. Kmart has been supplied exclusively by the Handleman Co. for decades and suddenly seems to be examining if it should stick with that arrangement.

Executives of Handleman, Kmart and AEC were unavailable for comment.