Walt Disney’s Edwin Van Der Meerendonk: “I can’t control the volume we’re selling”

You’d imagine having few worries working for the world’s largest media company which regularly brings out box office hits that boost its entire business. Last year Star Wars: The Force Awakens become the highest grossing movie in U.S. history, contributing just a little to the Walt Disney Company’s annual global sales of around USD 54 billion. After nearly a century the creative energy that is part of its DNA ensures that it remains one of the world’s ten most powerful, valuable, top, well-known (which ever way you measure it) brands. Yet Edwin van der Meerendonk, who refers to his employer as the Fun Factory, sees plenty of challenges ahead.

Some 45% of its worldwide revenue comes from the company’s Media Networks business segment that includes the Disney Channel, ABC and ESPN linear television channels. How these adapt to changing viewing habits as people watch programmes on mobile devices when and where they want will be critical. Similarly new products, such as Netflix, are putting pressure on sales of Disney’s home entertainment products including DVDs. Based in Amsterdam and with responsibility for the European operations of Studio Entertainment, Van Der Meerendonk is redefining the route to consumers and embracing ecommerce. He also believes a huge retail base is still underutilised.

What is your responsibility regarding the supply chain?

“I’m responsible for Disney’s European Retail Supply Chain. That entails Home Entertainment products such as DVDs and merchandise that Disney sells direct (not via licensees) to retailers throughout Europe. I’m therefore responsible for the endto end supply chain process, from demand planning to invoicing. The European SC team is responsible for the in-territory distribution solution, the supply planning and manufacturing process and the governance of the IT solution that supports the supply chain operations.”

What is the strategy of the Company (or Division/Supply Chain): Operational Excellence, Product Leadership or Cus tomer Intimacy?

“The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company with operations in five business segments: Media Networks (accounts for 45% of worldwide revenue and runs TV stations and stage plays); Parks and Resorts; Studio Entertainment, where I am involved; Consumer Products and Interactive (computer games). Our aims are to produce high-quality content that delivers to Disney’s unique brand promise; to be innovative in content, technology, marketing, and distribution to meet the needs of our diverse, global consumers – including finding ways to personalize the Disney experience; to cultivate efficient and sustainable practices that prepare our organization for the future; and to foster an inspirational and inclusive environment where employees can thrive personally and professionally.
You could interpret this as a drive for customer intimacy. Within the environment in which I’m working (retail), this actually varies from having a very tight relationship with key customers, for whom we offer continuous replenishment of goods, to a leaner, looser relationship with non-specialised customers where the focus is on operational excellence.”

What are the main business challenges that drive supply chain projects at the moment?

“One of my supply chain challenges is to maintain a stable contribution margin in a market in which volumes are declining. Although our market share with respect to other film and TV studios is increasing, there is an overall decline due to the increase of other products such as iTunes and Netflix. Unfortunately the decline in revenue from physical products for home entertainment is not yet compensated for by an increase in use of digital Disney products.
And, unfortunately, there is an organisational segregation between the physical and digital business. I believe we should try to integrate these two worlds better because we’re not fully benefiting from the potential cross over of knowledge. This is when big companies can be inefficient.”

Which supply chain challenges keeps you awake at night?

“How do I make sure that the Home Entertainment business remains above the breakeven point? To a certain extent, I can control the fixed costs when we look over a longer period, but what I can’t control is the volume that we’re selling as a company. The decline in volume and ability to continue to remain a profitable business is therefore my concern; it is not possible to assess how fast the decline in home entertainment might occur. I can only control the supply chain and the cost part of the solution yet the steam of revenue is driven by the quality of upcoming titles. Last year we launched Star Wars: The Force Awakens and then the sky is the limit. But if the slate is less attractive it has a compounding effect on the declining market.”

What do you do about these challenges?

“Although home entertainment is a declining market, it still accounts for a significant volume of DVDs per year and therefore still makes a material contribution to the results of the Studio Entertainment segment. The challenge is to keep our fixed costs in proportion to the declining revenues. We are achieving this by consolidation of physical networks and distribution, either by country or with other studios. In the past we had numerous distribution centres in many European countries. At the moment we are moving and integrating warehouses so that ultimately we could end up with just two DCs for Europe. This will make the order fulfilment process more efficient but it increases freight costs. Luckily more studios have the same challenge so we are teaming up with Warner and Fox, for example to ship goods from Germany into Italy to mitigate the higher transport costs.
At the same time sales channels are changing. In some countries such as Germany, France and the UK DVDs are still regularly available in stores but in other countries they are becoming increasingly difficult to find. Therefore our retail strategy is very much efficiency driven and sales in stores such as Aldi and Lidl are campaign driven: A new release is sold in a temporary display for five to six weeks and is then removed from the store. You need a very smart, lean supply chain to benefit from this short period of opportunity.
At the same time the e-commerce sales channel via companies like Amazon is becoming increasingly important. This requires different supply chain behaviour. The ecommerce customers have a continuous and predictable flow of orders and we have a much closer relationship with them in order to fully understand their replenishment policies and to see how we can better connect to their specific requirements. Although we have to meet many specifications and offer specific services, such as insight into stock levels which require all sorts of interfaces, and being able to combine customer orders, it is worthwhile because the volumes justify the investment.
However, do we need to ensure that while meeting their demands we do not relinquish everything. We have account teams that collectively review their requirements to assess if it makes business sense, especially as we want to build solutions across multiple markets. We will not do something for a single market unless there is a massive commercial downside if we don’t do it. At some point you need to draw a line.”

Who do you like to meet for exchange of knowledge?

“I very much like to meet people who are dealing with ecommerce solutions for internet customers such as Bol.com and, of course, Amazon. I am particularly interested in the point where physical and digital connect. The pure ecommerce players are way ahead of traditional retailers when it comes to Internet sales due to their thinking, legacy, network and solutions. Traditional retailers can learn a lot from ecommerce retailers because it’s not just a case of opening a web shop and trying to run the same supply chain.”

Which book has inspired you the most and why?

“The Art of War by Sun Tzu: ‘So it is said that if you know your enemies and know yourself, you will not be put at risk even in a hundred battles. If you only know yourself, but not your opponent, you may win or may lose.  If you know neither yourself nor your enemy, you will always endanger yourself.’ This is a very useful approach when doing negotiations.”