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The Reading Forecast
Sanoma Magazines implements SAS tools.
Tervuren, April 2011
In the past you bought a magazine, and that was that. Today, you buy your favourite magazine often in combination with a CD, a good book or some other fun gadget. All very nice for the reader, but the broader range of options does make predicting demand a more complicated business. Ben Sprangers, ICT Business Solutions Manager at Sanoma Magazines, was confronted with this new reality and joined forces with Steven Raekelboom, external Master Data, Planning & Circulation Manager for Sanoma, to find a solution. They arrived at SAS’ forecasting, data management and optimisation tools, which they implemented in 2009, and are currently investigating the possibilities of multi-phase delivery.
Sanoma Magazines Belgium employs over five hundred people and has a turnover of EUR 223 million (2008). The organisation distributes around 25 mass-market magazines in Belgium and has a substantial market share in various sectors such as womens’, TV and home magazines. Some of its well-known titles are Humo (51% owned by Sanoma Magazines), Flair, Libelle, Story, Goedele, Feeling, Femmes d'Aujourd'hui, TeVe-Blad and Télémoustique.
The project focus was on reducing the volume of returns. Sanoma Magazines has to take back unsold magazines and also bears the costs of this flow of returns. Inevitably, the increasing diversification of the products also had to be taken into account. "We hardly ever sell just a magazine nowadays. Usually, a reader can choose between the magazine by itself or the magazine plus a giveaway, for example a DVD or another magazine. In fact, we often put out a magazine in three different variations nowadays, which only makes things more complicated. The previous distribution software wasn’t designed to handle this complexity", explains Steven Raekelboom.
"Most publishers have outsourced the entire control process, by which I mean the decisions taken on the distribution of magazines between the various sales outlets, to their distributor. We have an in-house Circulation team that tackles the distribution of magazines on the single-copy sales market. How many single copies of Humo are distributed and how many copies with a DVD? And what is the distribution between the 4,500 shop outlets that we supply with Dutch-language magazines? We want to keep this control process in-house because it gives us a degree of flexibility. It also keeps us more in touch with our products. Knowledge of the market undoubtedly plays a role in deciding the print run", says Ben Sprangers. "Plus the costs of returns are borne by the publisher. So it’s logical that we should want to control those flows ourselves," he adds.
The project’s first Key Performance Indicator (KPI) was reducing the volume of returns. To this first KPI was added a second, namely the ‘out-of-stock weighted’.
Quest for suitable tool
Sanoma Magazines included the two proposed KPIs in the project specifications. "How many percent fewer returns can we achieve, with the same out-of-stock level, by using a new tool? In other words, is it worth investing in a tool?", says Ben Sprangers.
Two IT suppliers were on the shortlist. In the end, the preference went to SAS.
In addition to SAS Operations Research and SAS Forecast Server, the publisher also purchased SAS Data Surveyor for SAP.
In the past, Sanoma Magazines didn’t use a real forecasting tool but a sort of database management system. "The solution no longer complied with the industry standard. And with the increasing complexity it wasn’t possible to keep doing everything in the old tool, because the tool required a lot of manual work. In addition, that tool had to be fed with data that we extracted ourselves from the databases, which was a fairly time-consuming process. A consequence of this was a limited history. We used four measurement points to determine demand. In our SAS application we include two years’ history, which leads to much better estimates", says Steven Raekelboom.
Sanoma Magazines’ management decided to sign up for SAS in December 2008 and went live around nine months later.
Under the bonnet, the SAS solution is more complex than the previous tool but according to Steven Raekelboom the users don’t notice it: "The users only see the specially developed user-friendly screens via a web interface. At the start I did have trouble ‘selling’ the automation of the optimisation issue. People don’t just believe that a tool can automate such issues. You have to win people over, give them the necessary training and gain their trust."
The Circulation team produces a forecast of the distribution between the various outlets, but the shop managers can overrule the forecast.
As benefits of the forecasting tool, Ben Sprangers cites the flexibility of the solution and the reduced workload on the Circulation team. "Previously, the Circulation team devoted around sixty percent of its time to administration and forty percent to analysis. Today, that ratio is thirty/seventy. For me, it’s also very important that Sanoma Magazines is better armed for the future due to the implementation of a new forecasting tool. We are using two KPIs, but are they the right ones? SAS allows a better analysis. We now have an industry-standard solution in-house and we’re going to use it to the utmost to take our Circulation team to a different dimension."
"Typically, there’s an area of tension between the Circulation team and product management. Which is healthy. With the support of the forecasting tool, we don’t have to debate the figure any more, just the assumptions made. For example, we assume that it’ll be a top edition and we factor in that the magazine will be available in four different versions. Based on the history, given those assumptions, what will the demand be? You can debate the assumptions, but that’s easier than debating figures", says Steven Raekelboom. "In 2011 we also want to keep the history of the various control scenarios up to date. We produce several scenarios based on the different assumptions, but then, in consultation, choose a scenario that we market. The intention is to update the different scenarios to enable us to evaluate our decision afterwards. This allows you to systematise the business information and report on it more easily, and produces a healthier consensus model."
The project’s first Key Performance Indicator was reducing the volume of returns. Sanoma Magazines has to take back unsold magazines and also bears the costs of this flow of returns.
Sanoma Magazines didn’t give any specific figures on the savings made, but the Return on Investment (ROI) is good at any rate: the solution has paid for itself in under a year. S. Raekelboom: "The project was implemented in 2009. If you want to innovate at a time like that, taking account of the economic context, the criteria for an innovation project are very strict. We have met the criteria according to the measurements, although it’s a difficult comparison exercise because the first proof of concept dates from 2007. The market has changed enormously since then."
The future is multi-phase
Sanoma Magazines is now also investigating the possibility of multi-phase delivery to the sales outlets. Currently, it distributes several times a week to the sales outlets, but only once per edition. "On Tuesday it’s Humo in the crates, and on Thursday Libelle for example. But it’s not inconceivable that, instead of putting out the full print run of Humo straight away on Tuesday, we might put out part of it and distribute the rest only in a second phase. In the Thursday distribution round the crate will contain Libelle magazines but also, for example, a number of current-edition Humos. The volume stays the same, so the transport costs remain stable. This system has two major advantages in our view. First, it brings a greater degree of freedom because you can control on the basis of more information. That should reduce the return costs. Consider the coastal region for example. That’s a very volatile sales area because sales are strongly influenced by factors such as weather conditions. Second, the outlets don’t receive all of the magazines in one go, which should make for a better business in terms of organisation and presentation. Multi-phase delivery may also be a solution to the storage problems that shop managers face due to the increasing number of giveaways", says Ben Sprangers.
However, it is not the intention to print the magazines in several phases as well. "Phased printing of magazines is much too expensive. Instead of putting the full print run on the market, we will put out part of it and keep part of it back. We will distribute that part depending on differences in sales at the outlets", says Ben Sprangers.
"We also have an important changeover of ERP platform ahead of us. In that respect it’s vital to have good cooperation between business and IT. I believe the SAS project has shown that it’s possible to bring a project to a satisfactory conclusion provided you have good communication. By using the same IT system throughout the organisation, we also aim to participate more in 'knowledge sharing’. For example, it may be an option that the Dutch branch will use the same SAS tools in the future. For Business Intelligence (BI), we use Business Objects within the group. I think that, with the combination of SAP-SAS-Business Objects, we have good packages in-house that can safeguard our future", concludes Ben Sprangers.
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