Netflix is a provider of on-demand media through the Internet. The company also produces its own original content. Founded in 1997, the business has exploited opportunities in this market to become the leading player. Successful inventory management helps enable this business leadership. Inventory management at Netflix involves film production operations, as well as materials or tools used in the business. Effective inventory management ensures that the business thrives and maintains its leadership position in the industry, to satisfy the strategic objectives of Netflix’s mission and vision. Effective inventory management also supports Netflix’s expansion to new markets for on-demand digital content.
Netflix’s success relates to the effective use of inventory management through the different types and roles of inventory. The company’s inventory management across its supply chain involves business-specific measures of inventory performance to ensure beneficial financial impact on the digital content streaming business. As part of Netflix’s operations management approaches, effective inventory management facilitates business soundness against the films and streaming services of competitors, including Disney, Sony, Apple, Amazon, and Google’s YouTube. In this regard, effective inventory management addresses the competition shown in the Five Forces analysis of Netflix.
Types & Roles of Inventory at Netflix
Netflix uses inventory types most appropriate to its business. Different types of inventory have different effects on business. The role of each type of inventory depends on how it is used in the business. At Netflix, the following inventory types are used:
- Just-in-time inventory
- Serialized inventory
Just-in-time Inventory. For film studio operations, Netflix uses just-in-time inventory management. Materials are procured and kept as inventory just around the time they are needed. This is called just-in-time inventory because the company acquires and uses materials for its digital content production only at the designated schedules of the production operations. The main role of this type of inventory is to allow Netflix to minimize the size of its inventory, as materials are only procured and used when needed in the production operations.
Serialized Inventory. Netflix uses serialized inventory for its online streaming service. In serialized inventory, products are monitored based on their unique serial numbers or codes. For example, each movie has its own serial number. The role of this type of inventory is to ensure that Netflix efficiently monitors its products and services.
The combination of just-in-time inventory and serialized inventory is suitable for Netflix’s business. These inventory types fulfill their roles of addressing the firm’s different types of business activity. Just-in-time inventory and serialized inventory are applied to some activities in Netflix’s production business, such as animation development, film production, and editing.
Financial Impact of Inventory at Netflix
The financial impact of just-in-time inventory is cost savings. This type of inventory allows Netflix to minimize inventory cost. Just-in-time inventory also involves the minimization of stock because the materials are used in production processes right after they arrive at the premises. Financial efficiency through just-in-time inventory management supports cost targets for Netflix’s competitive strategy and growth strategies.
The financial impact of serialized inventory is cost savings through organizational efficiency, which helps enable economies of scale and other competitive advantages shown in the SWOT analysis of Netflix. This type of inventory enables Netflix to easily monitor its inventory. Bar code scanners, QR code scanners, and other technologies used for serialized inventory contribute to the higher efficiency of inventory management processes.
Netflix’s Measures of Inventory Performance
Inventory performance must be regularly or continually evaluated to support management decisions. Different measures apply to different areas or types of business. At Netflix, the applicable measures of inventory performance are as follows:
- Inventory cost
- Inventory turnover
- Inventory adequacy
- Inventory accuracy
Inventory Cost. Inventory cost is the total financial resources Netflix spends to maintain the inventory. Ideally, a lower inventory cost is a measure of better inventory management performance. Firms always try to minimize inventory costs to reduce overall spending. Netflix minimizes inventory cost by using just-in-time inventory management and serialized inventory.
Inventory Turnover. Inventory turnover shows the ability of the company to keep its inventory moving. Netflix aims to have higher inventory turnover in some business areas because this typically means more revenue. For example, the company uses inventory turnover as a measure of demand for and revenues from some of its original movies and TV series.
Inventory Adequacy. Netflix ensures that it has enough supply for its business. Tools and material stocks must be enough to satisfy demand at all times. Thus, inventory adequacy is a measure of the capacity of the firm to satisfy demand, with consideration for demand fluctuations.
Inventory Accuracy. Netflix uses inventory accuracy as a measure of effectiveness of inventory management practices. High inventory accuracy means minimized costs linked to waste due to error. Accurate inventory records require effective monitoring to support decision-making in Netflix’s inventory management.
Managing Inventory
ABC Analysis. Netflix uses ABC analysis in managing its inventory. ABC analysis is a selective way of controlling the inventory. The firm’s inventory is divided into different categories. The “A” items include movies streamed online, as well as IT tools and equipment. The “B” items include materials used for packaging. The “C” items include supplies used in Netflix’s offices, such as paper and ink. The highest accuracy of records and tightest control are applied to the “A” items, while the lowest control and accuracy of records are used on the “C” items.
Inventory Information Systems. Netflix has dedicated IT personnel for managing inventory information systems used for its streaming services. The company also has dedicated IT personnel for managing the inventory information systems used for its operations in animation and movie production.
Managing Inventory across Netflix’s Supply Chain: Inventory Value & Bullwhip Effect
Inventory Value in the Supply Chain. Inventory value is maintained in Netflix’s supply chain by keeping the inventory up to date. Media content, such as movies, loses its value over time. Thus, to keep the high value of its inventory, Netflix must keep creating new agreements and transactions with content suppliers, such as movie producers. Strategic management decisions in this aspect of inventory management consider consumer preferences, changes in market demand, and the other industry trends shown in the PESTEL/PESTLE analysis of Netflix.
Bullwhip Effect. Netflix addresses the bullwhip effect in the supply chain by using advanced inventory information systems. These systems process and update inventory records in real time. Inventory management at Netflix is comprehensive and set up to monitor and control inventory and the supply chain for online streaming and film production operations.
References
- Albayrak Ünal, Ö., Erkayman, B., & Usanmaz, B. (2023). Applications of artificial intelligence in inventory management: A systematic review of the literature. Archives of Computational Methods in Engineering, 30(4), 2605-2625.
- Netflix, Inc. – Form 10-K.
- Netflix’s Website.
- Reid, R. D., & Sanders, N. R. (2023). Operations Management: An Integrated Approach. John Wiley & Sons.
- van Es, K. (2023). Netflix & big data: The strategic ambivalence of an entertainment company. Television & New Media, 24(6), 656-672.
- Zhang, G., Yang, Y., & Yang, G. (2023). Smart supply chain management in Industry 4.0: The review, research agenda and strategies in North America. Annals of Operations Research, 322(2), 1075-1117.