We have been engaged by a major entertainment company to assist them in building a distribution network for home video. They currently contract their distribution through other, more established, entities but the contracts with those companies are expiring and it is unclear whether the new contracts contain favorable terms or not. There is still a chance that our client may continue to distribute their products through a third party. How would you assess whether to build a distribution network or continue the contracts with the third parties?
First of all, you need to ask your interviewer some basic questions:
- It makes sense to ask your interviewer about best practices - that is, what are other entertainment companies doing? What are the current costs? Does the company have the staff and resources to create its own distribution network?
- Of the major entertainment companies that produce video, do most distribute through their own proprietary supply chain or through third parties?
- What is the client's current cost of distribution through its contractual partner(s)?
- Has the client attempted to assess building its own distribution network before retaining us? If so, what were its findings?
- Does the client have a dedicated functional staff assigned to the project? If so, what functional areas do they represent?
After establishing some basic facts, it's time to get more detailed. Your interviewer may allude to certain avenues to discuss, or shut down others. If the interviewer confirms that, yes, the company does have enough current staff to handle setting up its own network, there's no call to delve deeper into the ramifications of reassigning personnel. Let's say that, through questioning, you've come to decide that staying with a third-party distributor makes the most sense. Now the question is - should the company stay with its current distributor, or choose a new one?
- Who are possible alternative partners? Who uses them?
- Could you characterize the relationship between the client's distribution partner and the client? Is there a possibility of retaliation on the part of the distribution partner if the client severs its ties to this party?
- How many weeks of supply are currently in the distribution partner's pipeline?
- How receptive are the client's accounts to changing distribution partners? Has a value proposition been created to show the client's accounts that a client-owned supply chain would be more efficient, valuable, etc. to the accounts?
- Does the client have any financial interest in the distribution partner that might have to be severed?
After answering these questions, make a recommendation.