Circuit City 1997 Annual Report Download - page 7

items. Individual product types are consistently stocked in the same physical picking location, allowing ease of picking and minimizing picking
errors. Picking of products at the distribution centers is done continuously throughout the day. Customer orders are packed and shipped as they
are received.
EUROPE
The Company has seven separate European market branch facilities in six countries and a central office near London to direct their activities.
The central office is responsible for marketing support, catalog production, financial reporting, logistics and computer programming support. In
addition, each market has a full service sales and distribution center to process orders and reports to the respective country manager who has
ultimate profit and loss responsibility.
SUPPLIERS
In North America, the Company purchases the majority of its products and components directly from manufacturers, except for certain
peripherals, software and hardware products which are purchased through wholesale distributors. In Europe, products are sourced from a
combination of local manufacturers and wholesalers. Substantially all of the European catalog product content is sourced in Europe. No single
supplier accounted for more than 10% of Global's total purchases in 1997.
Private label products are manufactured either by the Company or by third parties to the Company's specifications. Many of these private label
products have been designed or developed by the Company's in-house research and development team. See "Research and Development.
MANAGEMENT INFORMATION SYSTEMS
In North America, the Company operates a proprietary system that allows centralized management of key management functions. These
include communication links between distribution centers, inventory and accounts receivable management, purchasing, pricing, sales and
distribution, and the preparation of daily operating control reports which provide concise and timely information regarding key aspects of its
business. This proprietary management information system enables the Company to enhance its flexibility by shipping customer orders usually
on a same-day basis, responding quickly to order changes and providing a high level of customer service. The Company maintains a database
of over 40 million customer and prospect names and keeps records of historical purchasing patterns in order to prompt sales personnel with
product suggestions to expand customer order values. In addition, the Company has developed a customer prospecting function based upon
geographic, economic and demographic data which enables Global to utilize its information systems to maintain and expand its customer data
file. These applications enable the Company to achieve cost savings, deliver extensive customer service and centrally manage its operations.
In the United States, the Company's management information systems are networked, real-time information systems. These allow each
distribution center to share information and monitor daily progress relating to sales activity, credit approval, inventory levels, stock balancing,
vendor returns, order fulfillment and other measures of performance.
THE YEAR 2000 ISSUE
As is the case with virtually all companies and organizations, the Company currently utilizes certain computer programs that store two digits in
identifying the year in the date field. Those programs were designed and developed without considering the impact of the upcoming change in
the century. If not corrected those computer programs could fail or create erroneous results by or at the year 2000.
The Company currently believes it will be able to modify or replace any affected computer program in time to minimize any potential harmful
effects on operations. While it is not possible, at present, to give an accurate estimate of the impact on the Company's operations or the cost of
correcting the affected computer programs, the Company expects that the impact and associated costs will not be material to the Company's
operations. The Company is in the process of contacting customers and vendors to determine which of them is affected by the year 2000
problem, and to what extent, in order to assess the potential impact on the Company.
System maintenance and modification costs to existing computer programs will be expensed as incurred. The costs associated with new
computer programs that are year 2000 compliant will be capitalized and amortized over the software's expected useful life.
RESEARCH AND DEVELOPMENT
The Company's research and development team designs and develops products for Global's private label program. The individuals responsible
for research and development have backgrounds in engineering and industrial design.
This in-house capability provides important support to the private label program. Many of the Company's private label products were designed
or developed by the in-house research and development team. Examples of products designed in-house include: furniture, ergonomic monitor
support arms, printer and monitor stands, wrist rests and other durable computer related products, storage racks and shelving systems, various
stock and storage carts, work benches, plastic bins and shop furniture. The Company owns the tooling for many of these products, including
plastic bins, computer accessories, furniture, and metal alloy monitor arms. See "Research and Development Costs" in Footnote 1 to the
Consolidated Financial Statements.