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Audio Duplication Services

Audio Duplication Services. Audio duplication and distribution of CDs and cassettes Customer base consists of large record companies Distributes to a wide variety of retail outlets including: Music Stores, Wal-Mart, K-Mart, Best Buy, Circuit City Has about 20% of the $5 billion market

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Audio Duplication Services

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  1. Audio Duplication Services • Audio duplication and distribution of CDs and cassettes • Customer base consists of large record companies • Distributes to a wide variety of retail outlets including: • Music Stores, Wal-Mart, K-Mart, Best Buy, Circuit City • Has about 20% of the $5 billion market • Two other biggest competitors share 40% of the remaining market

  2. Current Environment • Retailers want record companies to manage and own inventory until it is sold • Record companies are asking for help from ADS with both VMI and logistics • Retailers have proposed that: • Record companies decide album quantity and timing of delivery • Base decisions on POS data feed from retail outlets • Record companies own inventory until it is sold • ADS currently ships to retailers’ distribution centers and retailers arrange for distribution to individual stores • Retailers are providing incentives for ADS to direct ship to stores, but this creates several problems: • Cost, Infrastructure, Expertise

  3. Current Environment • ADS uses multiple carriers on a shipment-by-shipment basis • Inefficient, costly, and complex • The future of audio duplication is in jeopardy • On-line audio distribution (Napster, i-Tunes) • Technological changes • Piracy • Record companies periodically review their contract with its audio duplication service • ADS must react in order to remain competitive

  4. Current Environment • ADS uses multiple carriers on a shipment-by-shipment basis • Inefficient and costly • Complex • The future of audio duplication is in jeopardy • On-line audio distribution (Napster, i-Tunes) • Technological changes • Piracy • Record companies periodically review their contract with its audio duplication service • ADS must react to these changes in order to remain competitive

  5. Case Discussion Questions • Why are ADS’s customers moving toward VMI arrangements?

  6. Case Discussion Questions • Why are ADS’s customers moving toward VMI arrangements? ADS's customers' customers, i.e., the national retailers, want to reduce inventory holding costs and expenses related to managing inventory by moving towards VMI agreements.

  7. Case Discussion Questions 2. How will this impact ADS’s business? How can ADS management take advantage of this situation?

  8. Case Discussion Questions 2. How will this impact ADS’s business? How can ADS management take advantage of this situation? The most significant impact on ADS's business will be on its distribution functions because it will have to ship directly to the individual stores instead of distribution centers. Transportation costs will increase due to the increase in the number of destinations. Depending on its agreement with the record companies, ADS may incur additional inventory holding costs because compact disks and cassettes will spend more time in its system.

  9. Case Discussion Questions 2. How will this impact ADS’s business? How can ADS management take advantage of this situation? ADS should take this situation as an opportunity to re-design and streamline its operations and prepare itself for the general trend towards VMI in the industry. This may help ADS to gain a competitive advantage, and potentially increase its market share.

  10. Case Discussion Questions 3. How should ADS manage logistics?

  11. Case Discussion Questions 3. How should ADS manage logistics? Logistics is not a core competency of ADS. The management team of ADS must address more crucial issues such as the emerging media distribution business over the Internet. Therefore, ADS should outsource its distribution functions to a third-party logistics provider in order to focus on issues threatening its core business.

  12. Case Discussion Questions 4. Why are the large national retailers moving toward a direct shipment model?

  13. Case Discussion Questions 4. Why are the large national retailers moving toward a direct shipment model? Under the proposed consignment scheme, inventory belongs to the suppliers until the products are sold. So it would be inefficient and unreasonable if products were first delivered to distribution centers that belong to the retailers. This would add an unnecessary complexity to the system as to how goods in the distribution centers would be handled and ultimately delivered to the individual stores. By encouraging direct shipments, retailers can reduce the warehouse space they rent or own, and reduce costs further.

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