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
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
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
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
Case Discussion Questions
1. Why are ADS’s customers moving toward
VMI arrangements?
Case Discussion Questions
1. 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.
Case Discussion Questions
2. How will this impact ADS’s business? How
can ADS management take advantage of this
situation?
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.
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 redesign 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.
Case Discussion Questions
3. How should ADS manage logistics?
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.
Case Discussion Questions
4. Why are the large national retailers moving
toward a direct shipment model?
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.