CAS E companies. Since ADS provides the record compa- Audio Duplication nies with duplication and distribution services, the Services, Inc. (ADS) record companies have asked ADS to help with the logistics of the VMI agreement. In the past, ADS has shipped to the distribution cen- ters of large national retailers, and the retailers have arranged for distribution to the individual stores. Audio Duplication Services is a compact disk and Now, the retailers are providing strong incentives cassette duplication and distribution company. Its to ship directly to individual stores. Of course, this major customers, the big record companies, use ADS means higher expenses for ADS. to duplicate and distribute CDs and cassettes. ADS In general, ADS's shipping costs are increas- stores the master tapes and, when a customer requests ing. Currently, ADS has a shipping manager who it, makes a certain number of copies and delivers them arranges with different shippers to make deliver- to its customers' customers, music stores and other ies on a shipment-by-shipment basis. Perhaps there points of sale such as department stores Wal-Mart and is a better way to manage these deliveries, either Kmart and electronics stores such as Circuit City and by purchasing a fleet of trucks and doing the ship- Best Buy. ADS is one of six big players in the audio ping in house or outsourcing the entire shipping duplication market. ADS has about 20 percent of the function to a third party. Maybe something between $5 billion market, while its two biggest competitors these two extremes will be best. share another 40 percent. Managers at ADS are currently trying to under- Of course, ADS is facing even bigger issues, such stand and react to some difficult supply chain-related as the future of the audio duplication industry as issues. on-line audio distribution technologies become more prevalent. In any event, each record company period- ically reviews its contract with its audio duplication Some of the big national retailers are putting pres- service, so management must address each of the sure on ADS's customers, the record companies, above issues effectively for the company to remain to manage inventory in the following way, known successful. as a vendor-managed inventory, or VMI, agree- ment. The record companies will be put in charge CASE DISCUSSION QUESTIONS of deciding how much of each album, CD, and cas- sette title is delivered to each store and when each 1. Why are ADS's customers' customers moving delivery is made. To help with these decisions, the towards VMI arrangements? record companies will be provided with continu- 2. How will this impact ADS's business? How can ously updated point-of-sale (POS) data from each ADS management take advantage of this situation? of the stores. Also, the record companies will own 3. How should ADS manage logistics? the inventory until it is sold, at which point payment 4. Why are the large national retailers moving toward will be transferred from the retailers to the record a direct shipment model? Source: ADS is a fictional company. The material in this case is loosely based on the authors' experience with several companies