DISCOPRESS Case Solution

With the advancement of technology, digital storage on hard drives of master stamper became more economical. Now the disk was burned, and data was etched on it. This produced a disk with lower quality, but setup and mastering cost decreased significantly causing profits to sore higher. The target market of Discopress for on-demand manufacturing mainly included the true on demand businesses like audio-book publishers, and those who require production in lower volume. Till date, all on- demand business of Discopress has been in CD-Rs. The market of DVD-Rs was never tapped because of lack of clients with significant video catalogue in their portfolio to order.

Last year, Discopress entered into a contract with Farnsworth Filmed Entertainment (FFE). FFE is a marketer and distributor of old television series and B movies. Once the contract of manufacturing series expires, FFE buys it. Its portfolio consists of the catalog between slowest and fastest selling tracks. This reliance of FFE on the long tail makes it an excellent candidate for the launch of an on-demand DVD program by Discopress. Initially, a mass manufacturing contract was signed but this increased inventory carrying cost of FFE significantly and eroded all potential profits. Analyzing the consumer demand, Lochte analyzed that there might be few titles that Discopress can manufacture for FFE in lesser quantities if it develops its MOD capability for DVDs. The titles will be sold to them in batch of 12. With minimum order quantity of 500, price will be 1.16$ per item plus $600 per order. Cost will be 0.75$ per item along with 500$ per order. The only problem that Lochte encountered was the tenure of license of FFE for titles.

Seeing all the scenario, Discopress must now decide whether it will go for mass production or manufacturing on demand strategy. In addition to this, preparing on demand DVDs for retail distribution would require capital investment of 10,000 $.Pace must also decide whether to make this investment or not and will the per unit price outweigh inventory holding cost or not.

Analysis of case suggests that they have two alternatives. Either they go for mass production or they go for on-demand production. Both the strategies have their pros and cons. The current accounting policies of Discopress are such that they incorporated depreciation in fixed cost irrespective of number of articles produced. By using the strategy of mass production, it would achieve economies of scale. Amortization of equipment cost will be done among large number of items. Marginal cost might increase but in actuality, profits of the company will increase over the years. But this strategy too has its disadvantages. By going for mass production, large number of items will be produced. They will either have to store the DVDs themselves or FFE will store them. As per contract, inventory holding cost will be borne by FFE. By doing so, they will increase FFE’s storage cost. In addition, the client with whom it is dealing targets the long tail tracks with limited demand. The tenure of the license for selling these titles is also limited. This variability makes thing further complicated. If Discopress produces large number and contract of FFE expires, all the items will be wasted. In the case where DVDs remain unused, cost of destroying them later would also be incurred.