Supply Chain Coursework

Hello,

Can you kindly look through my attached coursework. I have included the coursework brief as well so that you can make an informed decision as to whether I discussed the issues properly.

Thanks

Coursework brief

Department Of Management Science
MSc in E-Business and Innovation

E-Business Supply Chain Management (EBIN507)

Coursework Assignment: Recorded Music Supply Chains

Background

Technological and organisational change have, in recent years, transformed the way in which listeners can access recorded music. This has involved a change from the manufacture, distribution and sale of physical artefacts such as CDs to the downloading of music files via the web. This has been accompanied by such phenomena as:

• The sale of CDs via web sites such as amazon.com rather than through high street stores
• A growth in sales of CDs through large grocery retailers rather than specialist music stores
• The rise of the ipod and other MP3 players
• User involvement via, for example, on-line rating of suppliers and writing reviews of recordings
• Radical innovations in pricing and revenue models
• Counterfeiting, illegal downloading and piracy

The Assignment

Research and write a report in which you:

1. Describe and quantify the main developments, both technological and organizational, in the recorded music supply chain over the relevant period e.g. since 1994, when amazon.com was founded. [30% of marks]

2. Discuss whether and how the successive changes in the supply chain have provided better service to the end consumer in terms of the five operations performance objectives (quality, speed, dependability, flexibility and cost). You should relate this discussion to operations and supply issues such as process, inventory, capacity and supply relationships, and explicitly cite the theoretical concepts that you use. [40% of marks]

3. Discuss the advantages, disadvantages and implications of the various changes you identify for the main actors in the supply networks, including, but not limited to:
• Artists
• Publishers
• Record companies
• CD pressing plants
• Retailers
• Web-based intermediaries
• Physical distribution operators
• Consumers
[30% of marks]

The report should:

- refer to and apply relevant theory from operations and supply chain management
- draw on relevant secondary sources such as the press and websites
- concentrate on the supply network to the end user, not the consumer behaviour issues to do with adoption of new technologies (i.e. this is not a consumer marketing assignment)
- concentrate on recorded music, not broadcast (i.e. 'radio') except insofar as the convergence of technologies makes them difficult to separate
- be about 4000 words long excluding appendices

Please use the Harvard system for referencing and please utilize tables, charts, diagrams and similar graphical devices to assist in presentation.

My submission

Comprehensive Analysis of Recorded Supply Chain Music: The Effect of Internet

1.0 Abstract
Internet is undoubtedly the most significant inventions of modern time which has completely revolutionized human life. Certainly it has been affecting every aspect of human life, with buying & selling online, virtual money transaction and things that one could have never imagined, but there is yet so much to come. In this rapidly advancing modern world, businesses have to keep up the same pace.
For centuries man had been dreaming of capturing the sounds and music around the environment. Many had attempted it but no one had succeeded until Thomas Alva Edison discovered a method of recording and playing back sound, it was the invention of telephone which led to the development of an instrument which would change the world, making it a happier place to live in. Since then, music was stored into various forms such as LP's, cassettes, CD's and so on. Finally, the year 1994 marked the beginning of music and Internet starting to work strongly together. In this paper we shall be critically analysing the main developments due to enhanced technology that has completely revolutionized the recorded music supply chain and its effect to end consumers after 1994. We shall also be discussing the advantages, disadvantages and implications of various actors involved in the supply chain.

2.0 Introduction
The Internet has been revolutionizing each & every aspect of human life, which directly or indirectly affects end consumers. This paper, discusses the kind of changes the recorded music supply industry has undergone after the Internet and e-business boom, since 1994. This topic will be discussed in an orderly manner. To begin with, it looks into the traditional method and stages involved in music consumption. This is followed by an evaluation about the origins of Amazon, E-commerce and the technological and organisational developments caused due to this transformation. It moves on to discuss the effects of these changes on consumers and their expectations. It concludes with a consideration of the implication for various stakeholders involved in the process.

3.0 The Big five of the Music Industry in the 90's
Multinational Companies such as Universal, Warner Bros, Sony, EMI and BMG were dominant in the music business. They were waiting till the 90's, before trying to dominate the industry across all levels. The reason being that, these big conglomerates realised the power of music throughout every other medium. In the 90's music could be found in television, film, broadcasting, live performances, and recordings. Simply by owning one copyright of a hit song, these conglomerates could sit back and watch the income roll in as they gain royalties from the song (Computerdjsummit, 2007). These Big five were almost at par with each other and always tried getting an upper hand in the business.

4.0 Relation between Amazon and Music
According to Jelassi et al. (2004), in 1994, Jeff Bezos, a computer science and electrical engineering graduate from Princeton University was highly impressed by the upcoming boom of internet. During a summer of that term an internet statistics caught Jeff's attention; internet usage was growing at 2300% a year. He considered this as an opportunity and quit his job. He then drew up a list of 20 different products that could be sold on the internet and within no time narrowed the prospect to two i.e. Books & Music. Music industry was booming during that period and it served as the favourite past time for people. Jeff thought that if he could introduce music on the web, it could led to a revolutionary change in the value chain structure of music industry, as the internet had no geographical constraints. He expected a huge demand for his products. He then launched the business in July 1994 and named it after the river 'Amazon'. By 2004, Amazon held 125, 000 music titles. More than 10 times the number of an average book store. Amazon's Database Management System acts as a virtual store for the music. The manner in which the internet and technological advancements have changed the structure of music supply chain is discussed below.

5.0 E-Commerce, Supply Chain Management & developments in the recorded music Industry
Competition, globalisation and modernization are some of the critical factors responsible for changing the paradigm of the traditional logistics strategy. Chen et al (2000) suggest, that a successful logistics strategy has moved from an internal focus emphasizing integration with other enterprise functions (i.e., operations and marketing) and linking the various enterprise functions to overall corporate strategy, to an external focus of integrating supply chains and to the complete scope of supply chain management (Schniederjans et. al. 2002, pp. 49-53)

Figure 1 Typical Supply Chain (Schniederjans et. al., 2002)

Figure 1 represents a typical supply chain arrangement, in which physical goods flow from upstream to down-stream as follows:

Raw materials from suppliers to manufacturers
Products from Manufacturers to wholesalers
Wholesalers to retailers
Retailers to consumers

Managing this supply system is called supply chain management, overall it is involves an operations strategy. According to Schneider, 'The process of taking an active role in working with suppliers to improve products and processes is called supply chain management'(Schneider, 2003, pp. 219). Generally the four dimensions of operation strategy are:
Delivery
Quality
Speed
Flexibility
Cost (I think you are talking about performance objectives here and this includes cost

But not necessarily all businesses follow the same typical structure. For instance, since the advent of the internet , the recorded music industry has experienced a restructuring of its supply chain. The traditional supply chain in that industry as shown in figure 2 below was one in which the record companies (especially the big five) held sway and had control over most of the activities in the supply chain.

Figure 2: The current industry structure (Parikh, 1999)

The first major change came about with the online sales of CDs on Amazon. Disintermediation at this level posed a threat to and meant the elimination of wholesalers as shown in figure 3

Figure 3: The first wave (Parikh, 1999)

Retailers like Virgin soon established their presence on the Internet as well and started selling CDs online. The second wave of disintermediation was brought about by the development of the MP3 in 1998 which made it possible to download music over the Internet. This wave of disintermediation threatened the existence of most of the stakeholders' in particular record companies, CDs manufacturers, and retailers as shown in figure 4.

Figure 4: The next wave (Parikh, 1999)

Simply because of this disintermediation, these conglomerates also started their business in hardware and software manufacturing; but they were not the only ones to benefit from the change. Producers and distributors also profited as people had to replace their entire cassettes/ LP's collection with the advanced CD's and DVD's (available from the 1996, faster than the CDs). Also producers could produce more music because of the speed and progress of new technology. On the other hand, distributors could distribute newer and more expensive goods to their customers.

6.0 The achievement of the five operations performance objectives (quality, speed, dependability, flexibility, and cost) in the emerging supply chain

The internet has potentially transformed the supply chain of many firms because of the abolition of trade-off between the richness and information (Evans & Wurster, 1997). Before the internet, getting to a large number of people with rich information was a costly and time consuming process. Music in particular could only be distributed through a physical media like LPs, cassettes and CDs. Therefore cost and physical constraints limited the size of people to which information was sent. On the other hand, for a distribution shop, music files can be downloaded on request from a central server in the record company, or stored in a local server. This has created economies of scale and reduces of the dependency on physical infrastructures, transportation costs and other administrative costs for the retail store. The availability of instant information, and the connectivity offered by the Internet are now challenging many aspects of distribution that were previously taken for granted.

Quality
While digital music is attractive in terms of the quality of the listening experience, music in a digital form has also facilitated the development of the downloading event that is at the centre of the major transformation of the music industry. However, instead of end consumers going to a shop to choose a particular CD, they can download more music by readily customizing their collections than they can with music that is in a tangible medium; because, "CDs put an arbitrary limitation on how music is packaged. Users can now buy music in packages as great or small as they like" (Berst, 2000). Although MP3 has much lower bit rate than traditional standards, the quality of music does not suffer because consumers cannot discern the difference for bit rates beyond 128kps.

The quality of MP3 has however been questioned in relation to the quality of music on an original CD because sometimes the process of downloading could corrupt the file thereby deteriorating the audio quality. On the other hand, some consumers think the quality is comparable to that of a CD. Users have become accustomed to the prevalence of compressed digital audio and accept its level of quality. Also it is possible that users' demand for quality is not influenced by free availability of digital audio offering. The quality of downloading music alone may not be the determinant factor leading to a purchase.

When referring the quality of online digital music from customer perspective, it mainly focuses on the customer value created by purchasing and playing the online digital music. The definition of customer value from Desie et al (2000) has been concluded in an equation as following.
Customer value (brand perception) = product quality x Service quality /Price x Fulfilment time
By considering the key elements in this equation, Chaffey(2007) claimed that organization can increase customer satisfaction either through increasing the product and service qualities, or decreasing the price and fulfilment time. If the decrease of the price and fulfilment time is more necessary, e-commerce will then play an important role in decreasing time to market and production times and cost.

Speed
Speed has always been concerned with how long customers have to wait to receive their products/service (Slack et al., 2001 p.47). In this context, the concept of speed has been greatly enhanced. The increase in speed associated with downloads using technologies like broadband has become essential because it has increased the flexibility of communication within the supply chain therefore cutting down cost of transmitting information to end consumers. The emphasis has shifted to inventory velocity (the speed at which inventory moves through the supply chain), as opposed to the total amount of inventory available at any point in time. This has enabled lower inventory holding costs, faster inventory turns, and an ability to respond faster to sudden changes in demand.

Dependability
End Consumers do not need to fully depend on a particular album since they can acquire only the kind of music they like. Recently due to high technologies consumers can freely choose the music that most interest them thus making consumers some sort of producers themselves (Fisher, 2000). Consumers can now manipulate the music and can even combine downloadable music with their own materials. This dependability within the supply chain saves end consumers the time to walk to a shop to purchase a whole album especially if they do not like all the songs on it. Moreover, the fixed cost of placing the order, receiving the order and transporting is cut off. The MP3 format for music offers an opportunity to eliminate all cost associated with transporting compact discs. Similarly the ability to download software eliminates the cost and time associated with producing CDs, packaging them and transporting them to retail stores.

Flexibility
Changes in the supply chain have enabled e-retailers not to carry inventory. With proper coordination of front-end and back-end systems, e-retailers simply play the role of infomediary. They can have the physical goods (CDs and audiocassettes) delivered directly from the distributors' or manufacturers' warehouses to the customers' doorsteps. This not only reduces the cost of carrying inventory but also provides flexibility that reduces the risk of changes in the consumers' taste.
Download services have changed the sale of music CDs. This is because the end consumer now has the option of buying one song for 99 p rather than buying a whole CD for about £7.99 (Amazon.com). Also, rather than relying solely on the record company or artist to assemble songs on an album, the consumer can now pick songs from various artists and burn it on a CD for £7.99.

This flexibility translates into a reduction in the costs of hiring staff and developing and maintaining physical outlets. E-retailers do not have to maintain a physical store but rather aggregate the artists' offerings to reduce the search burden and information clutter for the customer and expand the market reach for the artist. They provide additional value by creating communities online with similar music interest and offer services such as online music review. Use of the Internet reduces the search cost for both buyers and sellers. With a mouse-click, a buyer can search a CD of his favourite artist from a database of millions of CDs. Buyers can also hop from one e-retailer to another to find a lower price, sample the music using streaming audio technologies before buying the CD. All these can be done in the comforts of their homes.

Cost
The internet has enabled distributors provide the important role of "breaking bulk", and "mixing" in channels. Breaking bulk enables reduced transportation costs in the channel as it permits volume download directly from artist to the distributor, which may cost less. By doing so, distributors are free to concentrate on their core business strengths, and customers can pick and choose the mix of products they need through such a channel intermediary. Distributors also enable channels to operate with lower "safety stock", as inventory is centralized, leading to greater efficiencies.

In addition, the consumer can sit in the comfort of their homes and play samples of audios files before buying without entering the physical shop. This search process and cost is different from the typical search in existing literature because the reference on traditional search cost (Stigler 1961) defined the term "search" as an attempt by consumers to "ascertain the most favourable price", a definition extensively adopted. A volume of literature exists on studying the problem of consumer search for lower prices (Gastwirth 1976).

Furthermore, change in the supply chain using the internet will lower coordination cost throughout the supply value chain. This will enable links between the supplier and consumer which may reduce transaction and coordination costs plus lower physical distribution cost. This is because music using the web is at nearly zero cost reducing distribution cost compared with physical form of recorded music. With lower cost, end consumers can gain from lower prices. Also, technology will drive changes in the market structure and value chain. This is because the diffusion and adoption of music and the reduction in the gap between the end consumer and artist wide distribution network through online channel may reduce the cost of replication and production making copyright and piracy issues affect the market structure.

QUALITY
(Product & Services) - Higher quality of music purchased from artist

- P2P sharing Easy transformation of CD files into MP3
AVAILABILITY (Speed & Dependability) -Free download
-Direct links with artist.
- Less contact with intermediary - Increased richness in information
- Speed to transmit information
FLEXIBILITY
(Customer Trends) -Physically browse/listen to music before buying.
-Free movement from one supplier to the other*** -Easy shopping for non-tech.**
- Easy use* - Promote links between suppliers and end-consumers***
COST
(minimizing downloading cost) -Lower prices/ inventory
-No warehouse required **
-Less cost in hiring -lower cost due to centralized database -Reduced physical distribution cost***
-Less staff cost
*** Very Critical
** Critical
* Secondary

-Efficient supply chain
- Direct link to customer
Outsourced digital dis-.infrastructure
-Less inventory**
Figure 5: The effects of the performance objectives in the emerging supply chain for the recorded music industry

The role of inventory in the emerging supply chain
In traditional music industry, production capacity is one of essential issues which needs carefully planning and controlling in order to have an effective capacity that speedily responds and largely satisfies the market demand (Slack et al, 2004). However, due to high cost and the inaccuracies of market prediction, there is often a gap between demand and supply. Online music sale takes advantage of this by easily detecting and mastering real-time information on the market and demand

Changing the capacity of an operation is not just to deciding the best size or volume of a capacity increment, but also needs to decide when to bring 'on-stream' new capacity (Slack et al, 2004). However, in traditional music industry, most companies find it hard to decide the right time to launch their new plans on production capacity. They will have to choose a position somewhere between two extreme strategies, either "capacity leads demand" or "capacity lags demand" (Slack et al, 2004). While both of these strategies may have their advantages and disadvantages, online music sale has introduced a new business model and strategy which widely exploits the market within reasonable costs.
The downloadable music has now made it easier for players in the industry to compete without worrying about physical inventory. Smaller labels do not need to incur any significant cost that major labels incur on manufacturing, distribution and retailer inventory holding cost (Brull, 1999). Furthermore distributing music online can better enable labels to estimate the success of an artist whom they want to promote without physical advertisement. This can lower the cost associated with the activities that can go into research.

The Internet is fast shifting power away from the big labels to artists, and to the info-mediaries who keep tabs on changing consumer tastes, and influence music selection and consumption. These developments threaten to change the relationships between artists, labels, distributors, retailers, and consumers. The new structure outlines the elimination of the old supply chain in the music industry. Artists are now moving closer to the centre of the power structure reducing uncertainty in getting the original music. The lack of "the bull-whip effect" is felt here since changes in consumers' tastes and requirements are captured online and a music file can be downloaded as many times as possible without the retailer incurring any additional inventory cost.

Also artists will gain more control over marketing and distribution of their music they will set up their own web sites to promote and distribute their music (e.g. using social network websites like MySpace and Facebook). The process of supply chain deconstruction – from a static/ linear to a dynamic and flexible structure, may lead to a proliferation in the number of actors involved in the supply of music. This means that artists will distribute their music directly to the end consumer bypassing intermediaries involved in the production and distribution of physical music making. Artists are likely to build direct relationships and socialize with their consumers as they develop, produce and distribute their music.

Interestingly, within the supply chain, the ability to change the timing of delivery of the service and its level of output or activity is crucial. The emergence of P2P normally known as peer to peer sharing technology has been on the rise in that it is becoming more of a challenge to the major record labels. Instead of end consumers using distributors to purchase online music, they have resorted to the sharing of music with other consumers in effect reducing the sales and profit of record companies. P2P is about the availability of music or files being shared online from one user to the other without any payment to either an artist or a record label. This allows the consumer to bypass the record label (supplier) because it allows consumers to swap music files between themselves without any money flowing to the record labels. This provides flexibility in the sharing and delivery of music. Given these distinctions, it is hardly surprising that the incidence of piracy is higher on the Internet than that directed toward physical recordings. The preferred option for the virtual music chain is for them to remain as the intermediary between artists and consumers, retaining control over the artists who create the music, and distributing music digitally through the Internet For the labels, this would have the benefit of eliminating cost-adding activities, such as CD production and music shops, while still allowing them to retain control over value-adding activities thereby ensuring that they continue to receive the lion's share of the profits. Music can be distributed at lower costs using the internet thereby reducing the transaction cost of its commercial exchange

End consumers will become increasingly value creators as well as suppliers (artist) get more involved in the production and distribution activities. Artist is likely to build a direct relationship with end consumers cutting off completely distributors. Although this strategy has allowed for cost savings in the facet of the music industry, the elimination of intermediaries has created efficient supply chain strategy.
Even though P2P seems to cause a great damage to music producers and distributors, from the above discussion, it completely shows how popular p2p system has increased the consumer power and how the internet has helped organized it into a powerful network to build a bargaining power, easy transfer and reproduction leaving music vulnerable to piracy.

It is interesting to observe the interdependencies that exist among the performance objectives. A change in one objective usually has implications on some of the other objectives as well.

7.0 The advantages, disadvantages and implications of the various changes for the main actors in the supply networks.
The changes in the recorded music industry supply chain have meant both positive and negative implications for various stakeholders in that industry. Figure 6 below shows the impact of the internet on the four Vs of operations in the traditional and emerging supply chains in the recorded music industry. As can be seen, the diagram has some subtle differences from that of Slack et al. (2007) with higher volume, variety and demand not translating to higher costs in the emerging supply chain.

Figure 6: The impact of the four Vs of operations in the traditional and emerging supply chains in the recorded music industry (Adapted from Slack et al., 2007)

The impact on each category of stakeholders is explored in detail below.

Artists
Artists do not need to pursue their career only with the big labels and be tied to restrictive contracts. They can work with smaller independent labels that are able to offer increased royalties due to the cost savings they are able to make in this new model of music distribution. These smaller labels are now offering up to 50% of revenues as royalty as against the 21% to 22% typically available in the industry (Fox, 2005). The traditional supply chain kept artists away from the buyers of their music and they had little control over presentation, branding, margins as well as terms and promptness of royalty payments (Marshall and Turcan, 2005). With the way things are now, artists have the option of developing/managing their own websites and selling their music directly in digital from to consumers directly and globally (Marshall and Turcan, 2005). Royalties accruing from online downloads will be paid faster to artists who chose to remain with record labels (either big or small) due to the real-time processing capabilities e-commerce offers (Marshall and Turcan, 2005). Currently artists wait for as long as two years before they are paid their royalties. The new supply chain adequately positions artists to retain key digital rights from record companies and other intermediaries or resist long-term rights commitments (Marshall and Turcan, 2005). Artists can chose to be independent (not affiliated with any record company) and have more control over the marketing and distribution of their music (Parikh, 1999). Artists like Beastie Boys, Public Enemy and Widespread Panic are already implementing this new model and are offering free MP3 downloads of some of their songs as a marketing strategy. Artists will however need to sharpen their business skills and employ professionals to manage their career. Unlike record companies, these professionals will protect the artist's interests. They will be responsible for managing relationships with event organisers/and also provide services to develop and maintain the artist's website and contracts with Internet music portals (Parikh, 1999). We can therefore see that disintermediation allows a new artist to have his works distributed at low cost.

Record Companies
The major record companies (the big five) will lose the monopolistic rights they currently have over artists' output in the new supply chain since artists can now get to end consumers more directly(Fox, 2005). The implication of this is that the role of the major record companies as distributors to the retailers is no longer necessary. While the first wave of disintermediation did not negatively impact the record companies directly, the second wave could be lethal to them and beneficial to smaller record companies. Historically it has been difficult for the smaller record companies to survive in the music industry due to the strong grip of the big five as shown in figure 4.

Figure 7: Traditional recorded music value chain (Marshall and Turcan, 2005)

This is because the big five have major investments in the distribution infrastructure to handle the manufacturing, distribution and retailing of music (Alexander 1997, Selby 2000). Online distribution of music needs only a single master copy which can translate into huge cost savings for small record companies who are willing to redesign their business processes to embrace the changes in the music industry. With these cost savings, the smaller record companies can afford to pay larger royalties to the artists they manage. These cost savings accrue from the estimated $9 that can be redistributed if electronic distribution channels are used in the music industry. According to May and Singer, 2001, the breakdown of the costs are $1 costs associated with the manufacture of CDs, $1.40 associated with their physical distribution, $2.25 in promotional dollars (since target marketing will be better achieved through the use of the Internet) and $4 of the retailer's mark-up.

The big five on the other hand continue to distribute music as a product that requires the distribution of numerous physical items (CDs). If they are to remain relevant in the industry, they need to re-size their core business to account for shrinking physical distribution business. They should also explore the possibilities of being service providers for the smaller record companies. Marshall and Turcan (2005) indicated that this can be achieved by assembling new capabilities through partnerships with or acquiring management and digital distribution companies. Warner Music is already towing this line with its division Asylum Records. If the big five act quickly, they can become new intermediaries and ensure their continued survival in the music industry (Parikh, 1999). Any further delay in adopting this new business model can lead to a loss of opportunity similar to what film studios went through by their non-adoption of VCRs leading to the emergence of companies like Blockbuster as major distributors. If record companies embrace online distribution of music, they can reduce their inventory levels as they no longer need rely on inaccurate forecasts in production management of CDs that may lead under or over-production. Digital distribution of music also means record companies are able to make better decisions on the likelihood of success of the artists they manage since consumers' preferences can be monitored in real time (Fox, 2005).

CD Pressing Plants
CD pressing plants will lose a significant portion of business because record companies will begin to reduce the amount of CDs they produce and lean more towards online distribution of music. The record companies will gradually reduce their inventory of CDs and the impact of this reduction will be felt by the CD pressing plants who will in turn reduce their inventory of blank CDs. They can compensate for the reduced business from record companies by obtaining more business in the software, TV and film industry.

Retailers
Retailers stand the risk of being saddled with an excess inventory since more people are obtaining their music from the Internet (through online purchases of CDs or downloads). Physical retailers have to establish a presence on the Internet to at least sell CDs online in the first instance if they are to remain business. They should gradually resize their physical operations to take advantage of the larger market on the Internet that has no geographical boundaries. The cost savings made from resizing their operations can be invested in the necessary IT infrastructure required to be a successful e-tailer. In this way, they can sell CDs online, allow individual downloads of songs as well as personalised CD compilations by consumers (i.e. allow consumers to download individual songs with the option of burning them on a CD at an extra cost). Moving their business online alone will not guarantee success as the retailers have to continually strive to differentiate their offerings (e.g. through play-only short samples of new releases, promotional materials e.t.c).

Web based Intermediaries
Web-based intermediaries are that part of the supply chain that conduct business on the Internet (both online sales of CDs and downloads). They are a major contributory factor to the changes being witnessed in the recorded music industry. According to Parikh (1999), the benefits web-based intermediaries like Amazon and Apple iTunes who are major players include

 Lack of physical inventory which protects them from being saddled with excess inventory if a change occurs in consumers' tastes
 They do not need to have a physical store as well as sales staff
 With online downloads, web retailers are able to give consumers flexibility in the type of songs they buy as they are no longer forced to buy an entire album in order to listen to two or three songs. For instance Apple's iTunes' have sold over 250 million songs via downloads (Fox, 2005).
 It is easier for web retailers to monitor consumer buying patterns and preferences and offer even more targeted offerings at different market segments
 Web retailers do not have to worry about warehouse and space constraints as shown by Amazon's collection of 3.3 million DRM-free songs from 270,000 artists (Gonsalves, 2008). A physical retailer would find it difficult to have such a collection even if he had various locations. In addition, Amazon's online downloads are compatible with any MP3 player unlike Apple's iTunes and Microsoft's downloads which are compatible with only iPods and Zunes respectively (Gonsalves, 2008). It is therefore evident that competition/differentiation will also increase among web based retailers.

Publishers
Music publishers are responsible for managing the careers and finances of composers and songwriters. They promote composers/songwriters to record companies, performers, broadcasters and others who use music on a commercial basis (Milicevic, 2001). The change in the recorded music supply chain means they will probably have to deal directly with independent artists (not affiliated with any record companies) who can now afford to license musical works. Additionally small record companies will also be able to do business with publishers due to the removal of financial barriers to entry.

Makers of MP3 players and other portable devices
Network externalities have clearly played an impact in production of MP3 players and other portable devices. According to Katz and Shapiro (1986), network externalities entail the provision of a durable good and a complementary good or service. Makers of MP3 players and other portable music playing devices such as mobile phones are capitalising on the increasing popularity of online download of music to churn out a wide range of portable devices that are compatible with this new channel. The industry leader Apple has enjoyed tremendous success since it launched the iPod about seven years ago. It currently controls an estimated 65% of the market (data reference) and figure 5 below shows its quarterly results over the last couple of years.

Fig 8: iPod unit sales (Moren, 2008)

While Apple may be the industry leader, with some of its iPods having a 160GB storage capacity, other manufacturers still have opportunities to increase their market share by differentiating their MP3 players and phones. Areas for differentiation include increased storage capacities, ability to play full length videos and transfer/share songs with other MP3 players and connect seamlessly with other devices.

Physical distribution operators
The volume of business done by logistics providers in the music industry will be affected because digital storage and sale of music means the amount of CDs to be warehoused and transported may witness a decline. This will mean allocating the excess capacity resulting from this decrease in the music component of their business to other industries/customers so that their revenues/profits are not adversely affected.

Consumers
Consumers are undoubtedly the major beneficiaries of the new supply chain emerging in the music industry. The ability of consumers to download music online eliminates powerful channels increases their bargaining power (Porter, 2001). Consumers are now able to search for music online with price usually being the determining factor. Consumers are therefore able to enjoy flexibility in pricing, delivery and content. Music is now a commodity well suited to electronic marketplaces where large numbers of buyers and supplies meet. The transactions costs of buying suitable music have therefore been significantly reduced. Figure 6 shows the impact of IT (in this case the Internet) in markets and hierarchies (see the movement of the arrows to the dotted lines).

Figure 9: The impact of IT on markets and hierarchies (Malone et al, 1987)

8.0 Conclusion
The revolutionary changes that the internet introduced in the mid 90s, questions everyone that what will be the standard in future .To profit from these new inventions, players in the music industry must learn how to harness their power by limiting piracy. Compared to the earlier standards, profits to the various players in the industry is being re-distributed because the cost of recording, distributing and finding music has almost become zero after the Amazon era. Internet retailing of music has made the process of distribution cheaper as no middleman is involved. Additionally, the minimisation of physical inventory from stores is a consequence of these network and technological advancements which could be harnessed by players in the industry. The downside has however been the ease with which music can be pirated and copied. This has led to loss of revenues for the various players in the industry. In future the music industry may suffer, if consumers refuse to pay higher prices for music they could obtain for free otherwise.

The reproduction, modification, storage and distribution of digital music are almost free of costs. In the long run, the only relevant costs remaining will be associated with creative talent, original production, context creation (e.g. graphics, and video clips) and intellectual property protection/authorisation.

mophe Member Posts: 24 Joined: Feb 4, 08 Ref.#: 6064	Edited by: mophe Apr 19, 08, 02:29pm ¦ #1 Hello, Can you kindly look through my attached coursework. I have included the coursework brief as well so that you can make an informed decision as to whether I discussed the issues properly. Thanks Coursework brief Department Of Management Science MSc in E-Business and Innovation E-Business Supply Chain Management (EBIN507) Coursework Assignment: Recorded Music Supply Chains Background Technological and organisational change have, in recent years, transformed the way in which listeners can access recorded music. This has involved a change from the manufacture, distribution and sale of physical artefacts such as CDs to the downloading of music files via the web. This has been accompanied by such phenomena as: • The sale of CDs via web sites such as amazon.com rather than through high street stores • A growth in sales of CDs through large grocery retailers rather than specialist music stores • The rise of the ipod and other MP3 players • User involvement via, for example, on-line rating of suppliers and writing reviews of recordings • Radical innovations in pricing and revenue models • Counterfeiting, illegal downloading and piracy The Assignment Research and write a report in which you: 1. Describe and quantify the main developments, both technological and organizational, in the recorded music supply chain over the relevant period e.g. since 1994, when amazon.com was founded. [30% of marks] 2. Discuss whether and how the successive changes in the supply chain have provided better service to the end consumer in terms of the five operations performance objectives (quality, speed, dependability, flexibility and cost). You should relate this discussion to operations and supply issues such as process, inventory, capacity and supply relationships, and explicitly cite the theoretical concepts that you use. [40% of marks] 3. Discuss the advantages, disadvantages and implications of the various changes you identify for the main actors in the supply networks, including, but not limited to: • Artists • Publishers • Record companies • CD pressing plants • Retailers • Web-based intermediaries • Physical distribution operators • Consumers [30% of marks] The report should: - refer to and apply relevant theory from operations and supply chain management - draw on relevant secondary sources such as the press and websites - concentrate on the supply network to the end user, not the consumer behaviour issues to do with adoption of new technologies (i.e. this is not a consumer marketing assignment) - concentrate on recorded music, not broadcast (i.e. 'radio') except insofar as the convergence of technologies makes them difficult to separate - be about 4000 words long excluding appendices Please use the Harvard system for referencing and please utilize tables, charts, diagrams and similar graphical devices to assist in presentation. My submission Comprehensive Analysis of Recorded Supply Chain Music: The Effect of Internet 1.0 Abstract Internet is undoubtedly the most significant inventions of modern time which has completely revolutionized human life. Certainly it has been affecting every aspect of human life, with buying & selling online, virtual money transaction and things that one could have never imagined, but there is yet so much to come. In this rapidly advancing modern world, businesses have to keep up the same pace. For centuries man had been dreaming of capturing the sounds and music around the environment. Many had attempted it but no one had succeeded until Thomas Alva Edison discovered a method of recording and playing back sound, it was the invention of telephone which led to the development of an instrument which would change the world, making it a happier place to live in. Since then, music was stored into various forms such as LP's, cassettes, CD's and so on. Finally, the year 1994 marked the beginning of music and Internet starting to work strongly together. In this paper we shall be critically analysing the main developments due to enhanced technology that has completely revolutionized the recorded music supply chain and its effect to end consumers after 1994. We shall also be discussing the advantages, disadvantages and implications of various actors involved in the supply chain. 2.0 Introduction The Internet has been revolutionizing each & every aspect of human life, which directly or indirectly affects end consumers. This paper, discusses the kind of changes the recorded music supply industry has undergone after the Internet and e-business boom, since 1994. This topic will be discussed in an orderly manner. To begin with, it looks into the traditional method and stages involved in music consumption. This is followed by an evaluation about the origins of Amazon, E-commerce and the technological and organisational developments caused due to this transformation. It moves on to discuss the effects of these changes on consumers and their expectations. It concludes with a consideration of the implication for various stakeholders involved in the process. 3.0 The Big five of the Music Industry in the 90's Multinational Companies such as Universal, Warner Bros, Sony, EMI and BMG were dominant in the music business. They were waiting till the 90's, before trying to dominate the industry across all levels. The reason being that, these big conglomerates realised the power of music throughout every other medium. In the 90's music could be found in television, film, broadcasting, live performances, and recordings. Simply by owning one copyright of a hit song, these conglomerates could sit back and watch the income roll in as they gain royalties from the song (Computerdjsummit, 2007). These Big five were almost at par with each other and always tried getting an upper hand in the business. 4.0 Relation between Amazon and Music According to Jelassi et al. (2004), in 1994, Jeff Bezos, a computer science and electrical engineering graduate from Princeton University was highly impressed by the upcoming boom of internet. During a summer of that term an internet statistics caught Jeff's attention; internet usage was growing at 2300% a year. He considered this as an opportunity and quit his job. He then drew up a list of 20 different products that could be sold on the internet and within no time narrowed the prospect to two i.e. Books & Music. Music industry was booming during that period and it served as the favourite past time for people. Jeff thought that if he could introduce music on the web, it could led to a revolutionary change in the value chain structure of music industry, as the internet had no geographical constraints. He expected a huge demand for his products. He then launched the business in July 1994 and named it after the river 'Amazon'. By 2004, Amazon held 125, 000 music titles. More than 10 times the number of an average book store. Amazon's Database Management System acts as a virtual store for the music. The manner in which the internet and technological advancements have changed the structure of music supply chain is discussed below. 5.0 E-Commerce, Supply Chain Management & developments in the recorded music Industry Competition, globalisation and modernization are some of the critical factors responsible for changing the paradigm of the traditional logistics strategy. Chen et al (2000) suggest, that a successful logistics strategy has moved from an internal focus emphasizing integration with other enterprise functions (i.e., operations and marketing) and linking the various enterprise functions to overall corporate strategy, to an external focus of integrating supply chains and to the complete scope of supply chain management (Schniederjans et. al. 2002, pp. 49-53) Figure 1 Typical Supply Chain (Schniederjans et. al., 2002) Figure 1 represents a typical supply chain arrangement, in which physical goods flow from upstream to down-stream as follows: Raw materials from suppliers to manufacturers Products from Manufacturers to wholesalers Wholesalers to retailers Retailers to consumers Managing this supply system is called supply chain management, overall it is involves an operations strategy. According to Schneider, 'The process of taking an active role in working with suppliers to improve products and processes is called supply chain management'(Schneider, 2003, pp. 219). Generally the four dimensions of operation strategy are: Delivery Quality Speed Flexibility Cost (I think you are talking about performance objectives here and this includes cost But not necessarily all businesses follow the same typical structure. For instance, since the advent of the internet , the recorded music industry has experienced a restructuring of its supply chain. The traditional supply chain in that industry as shown in figure 2 below was one in which the record companies (especially the big five) held sway and had control over most of the activities in the supply chain. Figure 2: The current industry structure (Parikh, 1999) The first major change came about with the online sales of CDs on Amazon. Disintermediation at this level posed a threat to and meant the elimination of wholesalers as shown in figure 3 Figure 3: The first wave (Parikh, 1999) Retailers like Virgin soon established their presence on the Internet as well and started selling CDs online. The second wave of disintermediation was brought about by the development of the MP3 in 1998 which made it possible to download music over the Internet. This wave of disintermediation threatened the existence of most of the stakeholders' in particular record companies, CDs manufacturers, and retailers as shown in figure 4. Figure 4: The next wave (Parikh, 1999) Simply because of this disintermediation, these conglomerates also started their business in hardware and software manufacturing; but they were not the only ones to benefit from the change. Producers and distributors also profited as people had to replace their entire cassettes/ LP's collection with the advanced CD's and DVD's (available from the 1996, faster than the CDs). Also producers could produce more music because of the speed and progress of new technology. On the other hand, distributors could distribute newer and more expensive goods to their customers. 6.0 The achievement of the five operations performance objectives (quality, speed, dependability, flexibility, and cost) in the emerging supply chain The internet has potentially transformed the supply chain of many firms because of the abolition of trade-off between the richness and information (Evans & Wurster, 1997). Before the internet, getting to a large number of people with rich information was a costly and time consuming process. Music in particular could only be distributed through a physical media like LPs, cassettes and CDs. Therefore cost and physical constraints limited the size of people to which information was sent. On the other hand, for a distribution shop, music files can be downloaded on request from a central server in the record company, or stored in a local server. This has created economies of scale and reduces of the dependency on physical infrastructures, transportation costs and other administrative costs for the retail store. The availability of instant information, and the connectivity offered by the Internet are now challenging many aspects of distribution that were previously taken for granted. Quality While digital music is attractive in terms of the quality of the listening experience, music in a digital form has also facilitated the development of the downloading event that is at the centre of the major transformation of the music industry. However, instead of end consumers going to a shop to choose a particular CD, they can download more music by readily customizing their collections than they can with music that is in a tangible medium; because, "CDs put an arbitrary limitation on how music is packaged. Users can now buy music in packages as great or small as they like" (Berst, 2000). Although MP3 has much lower bit rate than traditional standards, the quality of music does not suffer because consumers cannot discern the difference for bit rates beyond 128kps. The quality of MP3 has however been questioned in relation to the quality of music on an original CD because sometimes the process of downloading could corrupt the file thereby deteriorating the audio quality. On the other hand, some consumers think the quality is comparable to that of a CD. Users have become accustomed to the prevalence of compressed digital audio and accept its level of quality. Also it is possible that users' demand for quality is not influenced by free availability of digital audio offering. The quality of downloading music alone may not be the determinant factor leading to a purchase. When referring the quality of online digital music from customer perspective, it mainly focuses on the customer value created by purchasing and playing the online digital music. The definition of customer value from Desie et al (2000) has been concluded in an equation as following. Customer value (brand perception) = product quality x Service quality /Price x Fulfilment time By considering the key elements in this equation, Chaffey(2007) claimed that organization can increase customer satisfaction either through increasing the product and service qualities, or decreasing the price and fulfilment time. If the decrease of the price and fulfilment time is more necessary, e-commerce will then play an important role in decreasing time to market and production times and cost. Speed Speed has always been concerned with how long customers have to wait to receive their products/service (Slack et al., 2001 p.47). In this context, the concept of speed has been greatly enhanced. The increase in speed associated with downloads using technologies like broadband has become essential because it has increased the flexibility of communication within the supply chain therefore cutting down cost of transmitting information to end consumers. The emphasis has shifted to inventory velocity (the speed at which inventory moves through the supply chain), as opposed to the total amount of inventory available at any point in time. This has enabled lower inventory holding costs, faster inventory turns, and an ability to respond faster to sudden changes in demand. Dependability End Consumers do not need to fully depend on a particular album since they can acquire only the kind of music they like. Recently due to high technologies consumers can freely choose the music that most interest them thus making consumers some sort of producers themselves (Fisher, 2000). Consumers can now manipulate the music and can even combine downloadable music with their own materials. This dependability within the supply chain saves end consumers the time to walk to a shop to purchase a whole album especially if they do not like all the songs on it. Moreover, the fixed cost of placing the order, receiving the order and transporting is cut off. The MP3 format for music offers an opportunity to eliminate all cost associated with transporting compact discs. Similarly the ability to download software eliminates the cost and time associated with producing CDs, packaging them and transporting them to retail stores. Flexibility Changes in the supply chain have enabled e-retailers not to carry inventory. With proper coordination of front-end and back-end systems, e-retailers simply play the role of infomediary. They can have the physical goods (CDs and audiocassettes) delivered directly from the distributors' or manufacturers' warehouses to the customers' doorsteps. This not only reduces the cost of carrying inventory but also provides flexibility that reduces the risk of changes in the consumers' taste. Download services have changed the sale of music CDs. This is because the end consumer now has the option of buying one song for 99 p rather than buying a whole CD for about £7.99 (Amazon.com). Also, rather than relying solely on the record company or artist to assemble songs on an album, the consumer can now pick songs from various artists and burn it on a CD for £7.99. This flexibility translates into a reduction in the costs of hiring staff and developing and maintaining physical outlets. E-retailers do not have to maintain a physical store but rather aggregate the artists' offerings to reduce the search burden and information clutter for the customer and expand the market reach for the artist. They provide additional value by creating communities online with similar music interest and offer services such as online music review. Use of the Internet reduces the search cost for both buyers and sellers. With a mouse-click, a buyer can search a CD of his favourite artist from a database of millions of CDs. Buyers can also hop from one e-retailer to another to find a lower price, sample the music using streaming audio technologies before buying the CD. All these can be done in the comforts of their homes. Cost The internet has enabled distributors provide the important role of "breaking bulk", and "mixing" in channels. Breaking bulk enables reduced transportation costs in the channel as it permits volume download directly from artist to the distributor, which may cost less. By doing so, distributors are free to concentrate on their core business strengths, and customers can pick and choose the mix of products they need through such a channel intermediary. Distributors also enable channels to operate with lower "safety stock", as inventory is centralized, leading to greater efficiencies. In addition, the consumer can sit in the comfort of their homes and play samples of audios files before buying without entering the physical shop. This search process and cost is different from the typical search in existing literature because the reference on traditional search cost (Stigler 1961) defined the term "search" as an attempt by consumers to "ascertain the most favourable price", a definition extensively adopted. A volume of literature exists on studying the problem of consumer search for lower prices (Gastwirth 1976). Furthermore, change in the supply chain using the internet will lower coordination cost throughout the supply value chain. This will enable links between the supplier and consumer which may reduce transaction and coordination costs plus lower physical distribution cost. This is because music using the web is at nearly zero cost reducing distribution cost compared with physical form of recorded music. With lower cost, end consumers can gain from lower prices. Also, technology will drive changes in the market structure and value chain. This is because the diffusion and adoption of music and the reduction in the gap between the end consumer and artist wide distribution network through online channel may reduce the cost of replication and production making copyright and piracy issues affect the market structure. QUALITY (Product & Services) - Higher quality of music purchased from artist - P2P sharing Easy transformation of CD files into MP3 AVAILABILITY (Speed & Dependability) -Free download -Direct links with artist. - Less contact with intermediary - Increased richness in information - Speed to transmit information FLEXIBILITY (Customer Trends) -Physically browse/listen to music before buying. -Free movement from one supplier to the other* -Easy shopping for non-tech. - Easy use* - Promote links between suppliers and end-consumers* COST (minimizing downloading cost) -Lower prices/ inventory -No warehouse required -Less cost in hiring -lower cost due to centralized database -Reduced physical distribution cost* -Less staff cost * Very Critical ** Critical * Secondary -Efficient supply chain - Direct link to customer Outsourced digital dis-.infrastructure -Less inventory Figure 5: The effects of the performance objectives in the emerging supply chain for the recorded music industry The role of inventory in the emerging supply chain In traditional music industry, production capacity is one of essential issues which needs carefully planning and controlling in order to have an effective capacity that speedily responds and largely satisfies the market demand (Slack et al, 2004). However, due to high cost and the inaccuracies of market prediction, there is often a gap between demand and supply. Online music sale takes advantage of this by easily detecting and mastering real-time information on the market and demand Changing the capacity of an operation is not just to deciding the best size or volume of a capacity increment, but also needs to decide when to bring 'on-stream' new capacity (Slack et al, 2004). However, in traditional music industry, most companies find it hard to decide the right time to launch their new plans on production capacity. They will have to choose a position somewhere between two extreme strategies, either "capacity leads demand" or "capacity lags demand" (Slack et al, 2004). While both of these strategies may have their advantages and disadvantages, online music sale has introduced a new business model and strategy which widely exploits the market within reasonable costs. The downloadable music has now made it easier for players in the industry to compete without worrying about physical inventory. Smaller labels do not need to incur any significant cost that major labels incur on manufacturing, distribution and retailer inventory holding cost (Brull, 1999). Furthermore distributing music online can better enable labels to estimate the success of an artist whom they want to promote without physical advertisement. This can lower the cost associated with the activities that can go into research. The Internet is fast shifting power away from the big labels to artists, and to the info-mediaries who keep tabs on changing consumer tastes, and influence music selection and consumption. These developments threaten to change the relationships between artists, labels, distributors, retailers, and consumers. The new structure outlines the elimination of the old supply chain in the music industry. Artists are now moving closer to the centre of the power structure reducing uncertainty in getting the original music. The lack of "the bull-whip effect" is felt here since changes in consumers' tastes and requirements are captured online and a music file can be downloaded as many times as possible without the retailer incurring any additional inventory cost. Also artists will gain more control over marketing and distribution of their music they will set up their own web sites to promote and distribute their music (e.g. using social network websites like MySpace and Facebook). The process of supply chain deconstruction – from a static/ linear to a dynamic and flexible structure, may lead to a proliferation in the number of actors involved in the supply of music. This means that artists will distribute their music directly to the end consumer bypassing intermediaries involved in the production and distribution of physical music making. Artists are likely to build direct relationships and socialize with their consumers as they develop, produce and distribute their music. Interestingly, within the supply chain, the ability to change the timing of delivery of the service and its level of output or activity is crucial. The emergence of P2P normally known as peer to peer sharing technology has been on the rise in that it is becoming more of a challenge to the major record labels. Instead of end consumers using distributors to purchase online music, they have resorted to the sharing of music with other consumers in effect reducing the sales and profit of record companies. P2P is about the availability of music or files being shared online from one user to the other without any payment to either an artist or a record label. This allows the consumer to bypass the record label (supplier) because it allows consumers to swap music files between themselves without any money flowing to the record labels. This provides flexibility in the sharing and delivery of music. Given these distinctions, it is hardly surprising that the incidence of piracy is higher on the Internet than that directed toward physical recordings. The preferred option for the virtual music chain is for them to remain as the intermediary between artists and consumers, retaining control over the artists who create the music, and distributing music digitally through the Internet For the labels, this would have the benefit of eliminating cost-adding activities, such as CD production and music shops, while still allowing them to retain control over value-adding activities thereby ensuring that they continue to receive the lion's share of the profits. Music can be distributed at lower costs using the internet thereby reducing the transaction cost of its commercial exchange End consumers will become increasingly value creators as well as suppliers (artist) get more involved in the production and distribution activities. Artist is likely to build a direct relationship with end consumers cutting off completely distributors. Although this strategy has allowed for cost savings in the facet of the music industry, the elimination of intermediaries has created efficient supply chain strategy. Even though P2P seems to cause a great damage to music producers and distributors, from the above discussion, it completely shows how popular p2p system has increased the consumer power and how the internet has helped organized it into a powerful network to build a bargaining power, easy transfer and reproduction leaving music vulnerable to piracy. It is interesting to observe the interdependencies that exist among the performance objectives. A change in one objective usually has implications on some of the other objectives as well. 7.0 The advantages, disadvantages and implications of the various changes for the main actors in the supply networks. The changes in the recorded music industry supply chain have meant both positive and negative implications for various stakeholders in that industry. Figure 6 below shows the impact of the internet on the four Vs of operations in the traditional and emerging supply chains in the recorded music industry. As can be seen, the diagram has some subtle differences from that of Slack et al. (2007) with higher volume, variety and demand not translating to higher costs in the emerging supply chain. Figure 6: The impact of the four Vs of operations in the traditional and emerging supply chains in the recorded music industry (Adapted from Slack et al., 2007) The impact on each category of stakeholders is explored in detail below. Artists Artists do not need to pursue their career only with the big labels and be tied to restrictive contracts. They can work with smaller independent labels that are able to offer increased royalties due to the cost savings they are able to make in this new model of music distribution. These smaller labels are now offering up to 50% of revenues as royalty as against the 21% to 22% typically available in the industry (Fox, 2005). The traditional supply chain kept artists away from the buyers of their music and they had little control over presentation, branding, margins as well as terms and promptness of royalty payments (Marshall and Turcan, 2005). With the way things are now, artists have the option of developing/managing their own websites and selling their music directly in digital from to consumers directly and globally (Marshall and Turcan, 2005). Royalties accruing from online downloads will be paid faster to artists who chose to remain with record labels (either big or small) due to the real-time processing capabilities e-commerce offers (Marshall and Turcan, 2005). Currently artists wait for as long as two years before they are paid their royalties. The new supply chain adequately positions artists to retain key digital rights from record companies and other intermediaries or resist long-term rights commitments (Marshall and Turcan, 2005). Artists can chose to be independent (not affiliated with any record company) and have more control over the marketing and distribution of their music (Parikh, 1999). Artists like Beastie Boys, Public Enemy and Widespread Panic are already implementing this new model and are offering free MP3 downloads of some of their songs as a marketing strategy. Artists will however need to sharpen their business skills and employ professionals to manage their career. Unlike record companies, these professionals will protect the artist's interests. They will be responsible for managing relationships with event organisers/and also provide services to develop and maintain the artist's website and contracts with Internet music portals (Parikh, 1999). We can therefore see that disintermediation allows a new artist to have his works distributed at low cost. Record Companies The major record companies (the big five) will lose the monopolistic rights they currently have over artists' output in the new supply chain since artists can now get to end consumers more directly(Fox, 2005). The implication of this is that the role of the major record companies as distributors to the retailers is no longer necessary. While the first wave of disintermediation did not negatively impact the record companies directly, the second wave could be lethal to them and beneficial to smaller record companies. Historically it has been difficult for the smaller record companies to survive in the music industry due to the strong grip of the big five as shown in figure 4. Figure 7: Traditional recorded music value chain (Marshall and Turcan, 2005) This is because the big five have major investments in the distribution infrastructure to handle the manufacturing, distribution and retailing of music (Alexander 1997, Selby 2000). Online distribution of music needs only a single master copy which can translate into huge cost savings for small record companies who are willing to redesign their business processes to embrace the changes in the music industry. With these cost savings, the smaller record companies can afford to pay larger royalties to the artists they manage. These cost savings accrue from the estimated $9 that can be redistributed if electronic distribution channels are used in the music industry. According to May and Singer, 2001, the breakdown of the costs are $1 costs associated with the manufacture of CDs, $1.40 associated with their physical distribution, $2.25 in promotional dollars (since target marketing will be better achieved through the use of the Internet) and $4 of the retailer's mark-up. The big five on the other hand continue to distribute music as a product that requires the distribution of numerous physical items (CDs). If they are to remain relevant in the industry, they need to re-size their core business to account for shrinking physical distribution business. They should also explore the possibilities of being service providers for the smaller record companies. Marshall and Turcan (2005) indicated that this can be achieved by assembling new capabilities through partnerships with or acquiring management and digital distribution companies. Warner Music is already towing this line with its division Asylum Records. If the big five act quickly, they can become new intermediaries and ensure their continued survival in the music industry (Parikh, 1999). Any further delay in adopting this new business model can lead to a loss of opportunity similar to what film studios went through by their non-adoption of VCRs leading to the emergence of companies like Blockbuster as major distributors. If record companies embrace online distribution of music, they can reduce their inventory levels as they no longer need rely on inaccurate forecasts in production management of CDs that may lead under or over-production. Digital distribution of music also means record companies are able to make better decisions on the likelihood of success of the artists they manage since consumers' preferences can be monitored in real time (Fox, 2005). CD Pressing Plants CD pressing plants will lose a significant portion of business because record companies will begin to reduce the amount of CDs they produce and lean more towards online distribution of music. The record companies will gradually reduce their inventory of CDs and the impact of this reduction will be felt by the CD pressing plants who will in turn reduce their inventory of blank CDs. They can compensate for the reduced business from record companies by obtaining more business in the software, TV and film industry. Retailers Retailers stand the risk of being saddled with an excess inventory since more people are obtaining their music from the Internet (through online purchases of CDs or downloads). Physical retailers have to establish a presence on the Internet to at least sell CDs online in the first instance if they are to remain business. They should gradually resize their physical operations to take advantage of the larger market on the Internet that has no geographical boundaries. The cost savings made from resizing their operations can be invested in the necessary IT infrastructure required to be a successful e-tailer. In this way, they can sell CDs online, allow individual downloads of songs as well as personalised CD compilations by consumers (i.e. allow consumers to download individual songs with the option of burning them on a CD at an extra cost). Moving their business online alone will not guarantee success as the retailers have to continually strive to differentiate their offerings (e.g. through play-only short samples of new releases, promotional materials e.t.c). Web based Intermediaries Web-based intermediaries are that part of the supply chain that conduct business on the Internet (both online sales of CDs and downloads). They are a major contributory factor to the changes being witnessed in the recorded music industry. According to Parikh (1999), the benefits web-based intermediaries like Amazon and Apple iTunes who are major players include  Lack of physical inventory which protects them from being saddled with excess inventory if a change occurs in consumers' tastes  They do not need to have a physical store as well as sales staff  With online downloads, web retailers are able to give consumers flexibility in the type of songs they buy as they are no longer forced to buy an entire album in order to listen to two or three songs. For instance Apple's iTunes' have sold over 250 million songs via downloads (Fox, 2005).  It is easier for web retailers to monitor consumer buying patterns and preferences and offer even more targeted offerings at different market segments  Web retailers do not have to worry about warehouse and space constraints as shown by Amazon's collection of 3.3 million DRM-free songs from 270,000 artists (Gonsalves, 2008). A physical retailer would find it difficult to have such a collection even if he had various locations. In addition, Amazon's online downloads are compatible with any MP3 player unlike Apple's iTunes and Microsoft's downloads which are compatible with only iPods and Zunes respectively (Gonsalves, 2008). It is therefore evident that competition/differentiation will also increase among web based retailers. Publishers Music publishers are responsible for managing the careers and finances of composers and songwriters. They promote composers/songwriters to record companies, performers, broadcasters and others who use music on a commercial basis (Milicevic, 2001). The change in the recorded music supply chain means they will probably have to deal directly with independent artists (not affiliated with any record companies) who can now afford to license musical works. Additionally small record companies will also be able to do business with publishers due to the removal of financial barriers to entry. Makers of MP3 players and other portable devices Network externalities have clearly played an impact in production of MP3 players and other portable devices. According to Katz and Shapiro (1986), network externalities entail the provision of a durable good and a complementary good or service. Makers of MP3 players and other portable music playing devices such as mobile phones are capitalising on the increasing popularity of online download of music to churn out a wide range of portable devices that are compatible with this new channel. The industry leader Apple has enjoyed tremendous success since it launched the iPod about seven years ago. It currently controls an estimated 65% of the market (data reference) and figure 5 below shows its quarterly results over the last couple of years. Fig 8: iPod unit sales (Moren, 2008) While Apple may be the industry leader, with some of its iPods having a 160GB storage capacity, other manufacturers still have opportunities to increase their market share by differentiating their MP3 players and phones. Areas for differentiation include increased storage capacities, ability to play full length videos and transfer/share songs with other MP3 players and connect seamlessly with other devices. Physical distribution operators The volume of business done by logistics providers in the music industry will be affected because digital storage and sale of music means the amount of CDs to be warehoused and transported may witness a decline. This will mean allocating the excess capacity resulting from this decrease in the music component of their business to other industries/customers so that their revenues/profits are not adversely affected. Consumers Consumers are undoubtedly the major beneficiaries of the new supply chain emerging in the music industry. The ability of consumers to download music online eliminates powerful channels increases their bargaining power (Porter, 2001). Consumers are now able to search for music online with price usually being the determining factor. Consumers are therefore able to enjoy flexibility in pricing, delivery and content. Music is now a commodity well suited to electronic marketplaces where large numbers of buyers and supplies meet. The transactions costs of buying suitable music have therefore been significantly reduced. Figure 6 shows the impact of IT (in this case the Internet) in markets and hierarchies (see the movement of the arrows to the dotted lines). Figure 9: The impact of IT on markets and hierarchies (Malone et al, 1987) 8.0 Conclusion** The revolutionary changes that the internet introduced in the mid 90s, questions everyone that what will be the standard in future .To profit from these new inventions, players in the music industry must learn how to harness their power by limiting piracy. Compared to the earlier standards, profits to the various players in the industry is being re-distributed because the cost of recording, distributing and finding music has almost become zero after the Amazon era. Internet retailing of music has made the process of distribution cheaper as no middleman is involved. Additionally, the minimisation of physical inventory from stores is a consequence of these network and technological advancements which could be harnessed by players in the industry. The downside has however been the ease with which music can be pirated and copied. This has led to loss of revenues for the various players in the industry. In future the music industry may suffer, if consumers refuse to pay higher prices for music they could obtain for free otherwise. The reproduction, modification, storage and distribution of digital music are almost free of costs. In the long run, the only relevant costs remaining will be associated with creative talent, original production, context creation (e.g. graphics, and video clips) and intellectual property protection/authorisation.

EF_Team2 Moderator Posts: 2319 Joined: Mar 1, 06 Ref.#: 6068	Apr 19, 08, 03:01pm ¦ #2 Greetings! I think you've written a fine paper! I'm afraid that supply chain management is outside my area of expertise, so my advice would be to make a point-by-point comparison with the detailed instructions you received. Just make sure that every question has been answered. I noticed a few places where you've placed commas inappropriately. If you have a grammar-checker on your word processing program, you might want to use it to make corrections. Another trick that I advise using is reading the essay out loud. I find that especially helpful for finding typos, if you have any. You could also ask a trusted person--someone who is familiar with the subject--to read it over. You've written a good paper. Just proof it carefully and you should be fine. Thanks, and good luck! Sarah EssayForum.com

mophe Member Posts: 24 Joined: Feb 4, 08 Ref.#: 6113	Apr 21, 08, 05:26pm ¦ #3 Many thanks Sarah

EF_Team2 Moderator Posts: 2319 Joined: Mar 1, 06 Ref.#: 6115	Apr 21, 08, 07:37pm ¦ #4 You're very welcome! Sarah

Newer thread in this forum:	Older thread in this forum:
securing data transfer in ebusiness messaging system	E-marketing coursework