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Leading Music Distributor Improves Inventory Management

Business Challenges
	More accurate store inventory management to capture rapidly changing local and season variations;
	Improved inventory control to avoid costly over-stocking, stock-outs, and returns;
	Transform field employees from shelf stockers to revenue generators;
	Real-time and comprehensive views into the supply chain to track product location and availability.

Results
	$2.2 million annual savings from reduced return logistics
	Improved inventory management through expedited information flow
	New cross-selling opportunities for mass merchant customers
	Improved distribution channel available for additional products

"CTE's CEW workshop process provided an excellent and timely opportunity for us to focus on business in these critical economic times. After we quickly identified the solutions, CTE's rapid application development environments significantly reduced cycle times and quickly brought our applications to operational use."

Because of technology changes, the legal and illegal digital distribution of music has expanded and sales of pre-recorded music (CDs) are declining. When combined with other issues … the mass retail channel's increasing share of the declining market driving an industry-wide focus on a few high-volume titles and mass merchants internalizing their previously outsourced high-dollar volume music departments … there is significant pressure on margins for music distributors.

One of the largest distributors of prerecorded music sought a means to meet these challenges in this maturing market. While other companies have dropped out, this firm is investing in technology and systems to sustain its position in the distribution value chain and support a sophisticated distribution approach to leverage its assets into new businesses to replace declining revenues from prerecorded music.

The company turned to CTE Inc., a leader in collaborative business innovation services and products that accelerate deployment of enterprise applications, to help them find a way to increase revenues by optimizing inventory management. Together, they created three new information portals to aggregate previously standalone information, creating significant cost savings and increasing sales through improved inventory management.

Business Challenges

The company distributes half a billion dollars worth prerecorded music to mass merchants each year in more than 5,000 stores on three continents and represents more than 11% of all music sold in the U.S.

The firm had to solve immediate business challenges to remain an indispensable supplier to top mass merchants such as Walmart, Best Buy, and K-Mart. The company needed:

CTE Solution

CTE led the company's cross-functional team through its three-week Cambridge Executive Workshop (CEW), during which they identified a field force technology portal as the basis for the solution: an aggregated information resource could provide visibility into existing data, so decisions could be based on actual performance metrics. This data, from many disparate systems, could then be used to improve order generation, processing, handling, dispatch, and traffic.

The CEW is a powerful, collaborative forum where CTE works with Fortune 1000 firms and governments, bringing together executives, managers, end users, and other stakeholders to move new ideas to fruition. During the CEW, CTE specialists in business solutions and technology work with clients to:

	Drive an unbiased, intellectual problem-solving approach by tapping Harvard and MIT resources;
	Generate new, high-impact ideas using CTE's "left and right hand" framework;
	Identify "lazy assets" and areas that would benefit from new technologies and improved processes;
	Create a comprehensive, compelling business case with quantitative and qualitative benefits.

The CEW allowed this company to:
	Develop an architecture enabling expansion and flexibility for the changing business environment;
	Create a custom prototype of the solution;
	Provide a framework for Rapid Application Development (RAD); and
	Develop a deployment roadmap to quickly capture maximum business benefits.

Through the fast-paced format of the CEW, the company devised a powerful solution for field employees and illustrated it in the prototype that allows them to manage inventory in individual stores in real-time. With this solution, they can:
	record current inventory and access store-specific inventory/title recommendations;
	identify and react to suspicious sales patterns;
	understand and quantify local factors (Rolling Stones concert in town, air play campaign for new release) that affect sales;
	quickly order replenishment inventory beyond the automatic recommendation or locate missing shipments; and
	obtain information on promotional programs and order materials.

Solution Benefits

The team estimated that the savings due to reduced return logistics alone would amount to $2.2 million annually. This ROI estimate and the prototype quickly convinced company executives that the firm could manage the supply chain in a more profitable way and strengthen relationships with mass retailers. They supported deployment almost immediately following the CEW. Because of the clear specifications and broad buy-in, the solution could be deployed in a production environment in just 15 weeks. The solution was built quickly using DataSwitch from CTE's Collaboration Software Suite, a set of CTE and proven software tools for Rapid Application Development (RAD).

Because of the solution's immediate success, the company engaged CTE for two additional CEWs. The second, the Vendor Portal, lets company customers better understand how their inventory performs on multiple levels, carefully manage inventory to minimize overstocked and out-of-stock items, and use music for cross-selling to generate additional store revenues. The third solution, the Customer Portal, is for store customers via online kiosks in stores, where they can pre-order music, thus improving customer satisfaction and generating additional shopping trips to the store.

These portals are a valuable business resource for the company to increase sales through improved inventory management and increase profitability in this mature market. In the future, these solutions will be the foundation for an expanded distribution system, allowing the company to become a more valuable vendor resource to its customers. If music sales through stores decline, the company has a ready-made solution to offer customers new services and products.