Stock-outs at 'Create Music Inc'

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Problem Definition

We are a large American music company with 40% market share and $50 billion revenue. Last holiday season the retailers were unable to replenish our CDs on their shelves because of our large degree of stockouts. We would like you to figure out why this happened.


The case is designed to be presented to the candidate by an interviewer, who plays the role of a representative of a large American music company.

Short Solution (Expand)

Detailed Solution

Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.

Paragraphs highlighted in blue can be verbally communicated to the interviewee.

Paragraphs highlighted in orange indicate hints for you how to guide the interviewee through the case.

I. Background

Wait for the interviewee to ask questions regarding the background of the case. A few sample questions are shown below. You could use them to help the interviewee with information, if he's stuck.

Share Diagram 1 with candidate if asked about the supply chain of the music industry.

1. What kind of costs must be factored into each handoff in the supply chain?

Time, communication, and transportation costs should be considered.

2. Could you please describe all the supply chain phases in detail?

Supply chain description:
  • Artists & Content: This is the longest and most variable phase in the supply chain. We don't have any standard operating procedures for the artists
  • Physical Production: This is the shortest phase and is managed in-house by us
  • Distribution: We have good relations with about 200 distributors who store and transport our products via various distribution centres between our production location and retail shops
  • Retailers: We have good relations with all the retailers. We communicate well and exchange information timely. Top selling items have short but reasonable lead times

3. Why is there such high variability in the artists & content phase? Please explain this phase in detail.

Process detail:
  • The relationship with artists and studios is always contractual
  • There are no set timelines because it is difficult to manage the creative process
  • The process of renewal of these contracts is not standardized

The above factors are the reason behind the high variability of the length of this phase.

II. Solution

'Artist & content' phase is the bottleneck of the supply chain. The high process variability and delays in this phase can disrupt the supply chain and lead to product stockouts.

This would cause a major problem during high demand periods, such as the holiday season.

III. Concluding Observations

The high process variability and delays in the 'Artists & Content' phase are disrupting the supply chain and leading to product stockouts. The unusual circumstances and the variability of the creative process needs to be addressed.

Difficult Questions

Please make a few recommendations to prevent this from happening in the future.

  • The process of renewal of these contracts should be standardized
  • Contracts with more artists and studios could be signed

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Case exhibits