Introduction

The case is about a company DISCOPRESS that started its business in 1960.
Initially it produced vinyl records but later on due to technological
advancements it shifted its attention to the production of CDs and DVDs.
Strict productions standards are maintained by DISCOPRESS in order to meet
customer requirements and have zero-error manufacturing. It pursues two
different kinds of production methods depending on the demand of
customers. One is Manufactured-on-Demand (MOD) and the second one is
Mass Production.
Problem Statement
DISCOPRESS currently has contract for DVD making of Farnsworth Filmed
Entertainment (FFE). Various titles of FFE have different demand and their
license expiry also vary. So it require complex calculations for Pace Lochte,
director of the on-demand production unit, to give Vinnie Vincenzo, her boss,
final proposal as whether DISCOPRESS should consider MOD Media or Mass
Production for FFEs DVD production. Also Mass Production requires extra
$10,000 investment because of special labels and shrink-wrapping of DVDs
manufactured. So problem is to make decision by Pace Lochte that which
titles of FFE should be produced through on-demand production and which
should be produced through mass production for DVD. Pace Lochte has prior
experience in marketing but not in manufacturing industry so she is facing
difficulties in making decision.
Analysis
DISCOPRESS is currently using two types of production methods. One is
Manufacturing on Demand (MOD) production and the other one is Mass
Production. Both have their own costs and benefits. Through MOD it costs
DISCOPRESS $2.50 for each unit to produce. It would be sold to FFE at $3.87
securing $1.37 profit. The other production method, Mass Production, costs

DISCOPRESS $0.75 per unit for at least 500 units plus $500 mastering fee.
The price that would be offered from this production method would be $1.16
per unit and $600 ordering fee per order. As FFE has different license
duration for each of its titles, thus it makes it difficult to decide whether to
produce the DVDs for FFE using MOD or Mass Production method.
Categor

Number

of Titles

A
B
C
D
E
F
G
H
I

4
5
9
10
19
28
36
49
80

Average
Annual
Sales
396
84
48
24
12
60
24
12
6

Years Until
Expiration
1
3
5
6
10
2
4
7
8

Maximum Number of
Units Required for
Each Title
396
252
240
144
120
120
96
84
48

The calculations show that none of the title in any category would reach to a
sale of 500 units in a year or up to the time of its license expiry. The Mass
Production method would further require investing $10,000 for special labels
and shrink-wrapping of titles while the same facility has already included in
MOD production method. So there is no need to invest $10,000 for Mass
Production method as the requirement of the units can be easily met using
MOD production method.
There is another point to consider which shows that MOD is best option as
compared to Mass Production. If DISCOPRESS sells each unit produced
through MOD production method then it would give them a profit of $3.87
$2.50 = $1.37.
But if DISCOPRESS would use Mass Production method then it would reduce
their profit margin. Calculations are below:

Per unit cost = $0.75

Minimum number of units produced = 500
Mastering fee per 500 units order = $500
Mastering fee per unit = $500/500 = $1
Per unit cost (for 500 units) = $0.75 + $1 = $1.75
Price to FFE = $1.16 + ($600/500)
Price to FFE = $2.36
Profit Margin for DISCOPRESS = $2.36 $1.75 = $0.61
So the profit margin for DISCOPRESS would decrease if it uses Mass
Production method for FFE because the above calculations are for 500 units
and none of titles of FFE require 500 units production. If FFE forces
DISCOPRESS to use Mass Production because it costs them $2.36 instead of
$3.87 (in case of MOD) then Pace must reveal these calculations that since
their minimum quantity wont reach to 500 units for any title so the ordering
fee per order for each unit would further increase and this would ultimately
increase the price of each DVD from $2.36 to above $4.00.
Recommendations
The above calculations conclude that MOD is best suited for both,
DISCOPRESS and FFE. Although FFE could object on the price because MOD
can cost more as compared to Mass Production but with further calculations
it can be showed to FFE that it would cost more than $2.36. This is because
when DISCOPRESS would try to shift the investment of $10,000 effect on the
price, then this will definitely increase the price of per unit from $2.36 to
over $4.00.

Another benefit for both companies would be to ignore the warehouse cost of
DVDs produced through MOD method. MOD would benefit in the sense that
DVDs will only be produced on demand and exact quantity would be
produced in response of demand. Thus there would be no need to store huge
quantity and incur a storage cost.
Biggest hurdles for this recommended solution to the problem is the
willingness of FFE for production of DVDs through MOD. As it has been stated
that with Mass Production the per unit cost will be less than MOD production
method so it would be difficult to make FFE understood that production
through MOD would be beneficial.
Conclusion
So as conclusion remarks it can be said that production through MOD would
be more beneficial for both FFE and DISCOPRESS. The purpose for both of
the companies should be to reduce the cost of production. Utilizing resources
and careful calculations may give a way to produce the DVDs through
efficient way without inventing $10,000. Mass Production would not be in the
benefit of both companies. It would be beneficial only for those titles which
would expire after a long period of time and have high demand. The
investment of $10,000 can only be justified if production cannot be finished
through MOD. But in this case the MOD production method can handle the
demand of DVDs of FFE.