One industry that has been dramatically impacted by the digitalization revolution is the music industry. Digital displacement has not only impacted the manufacturing of physical products, but the engineers who developed and packaged these products. Loss of manufacturing and jobs, and changes in the way we consume content has changed the landscape—from businesses to consumers. From records to tape, to CD, and then to digital, music as a product had all gone digital—or so was the thinking.
A Supply Chain Story
This is not a vignette about digital content. It is a Story of the Supply Chain, actually. Though, clearly, the digital market share is dominant, the demand for vinyl is actually increasing. However, there is a lack of manufacturing capacity to meet demand. And due to the high volume of digital pirating and free downloads, physical media still provide a profitable share of the revenue.
Lessons in Forecasting
Classic music listeners and new Indie artists all eschew digital and want vinyl. But how can you forecast demand? Retailers want to know they will have supply and market before they allocate shelf space. Artists want to know there will be production capacity. And producers want to know if this is just a bubble and if any investment in capacity will be lost if the bubble bursts. Sound familiar? This is a challenge that plagues most industries and all segments—from chemical producers to shoe designers.
Answering these questions requires forecasting, although surely a different type of forecasting than we have done in the past. History is inadequate for forecasting emerging markets or ones going through displacement. In order to understand market forces and, therefore, forecast demand, producers needed to look at market trends. They need to do deep searches to understand and create new customer segments, demand channels, and direct consumer engagement through new digital communication channels—social, mobile, and more traditional channels. All these insights and demand points need to be available as ‘consumable data’ in a new type of forecasting model. (That is Big Data.)
Supply Chain Segmentation
Different retail channels, different customers, and new sales channels also require different supply chains. New or unique physical or digital products, or products with digital elements will require new partnerships (for example, between physical product manufacturers and software and content producers), as well as responsive manufacturing to produce build-to-order or the small lot sizes that consumers demand.
For the music industry, the stakes are high. Without an abundant supply, marketers will not promote an album, thereby dampening demand. The ecosystem around vinyl—turntables and accessories—will not support it. Without a reliable supply chain to produce the records, a budding market can dry up. In the end, without reliable manufacturing capacity for vinyl there will be no market.