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Supply Chain Management Professional Designation

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Supply Chain Management Professional Designation

Program

Module – 1

Final Examination

Case Report

North West Company

Instructor – Mr. Brian Dumsday

Submitted by – Maninder Pal Singh

SCMP Candidate

Table of Contents

Page number

  1. Executive Summary -                                                                         3
  2. Issue Identification -                                                                         3
  3. Environmental and Root Causes -                                                         4
  4. Alternatives and Options -                                                                 5
  5. Recommendations -                                                                         6
  6. Implementation –                                                                         7
  7. Monitor and Control –                                                                 7
  8. References  –                                                                                 7

1. Executive Summary

The North West Company is a leading retailer of food and everyday needs in rural Canada.   They are currently using a “push” supply chain strategy wherein their category managers at headquarters are analyzing trends, placing orders and allocating products to stores.

Inspired by Giant Tiger’s pull system, North West management was considering giving store managers more control over their inventory ordering by moving to a “pull” replenishment strategy.  I, Barry McLeod, Director of Procurement and Marketing, has been assigned with determining if this “Pull” strategy would be a better fit.

In order to reduce the risk and capitalize on the benefits, North West should localize in the hands of Regional Retail Managers (not the store managers). This strategic change will be beneficial for North West as they would gain the required regional/store level knowledge while avoid giving all the responsibility to local store managers and also avoid investing a large amount of dollars to support the pull system.

2. Issue Identification        

The North West Company is experiencing inventory management problems with unsold inventory piling up as well as experiencing stock outs resulting in lost sales.   They have not been able to increase their yearly inventory turns from 2.2, well short of industry averages.

Popular items often sell out the day they arrive in stores, while excess stock items can be marked down up to 75%.   Items not sold at the 75% markdown are then shipped back to Winnipeg and sold through a clearance Centre.

The current push supply chain model is increasing both sales and inventory/warehousing costs.   The lack of accuracy in forecasting is magnified by the long lead times coupled with the transit times to their remote store locations.

3. Environmental and Root Cause analysis

1. Lower Inventory Turns: Currently, North West Company is not able to increase their inventory turns more than 2.2 times, which means that more inventory pile ups in store as compared to the sale figures. It was observed in stores that aging inventory was building up and causing lesser space for newer products. The main reason behind lower inventory turn is improper distribution of products / SKUs in different stores.

2. Stock-out for few products: Some of the products get sold very fast, causing non availability of products for customers, which affect sales and customer loyalty. The reason behind stock out is inappropriate analysis and distribution of products to stores.

3. Higher Markdowns of products:  Since stores are receiving products as early as end of June, they start displaying them on shelves before the actual season and as per markdown schedule, stores offer discounts after 8 weeks which lead to improper management of time and schedule for product display and markdown timings.

 4. Poor Forecasting system: The demand is estimated by category managers in Winnipeg based on historical trend / sales and future projections. However it is not based on the demand of particular product for specific areas, which lead to improper forecast and ultimately causes operational loss to the company.

 5. Higher lead times: It takes around 3 to 6 months between placing an order and receiving products in Winnipeg DCs. DCs use to receive products 2 months before selling seasons which implies that around 6 to 8 months before sale Season, Company have to place orders with suppliers. The main reason is that our company is dependent on Chinese suppliers for providing products at cheaper costs. So in order to play defensive, we place bigger orders well in advance which ultimately causing operational losses in terms of lower inventory turns / markdowns and stock outs.

6. Investment on Inventory: Our Company had invested more than $ 130 million on this business, out of which more than $ 21 million is used for inventory cost in DCs. The return on investment is very low as compared to our competitors. This is all because of poor forecasting, improper distribution of products to stores and poor inter-organizational data sharing system.

4. Alternatives and Options:

In order to cater the problems and issues mentioned above, I propose following solutions which can help the company to increase profitability and reduce costs-

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