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The North West Company Case Analysis

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Supply Chain Management Professional

The North West Company

Case Analysis

Instructor: Robert Greene

Written By:

Connie Gong

Date: June 23, 2014


Table of Contents

Executive Summary        3

Issue Identification        4

Environmental and Root Cause Analysis        6

Alternatives and Options        10

Recommendations        12

Implementation        13

Monitor and Control        15

Exhibit 1        16

Exhibit 2        17

Exhibit 3        18


Executive Summary

The North West Company is a leading retailer of food and everyday needs. They are currently using a “push” strategy with the category managers at headquarters 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. Barry McLeod, Director of Procurement and Marketing, has been assigned with determining if this “Pull” strategy would be a better fit. "Pull" system is a good idea but it need invest a large amount to support IT system and training all the store manager.

In order to reduce the risk and capitalize on the benefits, North West should localize in the hands of Regional Retail Managers. This strategic change will be beneficial for North West as they would gain the required regional/store level knowledge while avoiding giving all the responsibility to local store managers and investing a large amount of dollars to support the pull system. and also it can improve forecasting and customer satisfaction.  

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Environmental and Root Cause Analysis

Strengths

Weaknesses

  • HP is leader in innovation, spends 10% of revenue on R&D
  • 57% market share in laser printer market
  • Strong product development process  cross functional teams
  • Ability to eliminate problems early in the design cycle
  • Financial and time to market costs of changing the product design was low
  • Customization of the product was carried out at DC’s (paper inputs, cabinet stands, fax modems, paper output units, stapler upgrade package, memory and print server linkage)
  • Order fulfillment
  • Heated debates over design decisions
  • 4.5 month lead time for products main engine from Japanese partner
  • Difficult forecasting due to configurable options
  • 1 month transportation lead time from partner’s facility to HP’s DC (by boat)
  • Inability to accurately forecast the mix of demands in geographical regions

Opportunities

Threats

  • improve order fulfillment
  • increase customer satisfaction
  • reduce expenses
  • increase competitiveness
  • Increase competition  increase chance of losing customers
  • Shrinking product life cycle (less than 3 years)
  • Competition and changing technical innovations drastically change demand for a product

Table 1 - SWOT analysis of HP Company

Department

Perspective

Score

Marketing

  • “fantastic idea” if it does not add cost to product
  • Customers will not pay for features they don’t need
  • Increased competition is making a lot of firms compete on price
  • Very long lead time from Japan (4.5 months)
  • Product life cycle is 18 months

0

Product Development

  • Every dollar increase is a decrease of a dollar in our profit
  • No way to reliably predict how much value the benefits of universal power supply truly represent
  • If we can forecast better this universal power supply would be useless
  • Put the $30/unit into improving forecasting process
  • Benefits can be seen later in the product life cycle due to the high costs of reconfiguring the power supply and transportations

-1

Finance

  • If the $30 cost increase cannot be passed onto the customer or retailer it will come out of our bottom line
  • Must consider the costs of stock-out and inventory
  • Each loss of sale = reduced profit margin multiple times
  • High cost for stock-outs during the initial phase of the product life cycle
  • Low cost for stock-outs during end of product life cycle
  • 80 to 90% deviation in forecast error in the ramp-up stage
  • 40% deviation in forecast error in the mature and end-of-life stage
  • Annual holding cost rate is approximately 30% (warehousing, insurance, cost of capital and shrinkage)

0

Manufacturing

  • Great idea
  • Improve flexibility to respond to orders
  • Can delay the regional allocation decision by 2.5 months
  • Keeping safety stock at the ramp up and mature stages is no problem, but very costly at the end-of-life stage
  • Reconfiguration of the power supply is difficult.
  • Costly & must be certified by the Underwriters Laboratory (safety)
  • Universal power supply can make transshipment a possibility
  • Can create a power play for allocation of product for different regions

+1

Distribution

  • Transshipment won’t present a big problem through universal power supply
  • Can chew up company profits due to the back and forth movement of product from one DC to another

0

Table 2 - HP departmental perspective on universal power supply [score of -1 = against change, 0 = neutral, +1 = agree with change)

There are only a couple of disadvantages for switching to a universal power supply relative to the many advantages; the disadvantages being the increased cost of $30 per unit and possible power play among operations and DCs for allocation of products. Since it is uncertain what the cost of stock-outs are it is difficult to calculate if the $30 per unit increase in cost will affect the bottom line to understand if the customers unit price for each printer would increase or decrease. Hence there is an inherit level of risk that is unknown. Also since the universal power supply would make transshipment more cost effective, there is general consensus among departments that if forecasting is not done correctly and correct management for flow of products is not carried out, the logistic cost will counter savings gained through reduction of reconfiguration costs occurred during transshipments.

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