North West Company Case Analysis
Barry McLeod, Director of Procurement & Marketing
Ken Claudel, VP of Logistics & Supply Chain
Barry McLeod is currently faced with the decision to recommend a supply chain strategy to Ken Claudel as to whether or not implement localization at North West. This is a pull stategy approach as opposed to their current push model. North West is facing low inventory turns which is affecting their inventory costs and warehousing costs. They lack accuracy in forecasting and have long lead times for most of their products and especially in their more remote store locations. Barry needs to decide to implement localization or not, and if not, then have a plan B in mind for how to address the issues listed above.
Environmental & Root Analysis:
* Winnipeg Category Managers analyze trends, place orders and allocate products to stores. They are disconnected from customers and what their preferences are. * POs submitted at least 4 months in advance of popular selling periods * Category managers worked with store managers to review the previous year’s lineup, order and actual sales * Historical averages and next year’s forecasted growth, estimate demand at company level. Not done at the store level, there are large differences between consumer preferences in Alberta and Yellowknife. * General merchandise category: non-food, home furnishing, apparel, footwear, luggage… Too wide of a category. How can a manager really know in depth each of these? They are not even related items. Impossible to forecast company wide needs on these, without breaking it down to store level, especially when North West stores are so spread thin across the country, including very remote locations. Transportation
* Products arrived at warehouse 2 months prior to selling period. Inventory cost averaged $21.5 million. Space was optimized since it followed a tightly managed schedule. Doesn’t seem like it with these costs. Merchandise sitting at warehouse for 1 month and for 1 month at store prior to start of selling period. * Products take a few days to 4 weeks to ship from warehouse to store. Cut down the shipping period by having supplier ship straight to stores. * Remote regions of Canada takes a long time for products to arrive. When markdowns reached 75% they were sent to Winnipeg’s outlet. Low qtys sent to remote region means they cannot meet a higher demand, merchandise that doesn’t sell it shipped back (transportation costs must be high). Risk of wrong forecast: sale of competitor’s products increase, or substitute items are bought, which does not mean more expensive North West alternative. Inventory & Forecasting
* Category managers worked with suppliers to review new product lineup for upcoming year. If product offering changes every year, then the forecasts are never accurate. * Lead times ranged from 3 to 6 months depending on location of supplier. No possible way to meet change in demand. * Markdown program: 8 to 10 weeks since product arrived at store. Aging inventory is growing at the store level. Localization is one of the alternatives on how to deal with it. * Such low inventory turnover means overstocking, obsolescence or deficiencies in the product lines or marketing efforts. In the case of North West, this is due to forecasting errors, and change in product lines from the suppliers which does not allow for good forecasting when the stores managers are not able to localize their product choices. Localization
Pull merchandise replenishment strategy as opposed to push from headquarters. Tap into the local knowledge of store managers to better tailor product quantities and options to community preferences. * How it would work: Forecasting and procurement still done centrally, but store managers can pick from a menu of products. Managers’s bonus would be based on store’s operating margin, giving them an incentive...
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