Supply Chain Management
World Co. Inc
October 27, 2011
Presented by: Ahsan Khawar Fahd Iqtidar Mir Nabeel Siraj Umair Babar Chishti 12020378 12020367 12020325 12020157
Q.1) Japan is one of the largest and most sophisticated clothing markets in the world, and its fashion designs and product quality enjoy high reputation world-wide. The fashion industry is trendy as people closely follow the changing trends in the market. As compared to US, fashion products in Japan have short life cycles. There is uncertainty in demand due to fast changing trends and increased seasonality despite no major change in seasons. Moreover, the fashion apparel industry is highly competitive. It faces competition, both, locally and internationally. With the seasonal variation in the demand for a certain line of clothing a need of sophisticated supply chain management arises. As mentioned in the case study, three distribution alternatives are available i.e. company-owned stand alone stores, shops in fashion malls, and shops within department stores “store-within-astore”. Most fashion retail chains operate via specialty retailers of privatelabel apparel (SPAs) like World Co. Ltd. SPAs are the fashion companies who apply fast fashion policy in their business model, which makes it possible to integrate planning, production and sales, thereby encompassing the complete distribution channel and customer service. Since, the products face short life cycles with uncertain demand it needs low inventory levels with efficient replenishing of sold stock. By focusing on sophisticated forecasting methods, taking account of the historical sales data and changing trends in the market conditions, retail chains can cater to customer needs effectively. The company can gather point-of-sale data from its retailers and analyze consumers purchase trends to estimate the quantity of a particular product required in certain retail store. It will give better idea of consumers’ preferences in that location. For this company can offer its retailers latest information technology tools and can also encourage them to install systems for efficient and speedy sales ordering. Q.2) World has taken certain substantial steps to improve the three things. First, there were two stages of demand forecast, the initial forecast and then
revising it based on early sales data. Aggregate forecast from “distribution side” and “category side” was made and the maximum of the two was selected. Distribution side forecast was based on the total demand from each store. For existing stores, historical sales data, growth rates, seasonality, competitor actions and changes in macro economic situation were considered to forecast sales growth. For new and future stores, it used the amount of foot traffic, target customers who come there and competitor locations to forecast. Based on demand forecast for each store category forecast for each category was derived based on the percentage of its sale expected at a particular store. In the category forecast, the expected sales of each product category were added to reach the total. This was based on historical data, market trends, and the planned advertising expense. Ranking of SKUs was done using the “Obermeyer Method”. World invites 20 store managers and assistants from its target market to head quarters, where products are displayed in a room the same way as in shops. Then, they are asked to rank the products. Based on this, the weighted mean and standard deviation of the SKU is calculated. The ranking done by the representatives of stores with highest sales volume is given the maximum weight. After that, they divide SKUs in A, B, C and D categories. Based on the contribution of each SKU to the sales and category, SKU level forecast was derived. Even after this lengthy process managers revised sales plan as they receive latest sales data. In addition, Untitled brand managers tested products in advance of the actual season to indentify sales patterns. An “Accurate Response” for inventory and planning is used for production and inventory planning. First, SKU level forecast is used to calculate the amount of materials needed. They order some (about 75%) and vendor (supplier) keeps the rest. This helps them get trade discounts. Fabric is inspected at factory and relaxed for up to 48 hours. They also keep inventory of undyed fabric and standard sizes of zippers and common buttons for quick response. Domestic manufactures were used because sourcing overseas will
increase the lead time and so was not cost effective. They maintained close contact with manufacturers. Also factory kept reserved production capacity for unusual demands that were expected but cannot be measured. Merchandisers’ order 50% of the demand forecast right away, this makes sure that the rest could be used to produce more of hot (high in demand) SKUs. As mentioned, based on the early sales data, the merchandisers extrapolated sales data and depending on the fabric and production available further orders were placed. In this way quick response is provided, and inventory is maintained that can be quickly converted to finished goods based on latest forecast. After the season has ended, left over inventory is sent back to the warehouses where it is marked 50% off and sent back to stores. This whole process is supported by a dynamic workforce and excellent information systems. Data accuracy is 100% in regular season and regular stock counts make sure that inventory is updated. Bar code systems were installed in stores. Apart from this employees were empowered in product design, merchandising operations and its stores to make decisions on their own. Q.3) Forecasting based on early sales data: World Company uses early product sales as a predictor of the overall sales. World Co’s retailers estimate future demand for various products. These estimate analysis’ are conducted at pre determined periods in the sales cycle. This helps World Co. to reduce the errors from its forecasting analysis. Furthermore, by using different source data for forecasting and using aggregate forecasts, it has been able to increase the accuracy of its forecasts. This in result has helped to reduce the lead times by a great amount. By immediately ordering for items that might be facing stock outs, merchandisers make sure that the supply chain faces no disruptions. Another important tool used to improve forecasts and hence lead times, is product testing. Product testing before launch helps to gauge the expected demand
and sales of the product. These product tests then help to reduce the errors in the demand forecasts. Maintaining Supply Chain Speed: World Co. makes certain arrangements with its supply chain partners even before production starts. For instance, the company pre-orders and stores fabric and other miscellaneous hardware. Even though World Co. avoids carrying finished goods inventory, it keeps an inventory of raw materials such as undyed fabric. Besides having raw material inventory, World Co. also reserves production capacity with its manufactures before the start of production process. This makes sure that the production line is never blocked. Q.4) The processes can be replicated to other apparel and non-apparel companies having short product life cycles. The management of other companies needs to develop an attitude of efficiency. Others usually focus on inventory optimization by not keeping inventory rather than focusing on quick response time. For non-apparel firms, they can do a cost-benefit analysis to see whether it’s beneficial or not. The retailers are reluctant to share data due to lack of incentive and relevant technology. The diversified workforce may not be available to other companies, and even the top management is unwilling to change traditional approach to function. The main reason is that companies can’t quantify costsaving from shorter lead times. Moreover, the companies don’t focus on customer satisfaction and employee morale instead focus on short term goals. As a result, they face frequent stock outs and employ markdown techniques to match supply with demand.