North West Company Case Study

Outline:

1. Executive Summary
2. Issues Identified
3. Environmental and Root Cause
4. Alternatives and Options
5. Recommendation
6. Implementation plan
7. Monitor and Control
8. Conclusion

1. Executive Summary

Barry McLeod, the Director of Procurement and Marketing in the North West Company (hereinafter referred to as “North West or NW”) has a challenge to support the pull strategy model, known as localization instead of the “push” model that they are currently adopting. McLeod is meeting with Ken Claudel, the VP of Logistics and Supply Chain and will try to explain the benefits and cost of localization, the potential risks of localization as well as getting to decide on an implementation plan. The overall recommendation would be to partially move to the pull strategy for the seasonal section while making other changes as well. The following is a case study identifying the issues facing North West, providing the root cause and environmental analysis, giving alternatives and recommendations and getting to an implementation plan for the company to move forward with.

1. Issues Identified

Below are the issues identified and that are causing unsatisfactory performance to NW resulting from the push strategy adopted on all NW products.

Issue # 1: Low inventory returns affecting the inventory costs and warehousing costs- Forecasting and Procurement.

Category managers look at the past trends and based on the next year’s buying forecast growth rate they estimate the demand for products at the company level. However this is not working well as North West is facing a low inventory turn that is affecting the inventory and the warehousing costs. The lack of forecasting accuracy, having long lead times for the product and no response to change in demand and overstocking inventory are a result of the way the decisions are being made.

1. MARKDOWNS: They have a struggle with inventory management and lots of unsold inventory piling up as well as out of stocks for high demand items which constitute a loss for NW. With reference to Exhibit 2, excess items can be marked down up to 75% and then if still not sold, it will then be shipped back to the Winnipeg warehouse. On the other hand, some popular items are sold out leaving no choice to the customers but to go and shop at a competitor or substitute for another item.
2. STORE MANAGERS IMPACT: Also the way that the products are selected and their quantities, leaves the store managers with no say although they can impact the decisions of the product demand based on what they experience in the stores.

Issue 2: Product receiving and cycle time

Product arrives at the distribution center two months before the selling period and then separated between two floors based on their category. On the ground floor, merchandise will be received, neatly stored, then selected and shipped to stores on regular basis. On the top floor, seasonal merchandise are temporarily stocked separately from regular merchandise. Small but high value items were stored in the center on two floors where they could be efficiently picked for orders from NW selections catalogue.