SCM at World.co_Group7_Sec A_Assingment 1.docx

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Operations Management II

Assignment 1

Case Anal ysis of

Supply Chain Management at World Co., L td.

PGP1 – Section A

Group 07

Submitted on 13th

, March, 2013

Submitted by

Harkirat Singh 2012PGP124

Muraleedharan R 2012PGP213

Nikhil Sharma 2012PGP226

O B Vishnu Ruban 2012PGP236

Rajendra Babu Mellam 2012PGP294

Tejinder Negi 2012PGP403



1. The case has compared apparel retailing in Japan versus the US. What are the pros

and cons of the Japanese setting compared to the US setting based on (a)

responsiveness, (b) inventory management, and (c) forecasting?

a) Responsiveness

Pros

Short response times

Anticipating uncertainty – Stock raw material and trims

Read data and respond quickly

Quick redesigning ability

Supplier holds capacity and expects to react

Merchandisers working directly with the factory

Flexible ordering of products

Empowerment of groups to respond quickly to market signals

Cons

High sales and general administration expenses

Fragmentation of brands

b) Inventory management

Pros

Able to accommodate the extremely fast fashion cycles

Decreased holding cost and profitability margin is increased

Flexible inventory turns (small batch lots as required)

Good monitoring system over entry and exit of stocks

Focused on having right product at right time

Cons

Necessitates more frequent restocking by sales staff

High labor costs

Collection of many small brands, each having overhead and much duplication

c) Forecasting

Pros

Systematic, Disciplined and ABCD rule

High accuracy

Identifies drivers of different factors Lot of scope for improving past forecast through PDCA cycle

Manages fashion using accurate response method

Cons

Seasonality effects and differ among merchandisers



2. Comment on the organizational structure of the company in view of responsiveness

and flexibility

Realizing the need to respond flexibly to changing fashion environment and creating a

process that can be universally utilized by a variety of different brands, World Co has pursued

various structural reforms under the SPARCS (Super, Production, Apparel, Retail and Customer Satisfaction) concept. This concept originates with the customer and unifies the entire process

from production to the retail outlet, to convert loss and inefficiency into value. The SPARCS

model aims to minimize inventory loss and loss of sales opportunities by unifying and

integrating the business process. The business model consists of the synthesis of the

manufacturing, apparel and retail segments, conventionally separated in the fashion industry,

while simultaneously enhancing responsiveness to changing customer demands. World Co

believes that SPARCS is the ideal business model for the fashion industry, enabling the

realization of customer value.

Offering responsiveness to changing needs by constantly maintaining an interface with theconsumers, the SPARCS model simultaneously maximizes customer value and improving

productivity while integrating the entire management structure with operational platforms at its

core, epitomizing World Group management philosophy.

Since 1992, World has been promoting operational restructuring aimed at maximizing

customer value and improving productivity based on SPARCS concept, which provides a

concrete form for the realization of a customer-centric business platform that embodies both

operational procedures and the decision-making process.

World continuously review their brands with respect to the changing fashion environment,thus, keeping their products fresh and appealing. Its accessible information system is powerful

and is consist of inventories entering and exiting each store. Factories were inside Japan so that it

could quickly respond to inevitable small changes. Domestic factories also lessen the shipping

time of products than overseas manufacturing facilities. These factories worked very closely to

the merchandisers enabling the production based on the demand of the merchandisers adjustable

3. Comment on inventory management practices at World Co. Ltd. with reference to

managing (a) a variety of finished goods, and (b) raw materialsa. Variety of finished good

World would use the inventory of Raw Material after first order quantity to produce more of “hot SKUs” based on observed demand based on forecasting, as updatingforecast procedures differ among merchandisers the decision on what to reorder and whatSKUs to alter designs for each week was not straight forward considering the productioncapacity available, prior commitments made to suppliers and brand assortments. SKUs thathad inventory left after intended life cycle were sent back to warehouses for storage. At the



end of each season, left over inventory was shipped to stores from warehouses marked at50% off, during department-store wide sales.

b. Raw materialsFrom the SKU level forecast they calculate amount of material that is needed

during the season and using estimated quantities by category, they used general yardagerequirements to arrive at approximate amount of material they needed to order. They wouldorder roughly around 75% of the estimated quantity and would expect the raw materialsupplier to hold the balance inventory; this reduces the inventory holding cost and is freedfrom associated risk of remaining 25% of inventory. World’s factories also keep stock of standard length of zippers and common buttons to guarantee quick response. Also as only50% of demand forecast is ordered right away for First Order Quantity production the factorywill stock remaining raw materials at their own risk.

4.

Comment on the financial health of World Co. LTd. How is the financialperformance reflecting in the procurement and inventory policies of the company?

US Retailers World Co

Inventory turns 2.6 5

Gross margin 41% 48%

Markdowns 31.8% 11%

Sales/sq foot $ 155 $2500

The supply chain management at World co. was based on SPARCS SYSTEM ie Super,Production, Apparel, Retail, consumer satisfaction. The corporate offices are in direct contact

with the factories merchandisers inform factory workers of potential production problems and pattern specifications, this implies that the company had advanced and excellent communicationtechniques which help them to give breakthrough performance also the incentives offered to theemployees in the form of promotions encourage them to perform better and motivated them towork harder in their given project.

When we look into the procurement and inventory policies of the company, it is cuttingits inventory holding cost for raw materials as explained in previous question thus adding to thenet income. Also looking at the overall financial performance we can say that the company hadexcelled in reducing lead times, careful tracking and proper management of cash flows.

Based on the financial statement we can conclude that The Gross margins of World co.is 48%, Inventory turns in world co. is 5 times, which are good figures as compared to other

apparel retailers.

Documents

SCM at World.co_Group7_Sec A_Assingment 1.docx