World Co. SCM

Supply Chain Management at World Co. Ltd.

Ananth Raman & Marshall Fisher

 Discussion Questions 1.

Examine the features of fashion apparel retailing in Japan. How can a company use its supply chain to compete in this environment?

2.

Identify salient aspects of World’s supply chain, focusing on the processes for manufacturing , demand forecasting and inventory planning.

3.

How do the features of the supply chain explain the company’s remarkably short lead times (relative to say, Indian/US apparel supply chains)? Examine the features of the supply chain and identify why the company is able to respond so effectively.

4.

Can the World’s supply chain process be replicated at other apparel companies? What about non-apparel supply chains? Identify potential barriers.

2

Co. Profile • Fashion Retailer • Responds quickly to mkt signals • Gross Margins high • Inventory Turns high • ROE/ ROA low

Due to:

• Japanese economy • Too many brands (fragmentation) 3

World Co. Ltd

300 250 200 Yen bn 150 100 50 0

  n   e  s   p    A   e   t   m  t   a   e  o  e    Y  n   s    C    G    N  c  s    k    S   s   B   n   A   r   e    I    l   o   a    S    W

Sales Yen Bn Net Income

2000 1999 1998 1997 1996

 Assets Work Cap SGA

4

Product Timeline for Style # 15122 3500 3000 2500

Order 

 . 2000   s   o1500    N 1000

Receipt Sales Stock

500 0 -500   5   2

  2  7   2  9   3  1   3  3   3  5   3  7   3  9   4  1   4  3   4  5

Week 5

Supply Chain Processes at World Inventory & Production Planning

Forecasting •Systematic •Disciplined •ABCD Rule

•Make 50% of forecast •Balance 50% reserve: • capacity & raw material

Manufacturing •Domestic mfg: •Short leadtime •Fast transportation •Close collaboration of design & mfg •2-3 wk replacement •Flexibility of factories: •Small batch prodn 6

World Co - Planning • Identifies drivers of different factors • Improves past forecasts thru’ PDCA cycle • Manages fashion using the Accurate Response Method. ------------------------------------------------------------------------Organization: Empowered Brand Teams

7

AGGREGATE DEMAND FORECAST (Higher of the two)

Distribution Side

Category Side

Yen <<<>>> Nos Storewise

• Sales •Growth Rates •Seasonality •Competition •PESTE Category

Sweaters 30 %

• Brandwise •Chainwise • Heavy/ medium/ light • Knit/ woven • Fabric

8

SKU Breakdown (Obermeyer Method)

A 10 % B 20 % C 20 % D 50 %

9

Some Key Indices (How does one explain superior operations with poor returns?)

US Dept. Store Avg

World Co. Ltd

Gross Margin %

34

42

Inventory Turns

2.6

6.3

Markdowns (% of  Sales)

32

11

2.5

50

ROE %

10

High Inventory Turns

Low ROE/ ROA

• Fewer sizes

• High SGA expenses

• Reduced display inventory

• Smaller stores >> high labour costs • Collection of many small brands, each having own overhead- much duplication

11

World Co. +ve • Short response times • Anticipating uncertainty  –  Stock R. M & trims. Expects supplier to hold some stock 

- ve - High SGA expenses - Fragmentation of brands - Co.’s processes manual

 –  If R. M. out of stock, quick  redesign  –  Read data/respond quickly  –  Supplier holds capacity & expects to react

12

Supply Chain Dependencies

SUPPLY CHAIN

13

World’s Approach World did not have superior production technology. It simply made the right commitments at different points in time and postponed decisions until they had to be made. 14