The North West Company: Supply Chain Management

The North West Company: Supply Chain Management

Executive Summary

For more than six years, the North West Company relied on the push system of inventory. Apparently, this system of keeping inventory did not work in favour of the company’s goals. This is evident in the annual target of the corporation. The company targeted 3.0 times range of inventory but always attained 2.2 times range. This analysis will look at the main conflict in the North West Company inventory system. This involves identification of the company’s performance under the push strategy of inventory keeping that is prone to inaccuracy in forecasts of products to be purchased. Importantly, the analysis considers a wide perspective of the environment or root analysis of the conflict at hand. This concerns the advantages of the newly proposed pull strategy and how this will function to help the company attain its annual target. This would not be possible without a discussion of the disadvantages of the push strategy. This may involve such activities as overprediction, hence, increasing the cost of storing goods. Challenges concerning the new strategy will be addressed in the form of possible solutions so that implementation processes are successful. This includes costs of installing a new information system like Just-in-Time and the training expenses for the managers. Monitoring and control program will be proposed.   

Issue Identification

For six years, the North West Company has been employing a push strategy in its supply chain management system. The strategy allowed category managers at the headquarters to analyse trends in the movement of goods. They then had to place orders and allocate products to stores. However, the biggest problem for the company was that it remained at the same position in terms of performance. From the report, it is clear that the company’s inventory turns stood within the 2.2 times range. According to the management, this was far much below the company’s target every year. The annual target for inventory turns was 3.0 times range. In addition, the company was experiencing a dead stock build up. This is shown in exhibit 1 below.

In this case, the company’s management carried out transformation of the supply chain management strategy from a push system to a pull system. This strategy also called localization gives opportunities to the store managers to make imperative decisions in the supply chain. For instance, the store managers received permission to control their inventory ordering. Under the new strategy, forecasting and procurement would be controlled from a central place with the exception of some managers customizing their store product assortment. They would choose from a wide range of products and become domestic market experts. This implies that they would establish the units of stock to keep needed amount of each product. This meant that the company should hand over its incentive technique to such managers to encourage competition and profitability. The operating margin for each store would determine the amount of salary that the respective manager received. The management of North West Company believes that the corporation would realize its annual target of 3.0 times range on inventory turns owing to the pull supply chain strategy.   

 Environmental and Root Cause Analysis

It is evident from the given report that the company has been relying on the push system within its supply chain management for a period of six years. In this strategy of inventory control, there is overreliance on forecasting inventory requirements that meet demands of clientele. In the push system, the company usually predicts the product that clients will buy, as well as establishes the amount of each scale of goods that will be purchased. In such a case, the company makes a move from a central place to purchase the product to go along with forecast, demand, and sell. The corporation may as well push the goods to the customers even against their will. The major problem of the push strategy within the supply chain, as seen in the North West Company, consists in inaccurate forecasts. This is because the sales can sometimes be unpredictable and change on a yearly basis.

The information in relation to the company reveals that managers analyse sales and markdown trends, as well as operate in conjunction with suppliers to establish the products to stock and deliver purchase order in advance. The most significant indication of the forecast is that the company depended on historical trends and the following year’s trend. In most cases, these forecasts varied greatly leading to the build up of dead stock, as well as disposing some of the stock at a discount. This implies that some goods were sold at a loss. Similarly, the push inventory system encouraged a huge build up of products in the inventory. This created the problem of increased costs of storing the goods. As a result, it was significant for the management of the corporation to learn from other companies that used a different form of strategy within their supply chain to keep their inventory.     

Alternatives and/or Options

The alternative for the North West Company was to change its supply chain inventory from push to pull strategy. This strategy offers opportunities to the respective store managers to control their inventory but still remain under the control of the headquarters’ manager. In the case of North West Company, there would be 147 different store managers involved in decision-making about the quantity of product shipped to store. Even though the managers receive similar information from the central point at the headquarters, it is possible for the managers from specific stores to make individual decisions that affect that store within its surrounding. The decisions made by the managers may be based on personal preferences, experiences and biases.

Notably, the pull inventory control system commences with a client’s order. From this perspective, the company will only stock enough products to meet the needs of customers. Based on this, there will be no incidences of excess of inventory that should be stored. This reduces inventory levels and the cost of carrying and storing the products. However, there might be cases of ordering dilemmas like the suppliers not making shipment of products in good time. This may increase the gap between client’s satisfaction and perception. For instance, North West Company limited the store managers in terms of OTB (Open-to-Buy) dollar. There are a number of recommendations that might help the company avoid such cases and reach its ultimate profitability.   

Recommendation(s) and Implementation

The first move would be to incorporate information systems and technology in the operations of the company. Inventory control systems would be critical for the company to ensure there are no delays in supply of products to the customers. Such systems include Just-in-Time, or JIT information system. This system ensures that inventories remain minimal. The management can accomplish this through having enough inventories to meet the requirement of clients. The JIT system gets rid of waste through reduction of the amount of storage space required for inventory. This in turn cuts down on the cost of storing goods.

With the introduction of Just-in-Time information system, a challenge emanates with the cost of training the necessary personnel. It is important that the company sets aside some resources for the training of managers. This is imperative in acquainting store managers with the skill to carry out operations using technology. As a result of training costs, it is vital to rely on different strategy that can prove to be more efficient and cost-effective. This could work best with an integrated system whereby both the pull and push systems of inventory keeping are incorporated in the supply chain management system of the company.   

Monitor and Control

To ensure that the above suggested supply chain management plan works for the best of the company, it would be significant to set aside funds for the training of managers. The company’s annual budget should involve fiscal alignments to all areas of the inventory keeping strategy. It is also crucial for regular meetings to occur at the headquarters in order to ensure that the strategy is working well and other suggested action plans are implemented. Through this, respective managers will give a report on the progress of the store after incorporation of a new strategy within the supply chain.   

Appendix

Exhibit 1

The North West Company’s Age of Inventory Report