Case Study 3 for Inventory Management PDF

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LSCM 3402- 001 Inventory and Warehouse Management Case #4 - Northcutt Bike Prepared for : Dr. Brian F. Fleming

Executive Summary Jan Northcutt, owner of Northcutt bikes, had developed Northcutt Bikes around flexibility and customer responsiveness. Realizing the the decline in bike sales and rising prices at her shop and the difficulty in obtaining the features on ordered bikes, she began to buy necessary parts and assemble them in a rented garage. As business and demand grew, Jan sold the shop and concentrated on the production of bikes in a leased factory space.

Issues Jan has come across some issues in her business once her customer base began to grow larger than her operating capacity, Northcutt bikes were known for their very short response times but because of the rate of demand Jan was unable to maintain that standard, as the customer base grew, so did the expectation for shorter demands which put a strain on capacity planning, Jan began to find that there is a lot of downtime in her operations which is negatively affecting costs as no work is being done, at times she also finds that customer demand rises way above her operational capacity which increases response times leaving her with disgruntled customers, Jan has tried to counter this problem by pre-building bikes to project customer demand but failed because it took away from the customizability option that customer were first attracted to. Because of the pre built inventory method, Jan began to find that customers wanted something different than what she had pre built which now lead to her having to disassemble bikes to use the parts for new builds, reworking this inventory uses valuable capacity for other customer orders while costing the company more money on reassembly and product cost. Jan also found that demand for bikes isn't very consistent and so there's a lot of downtime in her operations, this volatility and downtime increases her overall labor costs but she wants to avoid having to lay off her employees.

Analysis SWOT Strengths ●

Great flexibility and responsiveness to

Weaknesses ●

Ann was an effective manager but

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customer needs. Significant growth in the new factory space allowed for more control in the costs of production. Increased quality of service and parts, lower cost of production allowed for a more attractive price point to customers. Turnaround time was less than half the industry average.

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Opportunities ●

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The growth of the company meant business and financial opportunity was in place. Proper inventory management policies could allow Northcutt’s current warehouse to sustain continued growth without purchase or expansion of warehouse space.

lacked materials management experience Warehouse capacity is strained with the volatility of demand. Idle time has increased costs to Jan. Seasonality has affected the demand and ordering practices to accommodate.

Threats ●

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Backordered parts mean customers will have to go to other competitors to service their bikes, leading to improper timing of incoming orders that may not be sold. Demand exceeding capacity can hurt customer response time, a key goal for the company. Businesses may cancel their entire parts orders to order from a different supplier, leading to excess inventory. Different lead times for key items means proper forecasting techniques need to be utilized to adjust ordering to ensure each different part arrives on time.

The plotted data indicated that there is seasonality in demand, specifically during the summer months for the bikes. The average demand in 2011 was 911, 1070 for 2012, 1108 for 2013 and 1245 for 2014, indicating that business and demand has been growing steadily over the years. Therefore, proper ordering practices to avoid excessive inventory levels during low-demand periods is necessary to mitigate holding costs. Forecasting seasonal demand will help in ensuring production materials are readily available to meet demand prior to large increases in season demand periods.

Alternative #1: Do nothing Advantages: ● Jan may continue business as per usual in house while saving costs and building customer relations ● Saves costs on having to move operations to a larger warehouse based on increased customer demand. ● She will not have to layoff her employees. Disadvantages: ● Continued low responsive time will lead to more unsatisfied customers ultimately causing a decline in customer base. ● Costs ratio will remain relatively high negatively affecting bottom lines. ● Additional costs will be spent on excess inventory.

Alternative #2: Implement seasonality forecasting technique while outsourcing during demand uptime Advantages: ● Allows for a better read of demand which in turn leads to overall lower response times on customer orders. ● With the growth in customer base, outsourcing operations will allow Northcutt to meet new demand levels. ● By knowing demand, Jan will be better able to schedule labour when it is needed, saving on labour costs. ● Core staff will remain with the specialized skills and knowledge. Having already trained staff reduced employee hiring costs. ● Augmentation by temporary staff in peak demand times will ensure consistent lead times and with reduced total labour costs. ● Ordering quantities can be properly determined Disadvantages: ● Northcutt was built on meeting customer expectations and convenience, outsourcing to a manufacturer may be difficult as they may not meet expectations. ● Forecasts will not always be accurate and may lead to unmet demands or to overflow of unused inventory. ● Outsourcing to manufacturers may result in longer lead times which will extend response times, having a negative impact on customer service.

Alternative #3: Implement a JIT inventory system

Advantages: ● No excess inventory will be held, minimizing costs. ● Bikes will be fully customizable according to customer requirements and product costs will decrease as there will be no need to rework existing finished goods. Disadvantages: ● A negative impact on customer service as lead time will increase. Jan may have to abandon one of her core principles in her business.

Decision/Recommendation: The decision is to implement Alternative 2. The demand for customizable bikes is highly seasonal. To best deal with seasonal demand, a seasonal forecasting technique must be implemented. The correct data must be obtained and used. Even though it is not a 100% accurate, seasonal forecasting is the most ideal solution in this situation. Customers will be able to have their customized bikes and a reasonable cost. The only existing downside is that customers will have to deal with increased deal times. Increased orders will mean increased lead time, and that is the only trade off available to balance customer needs. In times when demand exceeds established forecasts, manufacturing can be outsourced to other companies or temporary labour can be hired. The core staff will remain who have the core skills and knowledge to manufacture these specialized bikes and will be augmented by seasonal labour to help with the increased workload and ensures that lead times will not get worse.

RACI

Deliverable

● Setting KPI’s to assess performance ● Implementing a seasonal forecasting system ● Identify manufacturers available to outsource

Jan

Customers

Employees

Suppliers/Other manufacturers

R,A

I

C

I

R,A

I

C

I

R,A

I

I

C

Detailed Implementation Plan Date

Month 1-3

Person Group ● Jan

Activity / Deliverable ● Setting KPI’s ● Design seasonal

forecasting system ● Identify other manufacturers available to outsource

Month 4

● Jan

● Assess current impact of recommendation

Month 5+

● Jan

● Assess final results from KPI’s ● Develop a better way forward based on results.

I like the direction. See my concerns per my last comment.

Possible Grade 10

Actual Grade 9

Marking Requirements

Comments

Problem Identification - Issues logical and supported by the case

See comment

“text book” facts that support the discussion

25

21.5

Analysis Detailed review of the pertinent information from the case – ties to issues and/or opportunities (“so what ..?”) Provide the foundation for alternatives aimed at addressing/supporting the issues/opportunities Alternatives tie back to problem supported by both case and technical detail obtained from course and program Pro’s? Con’s? risks?

7.5/8.4 SWOT; 6/8.3 Qualitative; 8/8.3 Quantitative (SI)

15

12.5

10

8.3

Decision / Recommendations What? Why?

Ties to above

10

8.3

Implementation Plan attempt at laying out the actual implementation plan Schedule? Who? Risks? Issues to be aware of?

Ties to above

5

5

Format APA 6 guidelines Grammar/spelling/…

75

64.8

Total

See comment at end of repor

4.3/5...