Analysis Northco case

Topics: Inventory, Forecasting, Long-Term Capital Management Pages: 2 (794 words) Published: September 27, 2014
Northco Case Analysis
Northco case describes the issues faced by an industry with high demand variability and a strong seasonality trend. The main issue highlighted in the case is building up left over inventory after the sales season is over. This worrying trend has been growing for past 3 years, in spite of being managed by experienced team, having a strong history of improving seasonal cash flows of all the acquired companies in the past.

Northco was the first acquisition in school uniform industry for OCI and was posing slightly different challenges and the operational efficiency hadn’t improved over past 4 years. Even though the business is seasonal and there is a possibility of the left over stock being used in the next season, left of inventory holding is very serious issue for Northco’s existence. This can be further explained by the fact that left inventory is exposed to compounded effect of high cost of working capital which is close to 11% and high uncertainty of demand, meaning the possibility of the left over stock getting sold in next season is very uncertain. This makes the leftover inventory holding a very expensive affair.

Below is a list of possible reasons highlighted in the case, which in various measures contribute to the building up of inventory.

High Forecast error

fluctuating demand ,
schhols changing fabric &
design on short notice

Lack of systems to track
w/h inventory in real time

Basic products also available at
department stores

only 25% confirmed
customer orders by
April

High Leftover
Inventory

High product variety 12000
SKU with over 5000 SKU for
school Uniform

School Uniform subject to
fashion trends

Michael’s high inventory level issues cannot be tackled by just implementing an information system. The solution would probably be possible if multiple nodes of the whole process are improved together.

Forecasting error: As per the understanding of the case the forecasting error is a problem...
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