The North West Company is a leading retailer of food and everyday needs to rural and urban neighborhoods across Canada. They are currently using a “push” strategy, which the category manager at North West headquarters in Winnipeg analyzed trends, placed orders and allocated products to stores. Inspired by Giant Tiger’s example of a “pull” system in action, North West management was considering giving store managers more control over their inventory ordering by moving to a “pull” merchandise replenishment strategy — also known as localization. Using this “pull” system North West will need to invest $10 million in order to support the Open To Buy (OTB) for the retail stores managers. The issues North West are currently facing are they are unable to reach their annual inventory turnover rate target of 3.0 and money tied up in unsold inventories. In order to reduce the risk and capitalize the benefit of any changes North West should implement to localize certain product category in the hands of retail managers. This strategic change will be beneficial for North West instead of giving all the responsibility to local retail managers and avoid investing a large amount of dollars to support the technology for the pull system. The category manager will then produce product menu selections for retail store managers to choose items and quantity coming in to the retail stores.
The North West Company is experiencing inventory management problem with unsolf inventory is piling up and short lead times. They are having a difficult time increasing their yearly inventory goal turnover rate from 2.2 to their annual target rate of 3.0 for the past six years. Their popular items often sell out the day it arrived in stores. Excess stocks will be marked down using North West’s markdown program up to 75 percent level. The unsold inventory will be then shipped to North West’s Clearance outlet in Winnipeg. Currently, North West is sitting on $130 million worth of inventory; this is a large amount of cash tied into inventory. North West products are easily replaceable meaning when there is a stock out occur customer could easily shop at the competitor stores or purchase substitute items. Which means lost of potential sales and once customer purchased items from competitor they might continue buying from competitor for their next purchases.
Environmental and Root Cause Analysis
Currently, North West employed a “push” strategy in which category managers at North West’s Winnipeg headquarters analyzed trends, placed orders and allocated products to stores. Typically, category managers worked with store managers to review the previous year’s lineup, orders and actual sales. Using historical averages and the next year’s forecast growth rate, category managers estimated demand for products at a company level. Category managers met frequently with suppliers to review the product lineup for the upcoming year, which often differed from year to year.
Using the current strategy North West experiencing low turnover rate for their inventory and created inventories for unsold products and stock out on their popular products. The current markdown program helped to reduce unsold inventory and generate cash to make way for new fresher stocks. However, the escalating discount does not always work and product that reached the 75% markdown will shipped to the North West outlet in Winnipeg.
North West had considered the pull system, which requires an upgrade and purchasing appropriate computer hardware, and software systems to help support store managers if they would go with localize strategy.
Alternatives and or options
Alternative 1: Implementing the pull strategy and give all power to local store managers to make the decision on what products and quantity for their local stores.
Pro: Local store manager have a better understanding of the current trend and local customer desire in their community so...