Strategic Operational Issues - Case Study Example

Logistics function plays an important role in the overall operations management of an organization as it defines the distribution and storage capabilities and efficiencies involved. As already known, storage, transportation and distribution costs are an integral component of the total cost of operations, careful and effective handling of warehouses and distribution channels becomes imperative. The present case study talks about the distribution and storage issues faced by Holt Renfrew- a leading fashion retailer in Canada. While demand is high, the firm is facing problems of inventory control and faults in its logistics processes. Commencing from company background, problem is detailed with an analysis and final recommendations as to how improvisation should be done. Company Background Holt Renfrew is a renowned fashion and cosmetics retailer based in Canada. It started as a hat and fur shop in the year 1837 but soon expanded to 10 stores in seven different Canadian cities. Holt Renfrew uses round the year marketing to inform customers about the latest trends and fashion assortments. With high popularity, the company attracts around 22, 000 orders per year from its buyers at its flagship Toronto store. The company operates with around 3000 suppliers but only 1000 of them are operational in any year. Also, only half of the stock keeping units were available at a particular point of time from a total of 500, 000. While certain product categories maintained a stable sales rate, introduction of new fashion brands and seasonal products accounted for around half of the merchandise ordered each year. Logistics at Holt Renfrew The company owns a primary distribution center (DC) located at Mississauga, Ontario which stores all the merchandise ordered. Once the merchandise comes, it is picked, ticketed and tagged to be shipped to the stores. Being the primary DC, it receives approximately $42 million of inventory monthly. This is composed by both carton and hanging sets of merchandise and almost 3.5 million of merchandise is shipped to different stores from this DC. Mississauga also facilitated a secondary warehouse which mostly stored inventory not sold at the stores and also sent back by Last Call, a Winnipeg based store which sold at considerable discounts. An estimated $1 million of inventory was lying idle in this secondary warehouse. Operational issues being faced Currently, Holt Renfrew is facing multiple problems with its order processing and inventory management along with some concerns about its human resources strategy too. It is September month and sales are not that high. However, DC and warehouse are filled with inventory and there is no space to even load or unload a truck. Specific and categorized details of problems faced by Holt Renfrew are: Processing and tracking of orders The process of taking, processing and tracking orders at Holt Renfrew was poorly managed. While one-third of the suppliers were inactive in any year, they supplied merchandise to the DC without any notification. Store employees also used phones for placing and confirming the status of the orders. Without any prior notice, the employees had no idea of what is coming and worsening the situation, they had no system or means to check the quality to quantity of the merchandise received. As a result, entire merchandise was lying in DC and warehouses without any arrangement. Processing and control of inventory The inventory capacity had exceeded the demand, both at the warehouse and at DC. Due to haphazard receipt and storage of merchandise, inventory was scattered all around and thus orders placed by stores had to be found with much difficulty. Not getting the required merchandise on time and in required quantities, stores complained of stock-outs which was actually lying unarranged. The logistics director at Holt Renfrew is asked to provide a detailed plan as to how the situation should be improved and what are the options available. The logistics director is trying to find both short term and long term solutions to better the processes. This will consider suppliers and human resources also as they have a bearing on the overall operations process. First and foremost task ahead is to deal with the merchandise worth 40 million dollars lying at DC. The logistics director has also proposed the building of a mezzanine floor at the DC to provide more space for storage. Financial and non-financial aspects of this option have also to be determined. Analysis Starting from the grass root level of operations management, first concern which is obvious is lack of understanding, proper communication and information sharing between Holt Renfrew and its suppliers. Use of 1000 suppliers from a total of 3000 clearly indicates lack of strategic relationships between the company and suppliers. Holt Renfrew had not been able to identify its key suppliers on the basis of cost, time and technological expertise. Because of overly exceeding suppliers and lack of forecasting information to and fro, receipts and procurement information cannot be exchanged timely. Holt Renfrew deals in high-end branded products and storing huge inventory blocks its capital which can be used in extending its product lines and fashion trends. Next comes the issue of an effective human resources strategy at the DC, warehouse and the stores. The employees at Holt Renfrew are paid at very marginal rates and there is no provision of any kind of training, incentives or benefits. This serves as an impediment in bettering the operations processes as employees do not feel motivated to change the existing condition or try to solve the problem themselves. Had it been the case, the employees would have tried to inform the management of this earlier or sorted out with the suppliers. At present, the company is faced with short term implication of 40 million dollar of inventory lying at DC which cannot be sold also as the demand is not that much. Lack of enough space restricts proper tagging and sorting of merchandise. As such, immediate steps are required to first solve the problem of inventory lying at DC and supplier and human resources efforts will take their way in the long term recommendations. Recommendations Analyzing the severity of the issue faced by Holt Renfrew, it is recommended that they resolve the inventory lying matter at the earnest and look after the supplier and employees end after this matter. For this purpose, short term and long term recommendations are as follows: Short term solutions Currently, the proposal of building a mezzanine floor at the DC seems a feasible solution. The DC is facing shortage of space to carry out their primary sales activities and sorting and picking of orders. Building a mezzanine floor at the cost of $1 million will provide enough space to manage the inventory and avoid the problem of stock-outs. Secondly, mammoth merchandise lying at DC is posing problems which have to be disposed off quickly. Also, new fashion trends are about to arrive in the next 2-3 months which will further bring new introductions and stock. As a result, it is proposed that Holt Renfrew should ship the stock to all its stores and sell it at discounted rates. Earlier it was done only at the Last Call store. However need of the hour is to clear the stock and blocked capital otherwise new purchases cannot be made or accommodated. Discounted rates will provide off-peak sales and mezzanine floor will supply extra space to store new merchandise. Long term solutions Long term proposals for Holt Renfrew encompass building relationship with suppliers and managing its employees effectively. It should select its potential suppliers on the basis of cost, timely deliveries, vicinity, technological system and quality management (Nellore 2001). This would reduce the costs involved in maintaining 3000 suppliers. After identifying the key suppliers, an order placing, tracking and confirmation process has to be designed where suppliers will supply orders only when demanded and in the required quantity. Use of systems will be done to confirm the receipt of orders by DC. Owing to the enormity of orders placed at Holt Renfrew every year, implementation of an automated system partnered with suppliers is a dire necessity which should be implemented in a course of 1-2 years. Regarding human resources, employees at Holt Renfrew have to be trained properly as to how to manage the incoming and outgoing of orders and handle merchandise receipts from supplier end. Development of automated system or online requisitioning will demand trained and skilled employees to reduce the time lag and monitor the progress of deliveries in real time. This has to be started off now to initiate the change in the operational practices of the company. Conclusion The problem is serious for Holt Renfrew with regard to its business operations, yet it provides an opportunity to better its processes and practices in the long run. When competition will increase, these concerns will get intensified and thus, immediate addressal of issues becomes important at the moment. Collaborative partnership with suppliers will not only help it in its forecasting, but also lead to waste reduction and optimum utilization of resources. It also presents a chance to infuse technology into the processes to make them speedier and account for the rising number of orders placed by the buyers. Work Cited Nellore, R. Managing Buyer-Supplier Relations. London: Routledge, 2001. Read More