Northco: Supply Chain Management questions
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I have 6 questions that I need help with on the attached case study involving costs of over and under-stocking.
Northco Case Study questions
1. What are the main problems at Northco?
2. What makes it difficult for Northco to match supply with demand?
3. How should Michaels think about the costs of over and under-stocking? Identify the elements of over and under-stocking cost in this case. Can you estimate any of these costs?
4. What is Northco's cost of capital? How does the cost of working capital impact supply-demand mismatch costs at Northco? How does the cost of capital impact operational decisions? This is a major part of the case and requires careful consideration. Hint: Why does Northco require payment in full at the time of fittings?
5. Identify changes to the way Northco does business currently that would enable it to better match supply with demand. Be specific and support your recommendations with course concepts and case facts. You should be able to apply some of the lessons learned from Sport Obermeyer since several facets of this situation are similar to Sport Obermeyer - (i.e. Northco operates in the apparel industry). Identify the costs and difficulties associated with implementing each of these changes. Are they likely to succeed?
6. Should Michaels buy Mrs. Eagle's company? Why or why not?
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Solution Summary
In a 1078 word solution, each of the six questions is adequately addressed for full understanding of the problem.
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1. What are the main problems at Northco?
The biggest two problems of the old apparel company are the high inventory costs due to the poor inventory management and the uncertainty of demand in the school uniform industry. School uniform manufacturing businesses are all working capital-intensive and Northco simply couldn't be able to get loans to fund various processes without using the credibility of OCI. Most of the times the company has to deal with the extra costs of excess inventory, because understocking or the probability of late delivery may result with losing the entire school account.
2. What makes it difficult for Northco to match supply with demand?
First of all Northco has a broad range of products (more then 12,000 SKU's) and this variety makes demand forecasting especially though for the analysts. "Minimum order quantity" conditions of suppliers sometimes force the firm to buy five times an average manufacturer's annual requirement. Besides some of the schools are regularly changing their uniform styles and this makes company's existing inventory useless for the current customer demands.
3. How should Michaels think about the costs of over and under-stocking? Identify the elements of over and under-stocking cost in this case. Can you estimate any of these costs?
If Michaels has to choose between two options; obviously he should prefer to bear the cost of over-stocking since most of the customers are not tolerant to the failure of delivery. Besides he shouldn't put all the schools in the same category. For example Northco's top two accounts account for 14% of the ...
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