The company headquarters is located in Sacramento,

SCM645 Scenario A

Feets

Introduction

Feets
is a chain of retail athletic wear stores. The company headquarters is located
in Sacramento, California, near the western warehouse. There are seven
geographically dispersed warehouses to serve the needs of Feets’ 400 stores.
Tedra Grav, supply chain vice president, had this to say about the Fashion
Squared store, a new location in Sacramento.

“The
product mix in the Fashion Squared store is new to Feets. There are many new
products and many new vendors. Our western distribution center is set up to
serve the set of stores in California. It was not set up for all these new
products and new vendors. This has caused us problems because of the small
quantities of some of these new products, which are not used in any other
store. All of this may cause us problems in the upcoming summer sports season. I
have informed the rest of the management team of the nature of these problems.”

Third-Party
Logistics
Feets
uses third-party logistics firms to move the goods from warehouse to store. With
the exception of the Fashion Squared store’s daily shipments, the stores
receive orders twice weekly. Feets uses a small package carrier to make transshipments
between stores.

Tedra
feels efficiency as opposed to responsiveness in the Feets supply chain is
important. As is common in retailing, buyers forecast trends, determine how
those trends affect demand at the stores, and order from vendors accordingly. Efficiency
is important, so vendors ship large quantities to the Feets warehouse
relatively infrequently. The warehouse has a computer program to help team
members determine where to store these large quantities of goods as they are
received.

Buyers
A
buyer specializes in one or more departments depending upon volume, allowing
the buyer to be familiar with the products. This allows for better
identification of customer demand and utilization of supplier’s manufacturing
practice knowledge.

Feets’
business is very fashion oriented. Each year, 80% percent of the product that
comes into the distribution center is new. Even if the product is very similar
to one ordered last year, it is considered new. Customers demand new colors and
styles; product is normally not replenished. Instead, a particular item is
purchased, distributed to the retail stores, and sold. As a result, determining
the amount to be purchased can be difficult. The buyers can look at how a
similar product sold last year. However, that may be misleading due to changes
in taste.

The
normal lead time quoted by a supplier is 6 months even though it only takes 2
to 3 months for the company to produce the product. The buyer is faced with
anticipating what will be in demand 6 to 12 months into the future. These
difficulties are compounded by the life of a new style being less than 6
months.

The
buyers determine the order quantity from forecasts of demand done at the store
level. The historical distribution of sizes sold at each store is part of the
calculation and then adjusted by projections made by each store. The supplier collects
orders for all stores at one time. If too many items are ordered, then the
result is to discount the item at an outlet store for discontinued styles. If
too few items are ordered, there is no chance to reorder.

When
orders arrive from the supplier, the majority of product is immediately shipped
to the store. The amount distributed is calculated from the original order with
adjustments made for store closings and new openings. The remaining order,
about 40%, is stored in the warehouse to be used for replenishment.

Inventory
Replenishment
Feets
has an automated replenishment ordering system. The way this works is that the
computer at the distribution center collects data from each store about what
was sold that day. There are two systems for collecting the data. Some stores
have a high-speed Internet connection and transmit sales data in near real time.
Other stores have only dial-up connections and transmit their data once per
day. Once the data have been collected, the computer calculates the amount of
inventory in each store by SKU. That inventory level is compared against
predetermined minimums, and any replenishment is placed in an order.

Because
the buyers place just one order for any particular style during the course of a
season, available stock for replenishment is limited. Consequently, when
inventory on that item is exhausted, no more replacements can be done. At this
point, transshipments between stores help Feets meet the demands of its customers.

Feets
has a few stores that are outlet stores. These stores do not sell the full
Feets line. At the end of a SKU’s life (where there are very few items left in
inventory), the inventory is sent to these stores to be sold at substantial
discounts.

The
Need for Inventory Accuracy
In
general, inventory records need to be accurate. In the Feets distribution
chain, inaccurate inventories would cause stockouts. That is, if the central
computer had an inventory record for a particular SKU that was too high, it
would not order replenishment.

In
the warehouse, a stock picker will pick up an order for a store, pick the items
on the order, put those items in cartons, and put the cartons on a pallet.
Human error plays a role in what a store receives for each shipment. Sometimes
the wrong items are put in the carton, sometimes the wrong cartons are put on a
pallet, and sometimes the wrong pallet is put on the truck. Therefore, those
stocking the store must carefully check orders.

The
Feets auditor requires the company to take a complete physical inventory including
the stores and the distribution center twice a year. A company specializing in
inventory auditing performs store inventory. The same outside company also
counts the distribution center quarterly.

Performance
Measures
In
retail companies, the two most useful metrics are inventory turns and stockouts.
The Feets inventory turn ratio currently runs at about two. Feets uses its
centralized computer to calculate stockouts. Tedra feels that the current stockout
level of 5% is a little high but to be expected.