Supply Chain Optimization: The Case of World Co. Ltd.

Diane Floresca Nidhi Ghurka Michael Sable

The World of World Co. Ltd.

     Vertically-integrated retailer of Japanese women ’ s apparel — designs; produces; and ships the product Headquartered in Kobe, the fashion capital of Japan Established in January 1959 as a clothing wholesaler specializing in knit garments. 40 distinctly targeted brands in 7,000 shops. 3.5% of apparel market.

$1.8 billion in net sales and $32 million in net income for fiscal year ending March 31, 2000 Key Brand: Untitled . Target Market: Females (25-29 yrs. of age). Avg. annual store sales: 1.8 million

   1) 2) 3)

Japanese Women

’

s Apparel Industry

Products have short lifecycles and extremely uncertain demand as elsewhere in the world.

Japanese retail stores carry less display inventory to impart a sense of uniqueness. Less variety due to homogenous population and less climate change 3 different retail formats for a vendor: Company-owned stand-alone stores Shops in fashion malls (Sales Staff are Vendors) Shops within department stores (Dept. Store received substantial — up to 40%--of retail sales generated at the store without inventory risk. Location key to sales so department stores dictated terms to vendors. )

The Problem

  Speed and Responsiveness to market conditions are essential to World Co.

’ s survival in this highly competitive industry.

Hidezo Terai, the President of World Co., emphasized monitoring sales trends and consumer demand to deliver right product to right store at right time to maximize profitability.

The Solution

   To coordinate product planning, development, production, and marketing among SPA (Specialty store Private-label Apparel) brands, Terai championed the SPARCS (Super, Production, Apparel, Retail, Consumer Satisfaction) supply chain manage ment system that had been introduced in January 1992.

SPARCS is essentially IT for real-time demand information. It affects: a) How much to make b) What to make c) When to make it d) Negotiating Power with Dept. Stores Result: SPA brands that used SPARCS experienced 8.5 inventory turns per year with a gross margin of 47.8% compared to 2.6 turns per year and 41% gross margin by U.S. specialty retailers.

Supply Chain

Raw Material Supplier Designer Distributor/ merchandiser Manufacturer Retailer World Malls Dept. Stores End User

System Benefits

    Improved Forecasting and Planning of the supply chain - Right inventories at the right store at the right time. Supply Chain visibility - Visibility to sales data and inventories facilitates the viewing of the entire supply chain Efficiency - gain market share – better negotiating power Responsiveness and velocity - React to change

Bottom-line Benefits

How system benefits translate into more money   Optimized Inventories Increased sales Resulting in  Higher working capital  Higher revenues

Benefits for others

Suppliers  Better management of inventories/production capacity through smoother demands from World.

 Achieve business growth through increased sales as World continues to gain market share.

Retailers  World Co (retail) can meet demand better  Higher sales and business growth for Departmental Stores (projected)

Risk Reduction

   Working capital tied in inventory Lost sales/stock out Decisions made on inaccurate and incomplete information

Comparing the Supply Chain

Raw Material Supplier Designer Manufacturer Distributor/ Merchandiser Retailer World Malls Dept. Stores Manufacture (Many) Sub contractors (many) General Contractors Suppliers (many) Consultants Designer Developer Owner End User End User/Tenant

Similarities

 

Fragmented Industry: no far and away leader for all apparel retail Same supply problems in procurement

    price volatility timely availability limited storage space competitive bidding

Differences

  Scale  Shipment/Order responsiveness   need 300 jackets or 50 W14x211 Data collection on demand is more difficult  win 1 bid out of 10 in 3 months --> forecast to next year? Nothing close to real-time Beneficiaries -- depends on contract and role  CM “ at risk ” / “ not a risk ” , Developer, sub  Dept Store/Mall have less risk: still collect rent  transactions different in construction

IT

  Internal IT innovations benefit company   Retail: SPARC Construction: Primavera External IT (B2B) more complicated  Competitive interests  Analogous Collaborative Structures, Inc. in retail - tracked real-time demand/foot traffic, by type, region

For Discussion

   Some benefits to World Co made possible by its vertical integration in manufacturing, distribution, and retail -- Lesson to construction industry? Note: Willy Welsh, and Dell-Webb Advocate construction contracts to foster win-win situations -- cost plus percentage fee inversely proportional to cost?

Should World Co share demand information with raw material suppliers  help prepare factory for orders -- anticipate  could take info to other manufacturers

Supply Chain Management Summary (World Co)

   Cost reduction  Competitive tension with raw material suppliers Value-Added benefits through tech advantage  Strategic alliance with Dept Stores and malls  (or use as leverage) Trust and information flow: just within World