Four Star Supply Chain Case Analysis Essay Sample
Four Star Industries is confronting a figure of jobs. Their gross revenues have fallen from $ 9 million to $ 6 million. their client service fill rate has fallen from 70 % to 60 % . and their employees are go forthing the company and going progressively disgruntled. The root cause of these issues is demand variableness driven by SKU proliferation. Four Star has gone from offering 13 SKUs in 1996 to 230 SKUs in 2002. The market for mattresses has become much more competitory at the retail degree. so retail merchants are in bend demanding customized merchandises to separate themselves from rivals. Mattress makers such as Four Star rely on the retail merchants to sell their merchandises. so makers don’t have much purchase in dialogues. Besides demanding more SKUs. retail merchants are besides demanding mattresses be delivered to clients two yearss after a client places an order. and the retail merchants are non willing to keep any stock list at their shops. All of these increased demands from retail merchants. but particularly the SKU proliferation. have caused Four Star’s public presentation to diminish in footings of client service. gross. and net income. At present. Four Star is sing assorted options sing how to travel frontward with their concern: 1. Reduce the figure of SKUs offered to retail merchants
2. Insist that retail merchants order a minimal figure of mattresses matching to the batch size for each theoretical account for which they placed an order 3. Reduce the safety stock demand for the finished mattresses 4. Relocate the fabrication to a cheaper abroad location 5. Reconfigure its merchandise design. fabrication. and order fulfilment to better operations
Recommendation
The root cause of Four Star’s jobs is that they have inordinate SKU proliferation. which in bend causes increased demand variableness. We believe that the best manner to battle the increased demand variableness and in bend better client service and net income is to implement a delay scheme. Furthermore. we believe that Four Star should besides implement a retail merchant cleavage scheme the groups retail merchants into different grades based on each retailer’s gross revenues gross. This will forestall the current SKU count from go oning to turn at its current rapid gait. Finally. we suggest that Four Star work with their retail spouses to derive better transparence sing the inside informations of their approaching deep-discount gross revenues that trigger spikes in demand. Analysis
Delay: Implementing a postponement scheme makes sense because it allows Four Star to both better client service ( fill rate ) while besides cut downing stock list keeping costs. Alternatively of seeking to keep two hebdomads of safety stock for every finished good SKU. Four Star can bring forth semi-finished goods that can be differentiated at a ulterior clip one time existent orders are received from clients. This scheme is made possible by the fact there is strong commonalty in the BOMs ( Bill of Materials ) for all of the mattresses. Our analysis shows that many SKUs portion similar stuffs and are merely differentiated by a few coating supplies ( See Exhibit 1 ) . Inventory keeping costs will travel down every bit Four Star will be able to cut down the finished goods safety stock degrees and alternatively transport some WIP and completing supplies ( See Exhibit 2 ) . We believe that Four Star could salvage $ 140. 400 each twelvemonth in keeping costs based on our premises.
Retailer cleavage: While proroguing finished goods will assist Four Star trade with bing SKU proliferation and subsequent demand variableness. we believe it is imperative that Four Star put steps in topographic point to forestall future SKU proliferation and potentially cut down overall SKU count. We recommend that Four Star come up with a system to rank retail merchants into different groups ( A. B. and C ) based on gross revenues volume and gross. Retailers in the “A” group would be seen as cardinal strategic spouses and Four Star would therefore be more willing to fabricate usage SKUs for these retail merchants. “B” retail merchants would fall in the center of gross revenues gross thresholds. and “C” retail merchants would stand for smaller traders who contribute least to Four Star’s overall gross revenues. Implementing a cleavage program like this would let Four Star to restrict SKU proliferation while besides incentivizing smaller retail merchants to increase gross revenues in order to derive a higher position with Four Star.
The grade system could besides be used to distinguish other factors of overall client service. such as fill rate outlooks. lead clip. and promotional support. Transparency: Finally. Four Star must work with their retail merchants to derive better visibleness to approaching publicities. There is no ground for Four Star to be blindsided by immense spikes in demand generated by retail merchants who host deep-discount gross revenues without informing Four Star. Simple communicating sing inside informations of the approaching publicities ( clocking. merchandises. and volume ) will let Four Star to construct stock list in expectancy of demand spikes. We recommend that Four Star petition retail merchants to give at least 8-weeks’ notice before a publicity. as the longest lead clip for natural stuffs is 7 hebdomads. Even if retail merchants can’t ever give that much lead clip. any advanced notice would assist Four Star adjust the production agenda and fix for spikes in demand. This will assist both Four Star and their retail merchants sell merchandise. Options
We do non experience that Four Star can cut down the current SKU offerings because they can non afford to lose their bing retail merchants. Besides. because retail merchants are non transporting stock list we do non believe it is executable to inquire them to get down telling in batch measures. Traveling production overseas. peculiarly for the high volume SKUs. could be a feasible option but it would necessitate an in-depth cost-benefit analysis. and we do non hold the pertinent informations to urge that option at this clip.
