posted
(For those of you who actually read this, I'm looking for critism on clarity of thought and grammar. Plus whatever else people want to comment on) Execute Summary Laura Ashley is currently experiencing severe inefficiencies with its inventory control and logistics. Gross sales have generally been increasing over the past five years; however the yearly losses have been growing. This is directly traceable to poor inventory management.
In order to remedy the problem, it is recommended that Laura Ashley continues its efforts to form a joint venture with Fed Ex. We are experiencing some resentment of the deal with our management who is hesitant to cooperate fully with an outside organization. Some feel as if Laura Ashley will be taken advantage of, others feel as if Fed Ex will be doing the job that they have traditionally done themselves.
Two possible solutions were considered. One is to handle the problems internally through acquiring updated inventory management systems and installing them company wide. This has the long term benefits of allowing Laura Ashley to become competent enough to efficiently manage its own inventories.
The other possibility is to continue with the Fed Ex partnership, while addressing the Laura Ashley employees who oppose it or who do not wholeheartedly support the endeavor.
We feel it is best to go ahead with the Fed Ex partnership while addressing those managers who are hesitant to cooperate with the contact people from Fed Ex. Fed Ex sees this partnership as a flagship opportunity for them to expand into a new sector, managing other companies’ logistics and inventory management. Through a relationship between the CEO’s at Laura Ashley and Fed Ex, they decided to attempt to work together so that Fed Ex could take over the struggling Laura Ashley inventory issues. They hope to use this experience so that they can sell their services to other companies around the world.
The partnership is going to be very public so both parties need to be sure to work together as well as possible. The price of failure for Fed Ex is the public embarrassment plus the future difficulty of selling this service to other prospective companies. Laura Ashley is already bleeding money through its inventory and needs to fix the problem as rapidly as possible. Fed Ex seems to be the best way to do this.
To address the issue of the Laura Ashley management and employees who do not want to share sensitive data with outsiders (Fed Ex) it is recommended that they are given training involving and explanation of an economic value added analysis showing how the two companies working together should help save money overall. Problem:
The problem at Laura Ashley is the lack of buy-in and mistrust of the Laura Ashley employees and managers towards the cooperative venture with Federal Express. The venture between Laura Ashley and Federal Express is very important to both companies. Each have their own reasons, but the consequences of failure are far reaching for both companies.
Issues:
The importance for Laura Ashley is that in recent years their logistics management has been quite embarrassing. They have over 18 months of inventory, which of course raises carrying costs, but they also are seeing an 80% product availability rate. Laura Ashley was internally handling all production and storage of its goods, but was outsourcing the delivery of these goods to warehouses, distribution centers and stores through hundreds of third party carriers. This of course was almost impossible to manage or create efficiencies from.
Their inventory systems were not able to handle the recent growth of Laura Ashley. They did not know what was in stock, when it would be available or in what quantities. An internal memo to store managers told them to make sure that when a customer ordered a product, that they understood that the stated delivery date was just an estimate and that as the date neared they would be told a more exact time. Another example mentioned a customer who wanted a special type of fabric, and waited over a year to get it. As it turns out, the fabric had been sitting in a Laura Ashley warehouse for over a year while multiple requests from the store to locate or procure this fabric were either ignored or they simply did not know where it was.
One final example of Laura Ashley’s inventory management issues dealt with replenishment. Their current inventory replenishment systems assigned importance according to volume, rather than the need at a certain location. One store was said to sell 25 units, while it carries 100 in stock, while a smaller store sole 10 units which was its entire stock. Since the first store sold more units and hence did a large business, it was sent replacement stock sooner than the store that had sold out.
With multiple examples like this across the company the new CEO Jim Maxmin had to decide whether to address the problems by fixing their internal inventory and logistics problems or to outsource them. Under the assumption that attempting to fix the inventory problems at Laura Ashley was akin to trying to save a ship that has already sunk, Maxmin looked to outsource control of their inventory management to Fed Ex.
The venture was also important to Fed Ex since they saw it as a pilot test for future services that can be performed for other companies. It was also very high profile, so any difficulties or failures of this partnership would influence their future ability to partner with other companies looking to outsource their distribution.
Many employees at Laura Ashley became skeptical of Fed Ex, worrying that they were being taken advantage of. The CEO’s of Laura Ashley and Fed Ex were open and trusting with each other and wanted to make the partnership work, but they had to convince management and front line employees to share information and work together openly to make the project succeed.
Alternatives:
There are two possible approaches to solving the core issue of Laura Ashley employees not buying in to the cooperative nature of the partnership with Fed Ex. One is to use some EVA analysis to convey to management the benefits of the joint venture such that they work better and more efficiently with the Fed Ex people. The other possibility is to let the current Laura Ashley logistics people invest in some higher quality inventory systems that can mathematically determine inventory levels, production levels and EOQ’s for all of Laura Ashley’s locations. The two options are to continue with the joint venture and to pull back and try to handle the problems internally.
In order to determine which alternative to pursue, Laura Ashley should compare the long term cost trade-offs associated with attempting to handle their logistics problems internally and outsourcing control of them to Fed Ex. Also, they must recognize that neither option has a 100% chance of success, and should try to estimate the possibility that either one would succeed or fail.
Analysis:
Obviously the up front costs of upgrading Laura Ashley’s inventory systems would be much higher than the costs of pursuing a joint venture with Fed Ex whose entire business is logistics. It is possible that in the long term, the investment would pay off and having better control and information regarding their products would have other unforeseen benefits such as the ability to better track sales trends in various parts of the world.
Maxmin believed from the outset that it was not feasible to fix the system internally. He believed it was so inefficient and so far gone that it would take years to write new policies that would fix all of their inefficiencies. However, with an investment in the systems required to track and plan the flows of inventory it would be possible to salvage internally. It would not require an individual to rewrite or analyze the current system at all, you would simply purchase a new inventory management system capable of handling it all itself and simply have the current employees responsible to carrying out the programs instructions. One issue here that would still have to be addressed is how Laura Ashley currently deals with an extravagant number of carriers. The time spent negotiating with this many individual partners is not efficient and would have to be consolidated wherever possible into a manageable number of carriers. Preferably it would be consolidated into a single carrier, perhaps even have Fed Ex handle their deliveries if not their entire inventory management system.
That is the approach to take if the company wishes to remain independent and self-supportive. The other alternative is to simply turn over the entire system to Fed Ex. Laura Ashley has already started moving in this direction and is seeing some pushback from its employees and management who do not wish to share what they see as sensitive internal information with an outside company. One executive at Laura Ashley pointed out that logistics is not their core competency, but it was the core competency of Fed Ex. While historically Fed Ex has not become this closely involved with any one company’s distribution system, it was an area in which they wanted to expand. The very public nature of both Fed Ex and Laura Ashley made it very important to both companies for such a venture to be successful.
If turned over to Fed Ex, Laura Ashley must address the issue of its employees not cooperating fully with the Fed Ex team who is trying to implement more efficient systems. Some managers at Laura Ashley feel like they may be taken advantage of or that the whole enterprise with Fed Ex is selling out or having Fed Ex do their jobs for them. This uncooperative nature is not beneficial to Laura Ashley or Fed Ex and could jeopardize the entire endeavor. The possible solution to this is to better educate the Laura Ashley employees who are in contact with Fed Ex employees. With a simple EVA chart such as the one below, it could be conveyed to them that overall the partnership will reduce costs and raise profits for each partner.
(image deleted because hatrack forums dont accept images and im not uploading it)
The goal would be to convey to the Laura Ashley personnel that while they are paying Fed Ex to handle some things that have traditionally been done internally, the cost savings involved with sharing the information is such that they can reduce overall expenses and increase value for the customer.
Recommendation:
I recommend that Laura Ashley goes ahead with the partnership with Fed Ex and uses EVA analysis to sell the management on the merits of the partnership. This is the best course to take since Fed Ex’s competency is logistics and they have the infrastructure and specialists in place and prepared to handle the needs of Laura Ashley. Laura Ashley is an established and competent producer of clothing and furniture, but the numbers show that they have little or no skill in logistics or inventory management.
Furthermore, Fed Ex has made it clear to Jim Maxmin that this is the first time they have taken over the logistics function for a 3rd party. This would indicate to Maxmin that Fed Ex is going to do everything they can to make this a successful venture. Since the partnership is very open and public, it is vital that it succeeds and it is likely that if Fed Ex errs, it will be in favor of Laura Ashley in order to ensure that the venture goes well. It is the hope of Fed Ex to use Laura Ashley as a stepping stone to offer such services to other companies throughout the world. It will be hard for Fed Ex to sell it in the future if this venture does not go smoothly for Laura Ashley.
In handing over inventory management and logistics responsibilities to Fed Ex, Laura Ashley is free to focus on its core business and its customers rather than trying to spend management’s time and energy attempting to implement new systems to fix their poor inventory control.
Such issues as were noted earlier like the fabric that a lady waited over year to acquire should not occur when Fed Ex is in control. Most likely they will be able to increase their inventory turns since there will be less inventory. It is noted that they were storing inventory at the factories, in the supply chain, in warehouses and in stores. The total amounted to roughly 18 months worth of supply. Even with this large supply they were unable to get it to the right stores and/or customers in a timely manner.
The other alternative, installing newer modern inventory control systems has the potential to solve the problems as well. However, it also carries a higher price tag and requires much attention from management to implement it. These costs combined, plus the chance that it may not work at all, makes it a much riskier alternative than simply allowing Fed Ex to take over their logistics functions. Plus, the benefits are the same with Fed Ex, just lower costs and a higher chance of success.
In order for the venture to succeed, Laura Ashley management and employees will have to cooperate fully with the Fed Ex team. Currently there is some push back among individuals who do not feel it wise to relinquish so much control to an outside third party. This is where it might be beneficial to attempt to show them the benefits of working together using the EVA diagram above. It should be clear to them that it will lower overall costs and improve customer service
Posts: 375 | Registered: Mar 2005
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posted
Trapper, I have several alarm bells going off in my head.
The main one is this:
quote: With multiple examples like this across the company the new CEO Jim Maxmin had to decide whether to address the problems by fixing their internal inventory and logistics problems or to outsource them. Under the assumption that attempting to fix the inventory problems at Laura Ashley was akin to trying to save a ship that has already sunk, Maxmin looked to outsource control of their inventory management to Fed Ex.
The venture was also important to Fed Ex since they saw it as a pilot test for future services that can be performed for other companies. It was also very high profile, so any difficulties or failures of this partnership would influence their future ability to partner with other companies looking to outsource their distribution.
Yikes. You're saying that Fed Ex, who has an undoubtedly exemplary delivery system, is looking to try out large scale inventory management, but has not actually done so, and this sounds like a good thing to experiment with when you have issues like those outlined above?
Granted, my experience in distribution systems is in other industries (nearly 20 years in paper, office, and industrial supplies), but if I were trying to figure out how to solve the problems outlined above, I would be very leery of outsourcing to a company that has never, in fact, actually done what they're proposing to do.
quote:The other alternative, installing newer modern inventory control systems has the potential to solve the problems as well. However, it also carries a higher price tag and requires much attention from management to implement it. These costs combined, plus the chance that it may not work at all, makes it a much riskier alternative than simply allowing Fed Ex to take over their logistics functions. Plus, the benefits are the same with Fed Ex, just lower costs and a higher chance of success.
You can't actually say this unless Fed Ex has a proven track record in multiwarehouse inventory management. And you can't say this unless you've done a cost/benefit analysis on modernizing your inventory control system. It sounds to me like you have one large problem, that may be exacerbated by two other problems. The main problem is that you don't know what you have. The secondary problems are that you don't know where what you have is, and your purchasing staff don't know what they should and shouldn't buy. These problems can sink a company. I'm actually surprised the auditors aren't screaming, because all of this has huge tax consequences.
I'd be very interested in talking with you further about your role and the issues you're going through. This is what I do, love to do, and have been doing since I was in my early 20's. In the interest of full disclosure, while I am not in sales, I am a consultant for a software company that has built inventory control systems for small to very large distribution companies. The very large companies all have warehouses all over the world and in one case guarantee that anything in their catalog can be delivered by the next day. (editted to add that Laura Ashley is not a demographic we are aiming to serve, so I don't view this as a possible sales opportunity. I am only interested in helping you help your company solve the problem. Without seeing details on what Fed Ex proposes to do, the proposal you've written appears to me to be on the scary side without enough business analysis behind it.)
There are grammarical changes I would make to the proposal as well, but those are fairly minor.
posted
Jeni, Thank you for reading and giving such a long thoughtful reply.
This was from a case that I read and had to write an analysis of. It was done for a logistics class rather than something I would actually submit to a manager/boss. In response to pH's question regarding the format: Assuming I understand the question, the format the paper is written in is EXACTLY the format the professor wants. He is ex-military and laid out the format for doing cases very explicitly. This is regarding the section headings; executive summary, issues, alternative identfication etcetera.
Back to Jeni's comments. You had two quotes in your reply. The first one regarding Fedex taking a chance by moving into 3rd party inventory management is not my analysis, but a fact. That is regurgitating the situation laid out in the case. It was an area FedEx wanted to expand into, and the CEO's of FedEx and Laura Ashley were personal friends who discussed the possibility together and wanted to implement it. If I remember correctly, that is what they actually ended up doing and did successfully.
Regarding your second quote that compares the two alternatives, I think you're right. That does come off sounding rather weak and unjustified or undefended. I believe I would stick with my recomendation, however I need to further explain why it is my recomendation.
Posts: 375 | Registered: Mar 2005
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posted
One other note that I probably should have included initially. I was reading the other essay on hatrack (Blayne Brady regarding video game addiction) and saw the critiques of it and thought I would put one of mine up here in hopes of improving my writing. This paper was already turned in a few months ago, but I had it handy and thought I would like to see it critiqued by the intelligent community here that comes from a wide variety of skill sets and backgrounds.
Posts: 375 | Registered: Mar 2005
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posted
Oooooh! Okay, now that I know why you wrote it, I'll have a totally different read of it. I want to go over it again and then I'll let you know what I think you should change.
Quickly though (I have to run but will be back later), I think it makes more sense to suggest a hybrid of the two so you can get both management buy in and solve the logistical issues. Inventory management is so complex and involves so much a company, I'd be hard pressed to be convinced that a full outsourcing makes financial sense.
Posts: 5948 | Registered: Jun 2001
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