Supply Chain Management at World Co.

Wesley Riley, BSAD 173 Section B

Problem Identification: World Co., Ltd. is a leading apparel retailer in Japan. The company has
experienced great success, especially in its ability to effectively utilize its supply chain. By implementing
break through manufacturing, demand forecasting, and inventory management techniques the firm is able
to experience far better lead times than those seen in the United States. The firm also has been able to
effectively respond to the characteristics of the Japanese retail environment. World’s revolutionary
supply chain structure has helped it become a true presence in the fashion apparel industry.

Analysis: There are many distinct characteristics of Japanese retailing and World Co. has adjusted its
supply chain around them. Numerous Japanese firms reach their customers through department stores,
due to many high traffic areas. Also, fashion trends change rapidly and there is little variance in size
choice for clothing. World Co. employees a separate merchandising group to manage each of their 40
brand names, allowing for adaptation to market signals. This helps keep brands fresh and exciting (they
can meet the current trend), and also strengthens bargaining power (inventory risk, decision making) with
the department stores. World Co. effectively maximizes their sales per square foot (about $2500), an
important factor in cities with limited store front space. They also minimize discount periods that cause
price cuts and disorganization.
World Co.’s manufacturing process demonstrates their effective use of the supply chain. The
corporate office (merchandisers) are in direct contact with the factories. Merchandisers inform factory
workers of potential production problems and pattern specifications. Also, if the factory encounters
major issues they can relay this information back to merchandisers quickly. Minor problems do not
require corporate approval, avoiding unnecessary delay. Employees are given a variety of tasks to do,
avoiding boredom and keeping moral high. Workers at the factories are informed when a new fabric is
going to be arriving. This allows managers to allocate scheduled tasks 48 hours ahead of time. Domestic
factories are used to most effectively respond to demand and product changes. The higher production
costs (global) outweighs costs of slow lead times to customers.
The firm forecasts demand in a variety of ways. At the SKU level, a voting system is used to rank
products. This is effective because the voters are similar to potential customers (woman, ages 25-29) and
quantity recommendations are ignored. Demand forecasting is dynamic and changes as sales come in for
the season allowing for proper adjustments to be made.
Inventory management allows for low lead times and risk avoidance. The firm reserves factory
capacity without committing to the production of a specific product. Undyed fabrics are stocked in order
to respond to changes in style/color preferences quickly. Generic parts and standard length products, such
as zippers, are kept on hand to avoid unnecessary reordering if product specifications change. The firm
minimizes risk of overstocking materials through its agreements with suppliers. The firm is able to order
the amount of material it needs, yet only be obligated to purchase a certain percent of it.
World Co.’s system can be replicated at other firms given sufficient resources. World Co. uses
advanced communications methods, such as online inventory management. These information systems
require highly trained employees and sufficient capital. A firm that is just starting out, or does not have a
lot of income may have difficulty meeting these requirements. Firms that deal in perishable goods would
not be able to store excess amount of product (relating to the undyed fabric). Companies located outside
of Japan would not be able to use the exact same system, at least not cost effectively.

Conclusion: World Co.’s success in Japan can be linked directly to its effective use of the supply chain.
Advanced information and communication methods keep factories in direct contact with the corporate
office. Dynamic demand forecasting allows for effective responsiveness. Inventory management and
supplier negotiations minimize lead times as well as risk. The firm’s overall ability to adapt to Japanese
fashion retail characteristics has allowed it to achieve a turnover ratio of 5 (U.S. is 2.6) and lead times
averaging only 2 weeks (U.S. is 6 months). There is potential for other firms to follow in their footsteps,
yet with many requirements and adjustments to their current situations.