SCRM_WAC.

docx 2012010097 2012010132

SCRM WAC
Iko Yokado
Submitted on:

1 0/23/2011
Submitted by: 12010097 12010132

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Introduction: Ito Yakodo(IY) one of the biggest retail chains in Japan, took pride in its philosophy of honesty, cooperation, sincerity with customer and respect to the employees. The company was achieving annual income after tax of $360 million. Their primary focus was on retail chain stores, offering apparel, food items and household goods. The company had taken advantage of the boom in the Japanese economy during the 60s and 70s.They evolved a sense to adapt to market changes, while committing to Kaizen (continuous improvement). With focus on supplier relations, low inventories and better value chain management. They radically broke from Japanese tradition and removed the role of intermediaries, reducing costs across the value chain. IY before the Reform Program (RP) The Japanese embarked on a plan of revitalising their infrastructure. The result was that economy boomed leading to greater consumption and an expanding middle class encompassing nearly the whole population. IY was one was those retailers which thoroughly capitalised on this increased buying power of the consumer. It showed continuous growth and focused on opening One Stop Shop styled retail outlets in sub-urban areas where parking was abundant and access to the newly improved subway system was close by. The growth trend changed in the latter half of 70s when it slowed down due to various local and international conditions. It was at this time when IY went into their reforms program as against other retail chains that moved towards cutting costs. This was also the time when IY went towards portfolio diversification and better customer management. Lessons with regards to Aggregate Demand Forecasting The aggregate forecast was done at corporate headquarters by buyer mangers as it was fairly stable. It can be seen from the apparel example where it was done annually (Exhibit 2b). For apparel the demand forecasting began up to nine months prior to the launch. It incorporated fashion trends and consulting with fashion consultants and combined this data with historical sales. They used the forecast to determine what and how many SKUs should IY stock of its own brand. IY purchased the raw materials themselves, which a handful of trusted apparel manufacturers made the initial order SKUs for them. After some scrutiny from various superiors and back and forth communication with the buyers, the Category Manager would choose what lines he would stock in his store.
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For food items the aggregate demand was calculated by using historical data. Unlike apparel there were no sudden market fluctuations in the food side of the business as food is not subjective to fashion trends. Therefore IY could focus on purchasing from a small number of traders and wholesalers and who could guarantee a good level of fish. Here it can be noted that as they had done extensive research on the process and optimal places to source fish from they were able to dictate where, when and how many fish should be sourced. The answer for how many came from historical data. Based on this knowledge IY would most likely place a yearly demand order, not specifying exactly when exactly they would want the foods. Lessons with regards to SKU level forecasting The SKU level forecasting was done by the sales people who would send in their forecasts through and online system to the buyers or the distributor. The distributor would send in the product directly to the outlet. This also helped in improving quality for food products which were ordered in the right quantity with better forecast and communication. This was particularly important for perishable food items that had high Obsolescence/Spillage costs. As for apparel and other retail goods SKU level forecasting was important as it helped in focusing on more popular trends and adjusting the forecast accordingly. This also meant better fulfilment of discounted products to outlets that had a demand. All of this ultimately led to lowering the risk of a Supply-Demand mismatch at SKU level while keeping the inventories low. Lessons with regards to Staff Ownership and Empowerment The company relied a lot on their employees and especially the ones dealing with the customers having a daily interaction on store floor. They were made responsible for forecasting. The forecasting duties also gave a sense of ownership to the employees who would take full responsibility of their forecast. The company had also increased its part time staff to greater than 50% who were committed to work but were unwilling to work full time due to other commitments. Even these employees were dedicated to the company and at times were given important responsibilities such as Mrs. Ichikawa being responsible for the critical tuna and other food items. This responsibility and trust by the company led to greater commitment on the employee part, hence better output levels and ownership of tasks. IY rewarded its employees well. It had a bonus incentive scheme tied to the companys profitability. It was understood that every employee is important. Collectively the employees
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make up IY and any effort to benefit IY which results with increased profitability should be shared with the employees who took part in the increased profitability becoming a reality. The repetition and reiteration of company philosophy before every meeting was common amongst Japanese companies. In some ways it was like a National anthem but for the company instead of the country. Japanese are traditionally Lifers when it comes to working for a company. This encouraged loyalty to the company and righteousness in ones day to day dealings with the customers, shareholders and fellow staff members Lessons with regards to Communication The RP resulted in better coordination across the chain between different stakeholders for this there were weekly meetings at different levels of the value chain (Exhibit 1). These meeting were modelled in such a way that feedback from the lowest level reached the highest level in the fastest possible manner since higher level meetings were scheduled after low level meeting. This in a way was a fire fighting technique but one where the metaphorical alarms sound when customer trends and demand call for change. These formal meetings were important as they provided for dissemination of information and added to the information flow and trust of employees. The relations and coordination between merchandising and retail was carried out by specially appointed supervisors who were solely responsible for the information flow across these different hierarchy chains. Through supervisor a matrix structure was created whereby people across departments were able to contact people at the same level leading to a better flow of information and better management of inventory, to lower stock outs and better prediction of trends. Another aspect of this information sharing was lowered inventories even for unpredictable products such as apparel. Lessons with regards to Management Information Systems (MIS) Another aspect that led to lower inventories was the combination of experience with technology. Whereby the category level manager would first extract some trend and inventory level historical reports from recent past and combine them with his knowledge of the market, weather and annual trends before creating and sending their forecast to the buyer. For this the company installed a latest Management Information System that kept track of sales leading to calculation of inventory levels. This helped in both food and apparel, it was important in food because of the perishable nature which meant more deliveries (twice a day at times) and quicker response times, hence better forecasts were required. Whereas apparel
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did not require that many deliveries but forecasts were ever more important as they was more unpredictable demand. The MIS also led to better communication across departments. Lessons with regards to the shop floor being more Lean IY believed that value to a product can be added by factor other than price. For this the company tried to adopt the image of a lean outlet with more quality products. For this they remodelled their stores, product packaging, and started advertising in high end media advertisement. Next they removed slow moving and low volume products. For this IY relied on information from their sales floor staff. The lowered merchandise helped in focusing towards the leaner image IY was trying to portray and also saved on shelf space. They also worked on their inventory improving the quality of perishable food items and eliminating stock outs through better communication. The lean image was in line with the philosophy of serving clients honestly and sincerely and added value to the company image. All this was important for IY as industry trends suggested tougher times ahead with lower buying power and rising costs so a better valued company liked by customers was more likely to survive than one which was only focused towards cutting costs and lacked product quality. Lessons with regards to Vendor relations Another reform made to confront the changing market was improving the vendor relations and bringing in vendor rationalization. This was initially done with products with more predictable and higher demand. It involved contacting the segregated vendors and having direct links with the suppliers trying to get them to adopt a leaner approach. Whereby they were able to supply directly to the outlet that had a demand were efficient in doing so without stock outs. This was something for which the company had to work against traditional Japanese culture where there were lots of intermediaries who added to the inefficiency and costs of the system. Insights for Pakistan Pakistan may have demographics that are very different to Japan in term of socio economic class divide, purchasing power and economy growth rate. But still a lot can be learnt and improved upon from the Japanese example. The most important thing to learn and implement from the IY example would be willingness to adopt and change with an evolving market. We have seen many examples such as in the textile sector after end of quota certain industries were unable to predict and adapt leading to their downfall.
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With the ever changing political climate low literacy rates and even lower wage rates resourcing trustworthy, skilful workers is a challenge. There is a high turnaround for workers. Adding to this is the very volatile political climate. But still in few companies we can see employees taking ownership of their work when given the opportunity and making the productivity go up as was the case with Atlas Honda with the introduction of 5S and Kaizen to semi literate people. The company first needs to develop trust with its employees that can be achieved by developing task ownership and then building on it they can be given the extra task of forecasting going with IYs philosophy of people working in the field knowing the best of market trends. Pakistani business would benefit greatly by implementing demand forecasting on both aggregate and SKU levels. Particularly in the very volatile textile sector and in food items those commodities which face nationwide stock outs i.e. Sugar. Accurate forecasts would also help retail stores in changing and improving their image as valued brands decreasing inventory holding costs along the line. Next in line is communication whose primary requirement is trust whereby employees as well as management need to trust others and their judgement calls regardless of rank and file before making any decisions. This trust deficit is something where we have major issues in Pakistan and require a change in mindset of not just the employees but the employers as well. Trust deficit also evident with vendors in Pakistan where vendor quality is not consistent within any acceptable parameters. The suppliers do provide quality material in the initial order however they rarely maintain the same standard in subsequent orders. Then there is the chronic issue of trust where suppliers are late with their shipments and in some cases dont even ship at all. What we can see from Japanese example is that even when they began their remodelling, the culture was against it. They actually overcame the norms by long term vendor development and partnerships whereby vendors at times were given a share in sales and were supposed to share shipment losses. Conclusions: Summing up IY was a company that in a changing market scenario was required to understand and adopt accordingly. They did by bringing in changes within their structure while adding value to their brand name for a quality product. This improvement involved high level of employee commitment to improve on the forecasting and increase in responsibility levels, decreasing inefficiencies in the system, improving vendor relations to help in better deliveries, lower inventory carrying costs and offering better value for money for a more intelligent customer.
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Exhibit 1
Face to Face visits in Formal Meetings on average in a week Department Store Zone Category Department Manager Manager Manager Supervisor Supervisor 7 1 0 0 0 7 1 0 0 0.5 0 0 1 1 1* 0 0 1 0 0 0 1* 0 0 1 1 1 0 0 0 0 0 0 0 0.5 0 0 0 0 0

Store Employee Category Manager Department Manager Store Manager Zone Manager Category Supervisor Department Supervisor Store Manager Supervisor Executive Vice President

Store Employee 7 7 1 0 0 0 0 0

Category Manager 7 7 1 0 1 0 0 0

Store Manager Supervisor 0 0 0 1 1 0 0 0

Executive Vice President 0 0 0 0 1 0 0 0 -

* The store managers and zone managers met twice actually on Monday once earlier in the day in zone meeting and later while meeting with the 5 SMSs.

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2 a Forecasting Flow Food SKU level

Fish orders in Deptt. Terminal

Category Manager Inventory check

Shelf Stocking

Sales Comparison

Demand Forwarded to Merchandising

1. The initial delivery schedule was placed on department computer terminal 2 days earlier. 2. Category manager made inventory checks before restocking every morning. 3. Shelf stocking was done throughout the day based on actual demand. 4. Every evening a future forecast was sent to the concerned dept by category manager.

2b Forecasting Flow Aggregate level Apparel

Initial Buyer Forecast

Preliminary Order

Category supervisor presentation

1. Stage 1 had the buyer for a line consulting with various seniors and historical trends to come up with a forecast 9 months prior to actual sales 2. Preliminary order for limited designs was placed in September 3. CS finalised the designs and trends with buyers and distributors.

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