Change Management Role Play

Company Overview Worldwide Widgets:

Worldwide Widgets Limited (WWL I is an Australian-owned supplier of a wide range of
widgets used by primarily by 'Tier l' automotive component suppliers in the assembly of
brake and air-conditioning systems. The company is 75 years old and 80% of the
company was recently floated, leaving just 20% of the issued capital in the hands of the
founders, the Smith Family.
The CEO is the only grandchild of the company's founder, Sir Frederick Smith (OBE).
The CEO is widely accredited with having driven the company to become public in
1999, seeing the capital raising as an essential in creating a truly global widget
enterprise. Since assuming control of WWL, the CEO has aggressively pursued the aim
of expansion via a strategy of aligning the business closely with global companies,
which supply directly to the major vehicle manufacturers. Increasingly, these alliances
are enabling WWL to enter into global contracts with key customers, which has been the
main factor behind the 30% compounded growth in revenues over the last 3 years,
reaching $650M P .A. Gross profit margins average 19%, with 80% of the Company's
gross profit being derived from 'Tier l' customers.
Analysts have responded well to management's clear, conventional programme for
organic growth, prompting the company's shares to reach $1.90 after initially listing at
$1.20 on the ASX in January 1999. A new Board has been bedded down with all but the
CEO of the original family Board members being replaced at the last AGM by seasoned
directors of public companies, each of whom holds at least 5 other directorships.
WWL's manufacturing operations in Australia have recently been closed, with
manufacturing now outsourced to three local manufacturing companies (one in each of
SA, Vic and NSW). WWL has retained its' interest in a small machine tooling operation
in Malaysia, enabling WWL to achieve some vertical integration by supplying these
three local contractors with high quality tool components.
The CEO believes that access to an off-shore manufacturing capability (for finished
goods) in the medium term will be mission critical and will provide significant competitive
advantage as soon as the Australian dollar stabilizes above USD 0.60. The CEO does
not favour WWL establishing its own overseas manufacturing plant for finished goods at
this time, given other priorities to grow the business in the short-term. Also, 'pushing'
into Asia through existing relationships with customers who service the key emerging
markets of China and Korea is seen as a significant opportunity by the CEO.

Key WWL Statistics:

1.

1200 active customers (45 'Tier 1 auto suppliers' and 1155 small engineering
shops)

2.

3000 SKU's ('Stock Keeping Units' or products/packaging variants) in total:

2.1. Raw materials i2400 SKU's. 300 suppliers (50 overseas/250 local). Raw
materials are not stocked but are still planned and managed by WWL for their
contract manufacturers (due to limitations in their contractors' inventory
systems).
2.2 Finished goods -600 SKU's. 3 exclusive Australian manufacturers plus some
imports from New Zealand for a small portion of the range.

3.

1 National Distribution Centre (NDC) supplying customers directly in NSW, Vic, Tas.
and SA.

4.

1 full-range finished goods warehouse in each of WA and Queensland, to meet

local market requirements, supplied directly by suppliers for 500 SKU's others
sourced from NDC.

5.

Order Profiles:
5.1. 'Tier 1 auto suppliers' place on average 25 orders per day, each order
averaging 100 order lines = 2500 lines per day. Peak ordering involves 1 EDI
('Electronic Data Interchange') order and 1 emergency order per customer.
EDI orders received via the Telstra EDI Value Added Network by 6am on the
day of picking. Emergency orders are sent via email to arrive by 1 pm, for
same-day dispatch, and manually keyed by WWL Customer Service staff.
5.2. 'Engineering shops' place on average 3 orders per day, each order between 2
and 40 order lines. The average order lines per day is 4500, with a peak of
10,000 experienced last month, causing a significant service level drop at the
new NDC.

Overview of Current Systems

that support WWLs Supply Chain Functions:
General
. Strong sales and financial systems.
. Includes a basic inventory location control module.
Warehousinq Functions
. No support for radio frequency devices in the warehouse.
.
No dynamic task management for each unit of work (e.g. system-assigned priorities
for each pick task, each putaway task, etc. ).
Inventory Planning
.
No EDI with suppliers for either purchase orders or advanced shipment notifications
.
Forecasting is not integrated with replenishment buying.
.
No easy way of overriding system-generated forecasts.
Internet
.
The web site is just 'brochureware' no customer ordering or active use by
customer/field staff.
Transport
.
No load planning to optimize vehicle utilization. No transport route planning.

Logistics Issues for Upcoming Management Meeting:

The Logistics Manager of WWL, since joining the company 18 months ago, has been
focused on overseeing the relocation of the NDC to a new 'green fields' 25,000 sq.m.
site in Wetherill Park, west of Sydney. The new facility was sized to accommodate
significant expansion. Additional floor space was allowed for when the site was built to
enable the redesign of workflows to streamline order processing and deliver substantial
productivity improvements.
Sixty people are employed at the new facility .They operate using a conventional pick &
pack methodology, with paper based zone picking and next day dispatch. The conveyor
system in use is now 15 years old and was transferred from the previous facility in
Strathfield, NSW, which was much smaller as it supplied the internal WWL
manufacturing function. The Logistics Manager wanted to upgrade the conveyor system
to be fitted with in-Iine scanners and implement systems to support zone skipping -to
exploit the layout of the new facility. However,
logistics has not been a high priority recently and all available project funds were
diverted to implementation of the PAS software package to overcome the Y2K hurdle
and prepare WWL for global expansion.
Nevertheless, the Board is now indicating some concern that expected improvements in
productivity have not materialized since relocation to the NDC. Last month's peak in
orders from small engineering customers lead to a blowout in overtime, and major 'Tier l'
customers threatened to withdraw their business when orders could not be delivered in
less than 3 days for a period of 4-5 weeks. 'Out of stocks' meant that some orders from
the largest customer, Blush, could not be met, even though these orders were for
product that was supplied exclusively to Blush and order quantities had been in line with
forecasts previously received from that customer 4 months ago.
Combined with this, unaccountable losses arising from the last full stock-take wiped 3%
from the value of book stock. The Board has not yet received the latest financial reports.
The CEO and the Logistics Manager are both aware that these losses will cause the
company to report lower than forecast profit for the last 6 months -the first time that the
company has failed to meet market expectations since going public.

What to Expect from Logistics Manager's Presentation at the Meeting.

The CEO has asked the Logistics Manager to develop an action plan to improve
inventory record accuracy, reduce staff numbers, where feasible, and ensure that
customer service levels for 'Tier l' customer orders will consistently average 99% for the
next 3 years. The Logistics Manager is also part of a cross-functional team looking at
acquisition of an Asian-based distribution company offering a ready-made distribution
channel for WWL's products through its established presence in South China. Whilst
WWL has currently no offshore customers, the Logistics Manager's Supply Chain
Strategy will address the Company's continued push for international expansion.
The Logistics Manager will present the top 3 priorities for supply chain improvement, for
peer review at tomorrow's management meeting.