Costmart warehouse case answers

CostMart Warehouse

Chapter 12 Case Study Teaching Notes

NOTE: This case is similar in issues to Manchester Manufacturing, and probably should not be used in the same course with that case.

This case is a fairly straightforward look at inventory management set in a retail warehouse. The case has no quantitative analysis to allow the student to focus their attention on the qualitative issues, but the need for some quantitative analysis is not overlooked. The second case question addresses the need for data analysis, and puts the student in the position to discuss what data they would need and how they would use it. The case can be extended in coverage if you have some anticipated data sets available as the case is discussed. A good classroom exercise is then to give the data to the student (once they have identified it as necessary) and then have them analyze and use it.

Problem Analysis

Probably the number one issue is the accuracy of the inventory records, both in terms of count and location. The fact that they use a “home base” approach with overflow areas lends itself to a good discussion of the approaches to location and the types of environments where it should be employed. The retail environment described in the case, for example, probably should not use home base. Home base location assumes a relatively stable environment in terms of design (part numbers) as well as quantity. In the environment of style changes and quantity issues (due to seasonality and promotions) a home base can only work effectively with a very large (and inefficient) use of space, or a continual reallocation of existing locations.

There are also some apparent problems with communications, planning, and relationships with both suppliers and the retail store. Suppliers, for example, are being pressured for price while being “jerked around” for schedules. The suppliers probably view the warehouse as a poor customer that should be tolerated to a point, but it can be fairly easily seen why they are not anxious to be overly cooperative with the warehouse. It also appears that even people within the warehouse have their responsibilities defined in isolation. They have either been discouraged from establishing more effective communication or may not know how to do it.

Overriding all this is the apparent poor attitude of Hank. The “mutual boss” must have had either some loyalty to Hank or else he valued his experience to some degree, since he kept Hank in the position. It also is apparent that the boss did not have the confidence in Hank to solve the problems and warrant his promotion to one of greater responsibility. Amy will clearly have to find ways to not only work with Hank, but also to “win him over.” This problem is one that will allow discussion about job design and relationships. Amy must try to change his attitude without undermining his ego or position in the yes of the warehouse workers.

Suggested Approach

One of the good things about this case is that it lends itself to taking the discussion with students in several directions. Regardless of direction, however, it appears that the most critical issue that must first be addressed is to obtain and maintain accurate inventory records, both with response to count and location. It is encouraging that they have a cycle count program, but it should be examined for its approach. To be specific, the following steps are recommended:

1. Review the cycle count program for corrections and completeness. Make any changes to ensure the program is effective and adequately staffed.

1. Change the location system from “home base” to “zone random.” In the zone random system, each category of good has a general zone in which it is location, but the specific location within that zone is random. The random location allows for efficient use of space as styles and quantities change, but since all goods from the category are in the same zone, cycle counting or locations of mismarked goods are relatively easily done.

1. Once the location changes have been made, a physical inventory should be scheduled. Even though such a massive count program is seldom more than about 90% accurate, it should quickly improve the current “no more than 50% accurate.” The cycle count program then should not only continue to improve the accuracy, but should also start to improve the transaction system (which is, of course, the major goal of cycle counting.)

Once these changes are made, the communication channels should be examined and improved. The accuracy level problem should be addressed first, however, not only to convince the parties involved that there are real changes in the works, but also to provide a basis for communicating accurate data. Establishing new communication channels and then transmitting poor data will only create skeptics. The following communication channels should be examined (students will often have several approaches here. This is a good opportunity for extensive student discussion):

1. One of the first communication areas that should be examined is the internal one between workers in the warehouse. This may be informal, but could also be computer-based. Regardless of form, it is clear that the people interviewed in the case need more information as to what is happening and why.

1. Since the retail store already has a computer system, it should be little extra effort to have the warehouse linked into it. With information on inventory levels, rates of sales, and any expected changes (such as promotions), they should be able to plan more effectively and anticipate needs. There should be few surprises that need quick response if the warehouse plans effectively.

1. Once the warehouse has its own “act together” (and only then, they will be in the position to start working with suppliers to develop partnerships and communication channels. With advanced planning they should be in a position to share the information with appropriate suppliers. Suppliers can be brought into discussion regarding lot sizes, package sizes, lead times, and delivery mode in addition to cost (and therefore price) control.

Data analysis approach—some of the data that students may suggest be collected include:

1. An audit of the inventory record accuracy—both location and count

1. An analysis of the demand from the store, and the actual shipments in response—both in timing and count

1. An analysis of the reasons given for stockout problems

1. The number of incidents where packaging causes a problem in delivery to the store

1. A supplier by supplier analysis of delivery history, including timing, count, and quality

Finally, there is the problem of Hank to deal with. Some students will suggest he be fired, but by doing so, Amy would be losing a lot of experience and also may risk alienating other workers who may be friends with Hank. If he doesn’t “come around,” termination may be the only recourse, but it should be viewed as the last recourse. A better plan would be to understand his skill area and utilize those skills with specific improvement projects. If he sees that he is valued and being given important projects to manage, it is possible that he will turn out to be an effective manager. His current attitude may, in fact, have been learned by experiencing nothing but poor warehouse management in the past.