Norton Auto Supply Case Study

...

Given the above analysis we are recommending that the company decrease its current safety stock and inventory at the CDC level and target a fill rate of 99 %. At the RDC level we also recommend that the safety stock be decreased for the parts with a previous fill rate of 100% and increased for the parts with a fill rate lower than that t, while keeping the ordering quantity to be the same and following demand. We do not however recommend that Norton treats all different part categories equally and implement the same fill rate at the RDC level. Because the cost was lower under the 97.5 % fill rate for A and C part, but lower under the 96% - 3 % policy for B parts, we recommend that they operate according to that. That is chose a 97.5% fill rates for part A and C but a 96 % service out of stock and 3 % delivery in 24 hours for B parts. We believe this would be the most efficient strategy for the company to decrease cost with minimum decrease in service level. In addition, this will allow the company to respond faster to delivery orders for parts (C), which previously had a relatively low service level, hence alleviating the possible waiting time of 13 days for these parts.

Secondly, we recommend that the company adopt a continuous review system for (A) parts. A periodic review system monitors inventory levels at constant intervals, while the continuous system monitors inventory on a perpetual basis. Norton classifies its merchandise using the ABC classification method. Parts (A) have a high annual dollar value and hence have the most importance although they represent a small percentage of inventory. The company should therefore adjust its review system in order to ensure better forecasting, more frequent ordering and better safety stock determination for parts (A). The different categories require different levels of reviewing, since parts (B) and (C) require less attention due to their lower annual dollar value. Thus, these two categories should follow a periodic review system. In doing so, the company would be able to prevent under or over stocking of merchandise in the future – although it will be costly in the short-run-.

Furthermore, we recommend that Monica implements an inventory optimization software - a computer-based software that optimizes inventory by tracking stock levels and sales-. This would allow for easier and more reliable inventory decisions to made in the long-run. This software will help the company avoid excessive and limited inventory problems, by tracking the inventory as location change and maintaining track of sales and inventory levels. The program would hence enable the company to program and calculate reordering points and required safety stock levels, thus increasing overall efficiency and decreasing costs for holding excessive inventory.

Finally, we also recommend that the company considers designing a responsive supply chain to deal with high demand uncertainty and low supply uncertainty. In order to improve their supply chain management, the company must enhance the manufacturing division’s responsiveness to requests from the parts division. Supply chain operations is constantly undermined by changes in consumer demand. In order to tackle this problem, Norton should aim for operational responsiveness that will provide the company with the flexibility to respond promptly to changing market requirements.

The recommendation we put forward consists of short-term options as well as for the long run. In order to reduce its current operational costs, the company must change its operating system to an ASL of 97.5% for (A) and (C) parts while allowing for overnight shipments for (B) parts with an ASL of 96% at the RDC level and a 99% ASL for the CDC level. We also recommended that the company adopt periodic and continuous review systems in order to efficiently manage its inventory in the medium and long term. Finally, we recommended that Norton implement an inventory optimization software as well as better their supply chain management.