Question

Pierre’s Kitchen Pierre’s Kitchen manufactures utensils and gadgets for the cooking enthusiast. Pierre’s products are sold throughout North America, predominantly through kitchen and home specialty stores. Like most producers and suppliers of consumer specialty products, Pierre’s must cope with large seasonal variation in demand. This is easily seen to relate to seasonal variation at the retail stores, One of Pierre’s top-selling product families is its line of 78 different gourmet kitchen knives. The knives have received praise for their comfort in the hand and their ability to hold an edge. Pierre’s credits the popularity of its knives to the steel used in their construction. Pierre’s has always utilized the finest Swedish steel for its blades. The steel used in those knives is the source for nearly all of purchasing manager Robin Benton’s aggravation. Robin orders steel for knives at the beginning of each month. By the time it is transported to port, shipped to the US, and trucked to the Pierre’s Kitchen plant, it takes just over five weeks to get it. Robin determines order quantities by projecting retail demand for each knife model over the next month, translating those forecasts into steel requirements, and then summing the requirements across the 78 knife models. That forecast for each knife model is based on the sales that occurred the previous month. Pierre’s supplier of steel recently threatened to increase its prices during the next contract period to cover increasing expenses it claims are the result of the wide fluctuations in order quantities from Pierre’s. Robin has examined her forecasts and orders for knife steel and admits that the orders fluctuate dramatically from month to month. This results from fluctuations in individual store demand, which in turn results from promotions and sales at the store level. When confronted with this information, sales manager Jaylen Cooper responded, “It’s true that sales at individual stores fluctuate, but when I look at month-to-month sales across an entire chain of retail stores, the demand only fluctuates about 10 percent. The only exception to this is the inventory build-up at Christmas time.” Robin’s examination of the actual sales data confirmed Jaylen’s report.

What are the 3 alternative courses of actions with corresponding advantages and disadvantages?

Answer 1

For Pierre, it is evident from Jaylen Cooper's report that fluctuation is present more at the store level demand but when aggregated, the variation is in range of 10%. This is true case of bull whip effect.

3 alternative course of actions:

a. Demand planning with longer durations:

Currently the order forecast to steel supplier is shared at a month level, and with the variations it has, the steel supplier incurs higher costs. The plan should be made on a rolling basis for 1 month, 3 month and 1 year long. This shall provide to steel supplier to plan for their downstream requirements and incorporate the change in requirements ito their planning.

This will require cooperation from steel supplier to align with the change in planning horizon, and to improve the planning accuracies.

2. Planning accuracy improvement:

Currently Robin is using previous month sales as input for projecting demand for the next month. But as explained clearly in the case, the demand is significantly impacted by the seasonality. Thus incorporating month of the year, previous year's dmenad for the same month has to be incorporated into the planning.

Along with this, promotions and sale events planned have to be incorporated into the demand planning by Robin. This will help in improving the demand accuracy correcting for promotions.

As shared in Jaylen's analysis, aggreagted demand is not fluctuating, and thus Pierre's kitchen can consider managing central and regional warehouses for inventory before moving it to the individual stores for sales.

This will require improved effort in planning along with the time taken for finalizing the plan.

3. Improvement in communication:

Pierre organization also has to be spend effort in streamlinng the communication between various partners running the business.

a. Sharing on the events and promotions between the stores and Robin's team

b. Sharing and aligning on supply constraints between steel manufacturer and Robin's team

Sales and operations planning (S&OP) has to be set and run diligently to align all partners involved.

Any change mangagement and communication management will take long time and organizational wide alignment. Thus will require senior leadership involvement to drive the importance.