A Case for Inventory Management

Seneca Business (SB) recently purchased Jim Diamond Company (JDC) a company that designs, manufactures and marketsfine gold and diamond jewelry throughout South Africa. It had previously been a family- runbusiness,butfollowingthedeathofthefounderandCEO,familymembersdecidedtosellthe enterprise. Seneca Business (SB) saw the potential for this business and purchased it, intending to improve supply chain performance.

The domestic supply chain involves inbound shipments of raw materials from multiple small suppliers to a manufacturing location in Pretoria. Once the jewelry has been created, shipments are sent through a transportation intermediary to retail stores in Cape Town, Durban and Johannesburg. The challenges JDC faces are common to the fashion industry: rapidly changing styles and preferences require the company to react quickly and adapt designs to suit consumerdemands.ThepeakdemandperiodsoccurthroughoutDecemberandinmid-February, with a smaller one in the spring. The JDC brand and style is well established throughout South Africa, and SB decides that it will keep the name to maintain brand loyalty.

In addition to making supply chain improvements is planning to export the products to the U.K. The jewelry market has experienced a steady increase over the past ten years, and has continued to grow over the past year despite predictions for an overall industry slow-down.SouthAfrica'sparticipationintheKimberleyProcessshouldhelpaccelerateSB move to the British market. The Kimberley Process is an international certification scheme designedtoregulate andprevent thetradein conflict diamonds. Althougha certificateisneeded intheexportof roughdiamonds, SBcanprovideawarrantyonitspolisheddiamondjewelry, statingthegemshavebeenpurchasedfromlegitimatesourcescompliantwiththeUnitedNations resolutions.SB is in the processof contacting multiple U.K. wholesalers totryand broker an export arrangement.

InvestigatingLosses

Despite SB's desire for expansion and growth, JDC has experienced an overall profit lossforthepastfiveyears.Aninitialinvestigationintothecompany'sfinancesrevealedanoverall business turnover of about USD 63 million, and the cost of inventory alone is USD 27 million. Over 80 percent of the company's total inventory consists of finished product. Inventory is inconsistently categorized, which also leads to a longer lead time for the organization to fulfill orders.MostoftheinventoryisheldinvariousretailoutletsthatJDCownsandinfranchises where JDC owns the stock.

Lossesinsaleswereprimarilyduetotheinabilitytodelivertimelyordersbecausethestockcould notbelocatedefficientlyinitsinventory.Thisresultedinfrequentstock-outsduringpeakdemand periods. In addition, designs were not well aligned to customer preferences, which meant that there were higher volumes of product left in inventory. There was very poor visibility of stock in relation to overall sales and no integrated and efficient method to track shipments, delivery and items in stock. In addition, SB identified over USD 1 million in stock that JDC had accumulated over the past twelve months.

DevelopingStrategies

SBexecutiveshavedecidedtoinvestigatepotentialdistributorsandretailersintheU.K.while working onthe supply chain improvements. Astrategy is being developed to address the critical supply chain problems, while an exporting plan is being created to initiate the company's international growth strategy.

Question to be answered

Which 3 basicactivitiesshould Senecaundertaketoaddressthecritical inventory issues? Explain your answer.