Supply Chain Management at World Co. Ltd. Assignment
Read the World Co. case and develop written responses to the following questions.
- How does World Co. achieve the short response times described in the case? The lead time at U.S. department stores often exceeds six months while World Co.’s is two weeks.
- In the assigned reading, Hau L. Lee describes the best supply chains as agile, adaptable, and aligned. How does World Co. reflect the methods described by Lee to achieve agility, adaptability, and alignment?
- Why didn’t World Co.’s focus on supply chain management result in ROE comparable to U.S. stores? Consider both financial and operating factors.
- Based on your financial analysis (see below), identify World Co.’s strengths and weaknesses and the impact of its supply chain management practices on its financial performance.
You may wish to review the Financial Analysis Teaching Note (this material was part of an assignment in MGT 600 and is also available in the class resources) to refresh your understanding of financial ratios. Use the financial statements in Exhibit 2 of the case to prepare a dupont and ratio analysis (consider profitability, activity, solvency, and debt ratios) for 1999 and 2000. An Excel spreadsheet with the World Co. financial information is available to save you some data entry time. Use year-end balances in all calculations rather than averages, e.g., total assets rather than average total assets. Use the following information related to U.S. retail stores (summarized from the case) to benchmark World Co’s performance:
Gross margin (U.S. department stores): 34%
Gross margin (The Gap: 1997-99): 42%, 45%, 45%
Gross margin (The Limited: 1997-99): 34%, 35%, 37%
Inventory turnover (U.S. department stores): 2.55 x
Inventory turnover (The Gap: 1997-99): 5.8, 5.6, 5.1
Inventory turnover (The Limited: 1997-99): 6, 5.7, 5.6
ROE (The Gap: 1997-99): 34-52%
ROE (The Limited: 1997-99): 10-92%
SG&A expense % (U.S. department stores): 29.6%
Markdowns (U.S. women’s apparel stores): 31.8%
Net profit margin (U.S. department stores): 3.85%
Sales/total assets (U.S. department stores): 1.64
Markdowns (U.S. apparel): 31.8%
Total assets/shareholders’ equity (U.S. department stores): 2.78
Finally, compute the operating cycle and cash conversion cycle for 1999 and 2000. Note: Assume that accounts payable is 50% of the current liabilities in the balance sheet. What conclusions can you draw from these numbers about World Co.’s supply chain management? Assume that competitors’ have operating cycles of 145 – 160 days and cash conversion cycles of 40 – 45 days.