Northco(A)-Case
OPIM 310
How Can Northco
address the supplydemand mismatch?
Why are banks
reluctant to
finance
Northco?
How does working
capital impacts
supply-demand
mismatch cost?
Northco’s Death Spirial
Bank reluctant to
finance inventory
High inventory
obsolescence
Bad Inventory
planning
Working
capital
shortage
Insist on cash
during fittings
Delayed customer
orders
Poor demand
forecasts
Children ‘s
Growth
unpredictable
What are the main problems at
Nothco?




Leftover inventory
Stockouts - - overtime, risk of service
Inadequate working capital
Poor forecasts - - many customers do order
during fittings
What Should Michaels Do?




Cashless Fittings?
Offer discounts for paying early?
Buy Mrs. Eagle’s Company?
What are the benefits of consolidation?
– Cheaper working capital
The impact of working capital finance on
supply-demand mismatch costs
 Inventory holding cost is an important component of
supply-demand mismatch costs, specially for firms with
very high working capital costs.
 Northco could reduce supply-demand mismatch costs
through improved production and inventory planning and
by augmenting reactive production capacity.
 At Northco, demand information is delayed partly because
the company insists on collecting cash during orders, a
direct consequence of working capital shortage.