Memory Express Internal Audit
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PRODUCTION & OPERATIONS MANAGEMENT AUDIT
TARGET- ORGANIZATION: Memory Express
Group 3
Kwan Tung Chiao (Tony)
John Chu (John)
100197243
100164850 tony.chiao@kwantlen.net
john.chu3@kwantlen.net
Jervis Huynh (Jervis)
Raymond Lam (Raymond)
Yuko Miyazaki (Yuko)
Kent Yung (Kent)
100209821
100213638
100250489
100179151 jervis.huynh@kwantlen.net
raymond.lam@kwantlen.net
yuko.miyazaki@kwantlen.net
kent.yung@kwantlen.net
ENTR 3130 – R10 SUMMER 2011
PRODUCTION & OPERATIONS MANAGEMENT
Instructor: Vasile Zamfirescu
Statement #2
We the undersigned declare that the work performed for this project and the contents of this report represent only original work of or by the members of the team, any material from other sources has been clearly referenced and credited in the report, and the report is not acquired from third parties nor recycled from another project in another course, whether at Kwantlen or elsewhere. More generally, we declare that the work performed for this project and the contents of this report comply fully with our signed Statements of Academic Integrity and with the provisions of Kwantlen policy C.8.
Kwan Tung (Tony) Chiao John Chu Jervis Huynh
Raymond Lam Yuko Miyazaki Kent Yung
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Executive Summary
The following is a presentation of the POM audit of Memory Express Inc. The focal point of this report surrounds the nine issues regarding Memory Express’s promotions and operations management techniques. In order to help reduce the overall cost, improve the quality of products and services at Memory Express, we chose to look into operational aspects such as:
Productivity
Project Management
Process Design
Forecasting
Layout Design
Supply Chain Management
Quality Management
Inventory Management
Product Design
By carefully analyzing the aspect of the company’s operations, we identified the benefits and downfalls of their current system. As such, we are able to identify areas where ME performs well, and areas that need improvement. After considering the circumstances that surround each operational aspect, we researched and recommended some operational systems that will improve the overall performance of Memory Express.
We analyzed Productivity by calculating sales per square feet, sales per labour dollars, and sales per labour hour. By analyzing this, we found and recommend that the company focus on these main product groups that account for most of the sales.
Our team examined a recent small scale gaming tournament hosted by the company and its weak points and shortcomings. We strongly recommend the utilization of project management tools to such as MS Project 2011 and Mindmap 4.0 to identify critical points to save on cost, time, and labour.
In the area of process design, we mapped out a specific service process and identified a step that could result in loss of sales. By changing certain steps in the process, the company can lessen the amount of loss sales and improve customer satisfaction.
After our primary research, we found that the company relies on qualitative techniques. We suggest that in addition to the current forecasting technique that the company utilizes quantitative techniques such as exponential smoothing to allow a more accurate forecast.
We looked at existing layout design at the Richmond location and have analyzed its utilization based on its floor space and volume of the warehouse. Our team recommends the
Group 3 Memory Express Page 3 of 50 company utilizes the excess floor space to increase the sales per square feet plotting. For utilization in warehouse volume, we encourage the company to build a second level for more floor space.
In our primary research, our team has focused on Sony’s laptops. We analyzed the current supply-chain management as well as reverse logistics. In order to increase profit margin, our team suggests ME to reduce costs such as transportation, storage and labour. We also suggest the company to stimulate its e-commerce sales as it does not involve labour costs.
We looked into how the company ensures the products and services reach the company’s standards, and found that the company does an exceptional job focusing on quality by providing continuous employee development.
For inventory management, we looked at how ME counts inventory, accounts for shrinkage and how their inventory is stored. For inventory counting, ME uses a min/max inventory replenish system that has a target level of inventory of four weeks and a low (reorder point) of two weeks of inventory. We found this method of inventory counting to be effective for
ME because it will always have inventory in stock with this method and therefore prevents any loss of sales. As for shrinkage, the most obsolete items are promoted and put on sale most frequently to avoid obsolescence.
In product design, we looked at Memory Express’ in-house brand Velocity. We conducted a survey of about 40 people, and based on the survey’s result, we recommend ME to apply a house of quality method towards their Velocity products. It uses a planning matrix to relate what customers want and how a firm can meet those expectations.
Our team believes that the audit conducted revealed areas of operations management where
Memory Expressed excelled at, as well as areas that may benefit from a review. With the implementation of project management tools, the recommendations outlined in this report will effectively improve the operational efficiency of the company as well as reduce its operating costs.
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Table of Contents
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E XHIBIT J: S UPPLY CHAIN M ANAGEMENT OF S ONY L APTOPS
..................................................................................... 42
E XHIBIT K: R EVERSE L OGISTICS OF R ETURNED P RODUCTS
........................................................................................ 43
E XHIBIT L: S UMMARY OF M EETINGS
................................................................................................. 46
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Group 3 Memory Express Page 7 of 50
Target-Organization: Memory Express (ME)
Memory Express
Richmond BC
4975 NO. 3 RD
Richmond, BC V6X 2C3
Ph.: (604) 304-0200
Fax: (604) 304-0302
Website: http://www.memoryexpress.com
Company Description
Memory express (ME) was founded in 1996 by Mr. Minh Ngo. It has established a leadership position as the premier destination for computer products and services. Starting from a humble beginning, they have grown into a multi-million dollar company with seven retail locations spread across Canada 1 .
Memory Express offers a variety of computer products and services, as well as other electronic devices. The company also offers a consulting service to provide suggestions and solutions for customers.
ME carries a full line of computers (desktop and laptop), monitors, parts and accessories for people who want to buy new or upgrade an older system. In addition, customers can purchase home electronics, portable electronic devices, software, games and toys.
The company’s website includes an extensive online catalog, so customers can shop from home. A person who plans to build a new computer from the ground up can use the online
System Configurator to create and save a list of component parts, and the price of each; the online Rebate Center helps customers download the correct documents to request their rebate.
ME makes great effort to provide the best service to every customer on their every visit. The company’s goal is to deliver the right product in a timely manner every time they complete a transaction. ME’s goal and mission is to provide the best customer service possible to build a lasting relationship with their customers. “If a customer doesn’t return after purchasing from us, we don’t deserve their business”- Minh Ngo, 2011 2 .
1 http://www.memoryexpress.com/CompanyInfo/AboutUs.aspx
2 http://business.allaboutcalgary.com/listing/608/Memory_Express.html
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The company’s total annual revenue is over $100 million and there atleast 219 employees in the company. In the Richmond location, there are 29 employees and the annual sales were approximately $6 - 7 million.
NAICS Code: 443120 (Computer and Software Stores)
Contact
Minh Ngo
CEO and Owner
Minh.ngo@memoryexpress.com
Business Functions
Damian Cheytanov
Store Manager
Damian.cheytanov@memoryexpress.com
Memory Express’ main business functions include retail and online sales of consumer electronics including computers, photo imaging, and home electronics.
The intended targets of this production and operations management audit of ME are:
Project Management
Quality Management
Product Design
Process design
Demand Forecasting
Productivity
Inventory Management
Supply Chain Management
Layout Design
Business Strategy
Memory Express' strategy is to have the lowest prices between all its competitors at all times.
This strategy allowed them to be the market leader in other areas such as Calgary and
Edmonton. While only a fresh company here in BC, their long-term goal is to become the market leader in BC topping Future Shop and Best Buy. With the price match policy at ME, customers are encouraged to purchase the product from ME at the competitor's price plus
25% off of the difference between ME and the competitor's price. Even if the company were
Group 3 Memory Express Page 9 of 50 to sell products at a loss, in the short term this strategy allows ME to move inventory, which also stops their competitor from moving their own inventory.
While ME is set to lose money on the price matched sales, they are able to gain a significant market share, and gain more bargaining power with its suppliers. The price match strategy allows ME to benefit from competitor’s sales promotion, which allows the company to save in advertising costs. By showing its ability to move inventory, this allows ME to negotiate with suppliers for better prices than their competitors. With the inventory being provided at a lower cost, ME is placed in a position where it can provide better prices than its competitors and still earn a good margin on each sale. By accomplishing this, ME plans to successfully gain market share, and then control the market.
The purpose of this whole strategy is to slowly capture the market in a specific area, gain bargaining power, control the market and kill off their competitors.
Organizational Structure
The company is headed by Minh Ngo and his brother Chieu Ngo (Exhibit L: Summary of
Meetings). Between the two of them, they manage the Purchasing, IT, Development, HR and Accounting department. The purchasing department consists of seven purchasers each in-charge of specific group of items. The IT department is made up of one IT developer, and one web developer and designer. While this department is in-charge of improving the website, it is the purchaser’s responsibility to update the product list on the website. The development department is in responsible for scouting new locations and the development of new store locations. The last department consists of one person handling the responsibilities of both HR and Accounts Receivable.
On a store level, the organizational structure consists of the store manager and the staff. All the sales representatives are full-time employees are cross-trained to be able handle various responsibilities. The sales representatives are not assigned to specific departments, but rather they are encouraged to sell any product they wish to sell. The sales representatives are also considered as customer service representatives, technicians and RMAs. Exhibit A illustrates the organization structure of the Richmond store.
Product Design
The primary objective of Memory Express is to deliver quality products and exceptional customer service during, and after the initial sale. The company’s founder, Minh Ngo stated that ME will do whatever possible to ensure a customer is satisfied, even if it means selling an item below cost.
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It is the company’s goal to deliver the right product in a timely manner each time they complete a transaction. Memory Express’ goal and mission is to provide the best customer service possible to build a lasting relationship with their customers. Ve- Minh Ngo, 2011.
Product Strategy
Memory Express’ product strategy is unconventional in the industry. The product strategy is to list products at a higher price than the competitor and encourage customers to price-match with competitors. Memory Express will match the competition’s price and offer another 25% off the difference of the prices. This strategy gives the consumers a sense of satisfaction that they were able to find the best deal on the market.
Product Development Cycle to Date
With Memory Expresses’ product design process, we will be examining the design of a LCD
TV wall mount from idea realization to final retail.
New Product Idea
The creation of a new “Velocity” product (ME’s in-house brand) is initiated when management discovers an opportunity to introduce competitively priced accessories such as external hard drive enclosures, desktop computer cases, and TV mounting units. When the market for a 3rd party, affordable yet high quality TV mounting unit was discovered, management gave the task of designing 3d mock-ups of the product to a team of designers based in China. This team is provided with a list of specifications such as style, weight, capacity and materials. In some cases, products are simply designed with the help of an already existing blueprint a manufacture already owns. Options can be added or subtracted to a “base” product much like a car and can be customized at a price, dramatically reducing the costs of designing a product from scratch.
Screening
When a product has to be designed from the ground up, such as the Velocity TV unit, designers send multiple 3-D rendered designs (Auto-Cad) to the CEO for approval. The concepts that do not fit the criteria are sent back for rework. Memory Express does not have a dedicated screening team due to the relatively low number of self-designed products. Minh explained that it would not be cost effective to employ a dedicated team for these tasks.
Instead, they use a panel of experts during screening. Experienced sales people in relevant departments, managers, the designer, and the CEO get together and discuss designs and specs until one is approved.
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Revisions
Many revisions may take place before final specifications and designs are finalized. When a design is approved, it moves on to the next stage of finding a manufacturer that can produce the product to specifications.
Sourcing and Production
Production and manufacturing are usually outsourced to a factory in China. There are a variety of manufactures capable of producing these types of products. However, their pricing fluctuates depending on the complexity of the product, and the materials and labor involved.
Minh often chooses the manufacturer with a portfolio containing a similar product. Minh also requires that the company shows a good track record for delivering products on time, on budget and according to specs. Prices are often negotiable depending on size of the batch order. Minh usually purchases one container full of these products to save on shipping.
Inventory is stored at the warehouses connected to retail locations.
Critique & Recommendations
Based on our review of their product design process, our team recommends that ME applies the house of quality method in designing the specifications of their Velocity products.
The House of Quality is a diagram, resembling a house, used for defining the relation between customer desires in the product and the firm’s production capabilities. It uses a planning matrix to relate what customers want and how a firm can meet those expectations and needs. Exhibit B shows an example of a House of Quality for the Velocity Hard drive enclosures. A survey was conducted on Survey Monkey to discover customer wants and needs when in the market for a hard drive enclosure, of the 40 respondents, six customer wants were identified and categorized by according to their importance. Of the sample of 40 people, the top six characteristics are the following:
Plug-n-Play
Shock Resistance
Hard Drive Cooling
Sleek Design
USB 3.0
Low Noise
The vertical section of the House of Quality displays the firm’s technical capabilities.
Memory Express outsources its manufacturing and has the ability to make technical changes
Group 3 Memory Express Page 12 of 50 to designs and specifications without large capital investment as manufacturing is not conducted in house.
Three of the competitors’ products were also chosen as a comparison to the Velocity product.
Each product was examined to determine how well they matched up to the customer’s wants.
The results indicate that the Velocity product lags behind the competition in terms of USB
3.0 capacities and low operating noise, both are characteristics that customers cited they considered very important to them when making a purchase. It is recommended that ME reevaluates its future hard drive enclosure products and emphasize on low noise and USB 3.0 capabilities as it is currently lacking when compared to Western Digital and HP products.
The link to the survey can be found at the following address: http://www.surveymonkey.com/s/TJXFTCJ . Please see Exhibit C for survey results.
Forecasting
Is it used? What is done?
Currently, Memory Express (ME) uses qualitative forecasting methods to forecast monthly demands. “Jury of Executive opinion” is used for qualitative forecasting, however, ME does not utilize any quantitative forecasting. Due to the fact the Richmond location was just recently opened in October, they do not have sufficient data to predict an annual forecast.
Although ME has been established since 1996, this is the first store located in British
Columbia. With all factors considered, ME currently has to rely on its experience in other areas to forecast demands in BC.
Industry or Firm Specific Issues
Memory Express needs to implement additional forecasting methods to reduce its costs.
There is also a need to utilize forecasting techniques in areas such as inventory, purchasing and personnel hiring. Furthermore, it can extend its short-term forecasting to medium and/or long-term range forecasting.
Critique & Recommendations
Memory Express should utilize quantitative analysis in addition to the technique that they are currently using. It helps with monthly, quarterly, or yearly forecasting of sales, and also cash flow for the company. According to the data from ME (Exhibit D: Raw Data from Memory
Express), we chose and conducted a forecast of demands for ME’s five major product lines for the next five months. Laptops, Hard drives, Cameras, Monitors and Televisions are the
Group 3 Memory Express Page 13 of 50 five top selling product lines. The company will be able to predict the sales forecast more accurately if it implements quantitative approaches, such as line-trend models and exponential smoothing models.
Three different levels of smoothing constants were analyzed in order to determine the best one for the forecast, such as ɑ = 0.1, ɑ = 0.2, and 0.5. Based on the MAPE, the better smoothing constants for the four product lines (Laptops, Hard drives, Cameras and Monitors) are ɑ = 0.0 (derived through optimized option in Excel), and ɑ =0.5 for Televisions. (Exhibit
E: Forecasting Summary)
As the store just opened last year, Memory Express still needs to use “Jury of Executive opinion” method in addition to the quantitative methods stated above as this will improve the accuracy of the said forecasts.
Productivity
Is it defined?
Since Memory Express is a retail store, the company defines its productivity through service.
Although ME sells its own brand products (Velocity), its components are outsourced to
China. These components are then transferred to the store for final assembly. It takes three business days to assemble a computer from ordering to completion by one employee. Since these products are being outsourced, it is difficult to measure the production productivity for
ME.
Is it measured?
ME’s goal is to gain customer satisfaction. According to ME, it uses the numbers of customer helped to measure its productivity in service. Variables such as the average time of waiting for service, average time for checkout, average time for completion of transaction are measures that ME tries to improve on.
Industry or Firm-specific Issues
As the Richmond store is relatively new, ME has been trying to attract as many customers as possible. ME wants to build a positive relationship with the customers and gain a positive reputation. This results in increasing future sales opportunities for returning customers.
However, there are other ways to measure its productivity in service effectively.
For measuring service productivity effectively, there are three key variables:
1.
Sales amount or the numbers of units sold over labour hours
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2.
Sales amount or the numbers of units sold over labour dollar amounts
3.
Sales amount or the numbers of units sold over square feet for each product line
Critique & Recommendations
Based on the data provided by ME (Exhibit F – Raw Data for Productivity), we conducted different approaches to measure the productivity in service for the company. We recommended that ME should also measure the service productivity in terms of key variables, such as labour cost, labour hours, and square feet of each product line. (Exhibit G
– Service Productivity)
The most profitable product line is laptops in terms of labour hour and labour cost. The camera department is the next most productive product line. In terms of sales per square feet for each product line, hard drives are the most productive. Therefore, ME should examine why different product lines are more productive than others. In addition to increasing sales revenue, ME should also look at other product lines such as computer monitors and televisions because of the lower productivity. To help increase the productivity of these product lines, ME could offer promotions such as packaging a free media player or extended warranty along with the purchases.
Project Management
Introduction
The project we have chosen to audit is a tournament style competitive gaming event hosted by Memory Express. This event took place in store on Saturday, July 2 nd , 2011 between the times of 12pm to 9pm. Participants were required to register online or in person prior to the event for a fee of ten dollars. The maximum capacity for the tournament was set at 100 participants, but only 60 registrants applied. The main objectives of this project were to designate an area of the store for eight computers, acquire sponsorships, find employees to set up the computer software and equipment, and promote the event.
The project was assigned to one project manager, Mr. Damian Cheytanov, who was responsible for the completion of the project and emceeing the event. The event’s scope is determined by listing what resources, procedures, time, and money ME needs to reach the final result. Based on the information provided to us, we have divided their project in to the following plans (Exhibit H: Work Breakdown Schedule). This Work Breakdown Schedule was created in MindMap 4.0 to show the major tasks and sub-tasks associated with planning this LAN tournament. (Exhibit O: LAN Tournament Gantt Chart)
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Cost Plan
Majority of the budget needed to run this tournament was be funded by sponsorships. There were three major sponsors (Gigabyte, Intel, and Nvidia) acquired by Memory Express who provided all the required computer equipment and software, as well as the prizes given to the participants.
Risk Management Plan
Delivery of computer equipment from sponsors will be most critical. To ensure this risk is minimized, computer equipment will be delivered only five days prior to the event and stored in the store’s warehouse. Computers, along with the tournament software, will be installed and tested two days prior to the event. After each round during the tournament, a continual process of supervision will be conducted by the company’s IT specialist.
Staffing Plan
The tasks needed to complete this project required three additional employees. Prior to the event, one employee was responsible for all the media channels for advertising. She was assigned to market the event through YouTube, Facebook, Twitter, and online forums.
The second employee was responsible for setting up all the required computer equipment on the day of the event. He was also responsible for ensuring all the computer equipment was functioning properly after each round. The remaining employee and the project manager were responsible for accommodating the sponsorship partners and the registered players.
Communications Plan
Based on our observation, the project manager, Damian Cheytanov was responsible for informing the employees whom were involved prior and during the event of any changes.
During our team’s observation of the event we have noted several issues regarding unforeseen activities which happened during the tournament. The event exceeded the allotted time because of the project group did not take into consideration the setup times in between each round. The team also made a mistake in underestimating the time needed to complete each group. There was a significant amount of idle time experienced by inactive participates in between rounds. Participants were also required to stand because there was no seating available. During the course of the tournament, there was one significant complication where the server connection repeatedly disconnected. This problem repeatedly affected the game play and delayed the turnaround time between each round. The server was restarted each time which resulted in several minutes of idle time. There was no contingency
Group 3 Memory Express Page 16 of 50 plan on handling this issue therefore no additional servers were available to back up the system.
Critique & Recommendations
Based on our team’s audit, the ME gaming tournament project was managed using informal project planning tools. The project was developed and executed based on the experience of the management team on similar events hosted in the past. We believe that using a formal proposal as a guideline and other impromptu techniques may not necessarily be the most effective method to handle this project. Although this event was on a smaller scale (60 participants, eight computers, four sponsors, three additional staff), our team believes that
Memory Express’ ad hoc approach may not be ideal. By using project management software such as Microsoft Project 2011 (Exhibit G: MS Project 2011- ME’s Tournament Project) ME can effectively prepare with the complexity of larger future projects.
Because, currently Memory Express does not employ any software programs such as MS
Project and MindMap 4.0 to facilitate the planning process. It is recommended that Memory
Express utilize MS Project and MindMap 4.0 to break down the major tasks and sub-tasks that need to be completed.
MS Project can generate Gantt Charts which can show:
1.
Display project activities and their sequential relationship
2.
Estimate of how long the project will take
3.
Indication of which activities are most critical to timely project completion
4.
Indication of how long any activity can be delayed without delaying the project
In summation, the use of these programs can greatly reduce the costs and downtime of projects. An example of these programs can be found in Exhibit H. Exhibit H shows a WBS and MS Project file for the LAN Party tournament.
Process Design
The value added process our team focused on is the process of a customer ordering a
Velocity computer online to the delivery of the final computer system. The process describes the transformation of individual parts into a final computer system for the customer.
Individual parts include CPUs, memory, hard drives, cases, optical drives, motherboards, power supplies, sound cards, video cards and cooling fans.
When the customer places an order online, the online sales department receives the order and checks the computer system for stock levels. If the computer system is in stock, the
Group 3 Memory Express Page 17 of 50 customer’s order status is updated to “Ready to ship” or “Ready to pick up” depending on the customer’s delivery preference.
However, when the computer is out of stock, ME creates a bill of materials and identifies which components are missing and which are on hand. The out-of-stock parts are ordered from their respective manufactures and have a lead time of approximately three days. The parts that are in stock are sent to the in-house assembly department and installed onto the motherboard. The Velocity case is also wired and prepared for final installation.
When the ordered parts arrive, they are sent to the assembly department to be installed onto the motherboard. The computer is then put through a “Burn-in test” which lasts for a duration of six hours. During this phase, the computer is tested for operation temperatures, memory read and write tests, and video card performance.
If the computer operates with zero failure or error during this test, the computer is packaged and depending on the customer’s preference, is either shipped by ground or picked up in store.
However, if the computer shows one or more failures, the computer is analyzed in the assembly department to determine point of failure. The defective parts are replaced and retested. The computer is again reassembled and a Burn-in test is once again conducted. If the computer passes the Burn-in test, the computer is packaged and marked ready to ship.
The defective parts are sent back to the manufacturers for RMA.
ME will call the customer one week after their computer has been received to ensure the product is functioning correctly and ensure that the customer is satisfied with the product.
Issues
The major issue in this process occurs when a component is found not in stock and not ready to ship. Due to the competition of e-commerce, the customer may choose to purchase the system elsewhere if the computer is needed urgently. Another issue our team has identified is the transit time of parts when they are unavailable. The required time to order and receive the parts in the current process is approximately three days, which customers may feel is too long especially if they require the PC immediately.
Critique & Recommendations
In order to reduce the transit time and avoid stock outs, ME should change the way it manages and orders inventory to properly respond to the demand for Memory Express’ custom build PCs. To prevent stock outs, ME should increase the minimum carrying quantity for each component so that components are in stock at all times. However, ME should be
Group 3 Memory Express Page 18 of 50 careful with setting this amount as computer components quickly become outdated in a short period of time.
Layout Design
Existing Situation
Memory Express has one store in British Columbia located in Central Richmond. The store is approximately 23,500 square feet in size and opened in October 2010. Upon observation, the facility is designed to cater to a high capacity of customers and have several departments such as laptops, desktop computers, televisions and showrooms, computer peripherals and software. Store layout is shown in Exhibit I: Store Layout Plan.
Customers have certain expectations on store layout when they enter a store; these expectations are listed below.
●
Simple store layout
●
Greetings and quick response time
●
Proper illumination
●
Clean and tidy
●
Properly labeled inventory on display shelving units
●
Adequate spacing between aisles
●
Different categories/departments o Cameras and accessories o Television and showrooms o Laptops and accessories o Desktop computers and monitors o Computer peripherals and software
Competitor
NCIX is one of the main competitors to Memory Express. It is an established company in
BC and has six stores across the lower mainland. NCIX’s stores are significantly smaller and have different layouts.
They carry a large variety of products but only display a small amount in-store. Online sales comprise approximately 70% of their total sales, and 30% come from in-store sales 3 .
NCIX’s reliance on store layout is not as important as Memory Express because its quantity of online transactions is much larger than in-store transactions.
3 Quote from NCIX employee in Aberdeen location
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Analysis
Because one of ME goals is giving customers an exceptional first impression on store layout, the facility has plenty of space between aisles and has few display shelving units. The management team has made a managerial decision on choosing an impressive layout over optimizing revenue per square foot.
Constraints
Memory Express wants to differentiate from its competitor, NCIX, and it has chosen to differentiate itself by having a different store layout in order to impress its customers. By achieving this, ME has chosen to increase spacing between displayed products and increase spacing between aisles.
Since Memory Express carries a large variety of product lines, they are unable to display every single product on their shelves. This is due to limited space on existing shelves and the large amount of inventory.
In addition, computing hardware technology changes rapidly, and products may become obsolete after certain time. Carrying variety of products has created a burden for ME.
Opportunities
As Memory Express rents a large facility, there is room to place additional shelving units in their store if they decide to display other merchandise. Existing layout has plenty of space between aisles and this can be utilized.
The ME management team has an accurate professional judgment in predicting trend of products. Also, they have the power to decide which product(s) to display in-store from time to time.
Critique & Recommendations
In order to maximize space in store, ME should consider reducing the amount of space in between displayed units. The store manager can also reduce space in each aisle and utilize this additional space by adding extra shelving units.
The company should consider expanding their online sale services so that they do not need to rely heavily on the store’s layout. The owner should also consider building an additional floor inside the facility which could provide more space for the purpose of displaying products.
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In regards of inventory, the management team may give up the least profitable products and display products with the highest earn-turns. In addition, the company may also take off the obsolete items from display shelving units and leave the newest units on the shelves.
Supply-Chain Management
Introduction
As mentioned in “Company Description”, Memory Express offers a wide range of computer products to consumers, and the company currently purchases these products from different manufacturers. Without an efficient and reliable system for getting inventories from manufacturers (suppliers), ME will not be able to compete with its competitors.
According to our research, we have identified a few competitors within a radius of one kilometer of the company’s Richmond retail location – NCIX, Future Shop, Best Buy, and some small retail stores. Because of the amount of competitors in Central Richmond, any consumer who cannot find their intended product to purchase from ME can easily purchase it from any other competitors. A well developed supply-chain system is a big issue, thus, supply-chain management is essential, applicable, and important to the company.
Current Supply-chain Process
In our audit, we have picked laptops manufactured by Sony as an example. Sony is one of the suppliers of Memory Express, and the supply-chain management of its product between
Sony and ME 456 is shown in Exhibit J: Supply-chain Management of Sony Laptops.
Sony has factories all over Asia for the purposes of manufacturing parts and assembling parts into finished goods. It has a good reputation on reliability of delivery and has the ability to maintain the level of inventory manufactured due to its large manufacturing plants located in
Asia.
Other ME suppliers, such as Acer and Toshiba, are also proven in delivery of products and amount of inventory supplied due to the fact that they are large corporations and have established humongous factories all over the world.
Most suppliers manufacture their product parts in Asia, transport parts to China, assemble final products in China, and ship them to their worldwide warehouses. As ME locates in
4 http://online.wsj.com/public/article/0,,SB111825761813954442d4x_lQnm5A2GOO1NR6Wi_DBAyys_20050709,00.html?mod=blogs
5 http://www.personal.psu.edu/rgn5002/laptop-commodity-chain.html
6 http://dylan.tweney.com/writing.php?display=483
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British Columbia, Alberta and Manitoba, Canada, it gets products from manufacturer’s North
America warehouses.
As we have investigated, ME’s current supply-chain process takes around 1-week from the time of placing an order to receiving final products from manufacturers, and this excludes the time of manufacturing. The cost per unit under the current process is approximately $600. It could be broken down to unit cost of $595 (including delivering, manufacturing, and shipping and handling) and holding cost of $5. This number is derived from ME’s average inventory cost.
For products under ME’s brand Velocity, it would take approximately one month for the entire supply-chain process. This includes manufacturing the products and filling the container. These products include ME customized TV stand, hard drive case and computer case.
Reverse Logistics
If a customer returns a product, the process of reverse logistics begins. This covers all products that are covered by warranty. The reverse logistics process is shown in Exhibit K:
Reverse Logistics of Returned Products.
When a customer returns a product to ME declaring there is a problem, the product would be taken care of by a customer service representative (CSR). The CSR will then examine the product in-house and take appropriate actions after.
● If it is customer’s fault, CSR would return the original product to the customer.
●
If a problem is found and can be fixed in-house, CSR would estimate a due date and repair and return the product back to the customer.
●
If a problem is found and cannot be fixed in-house, CSR would give a new product
(the same model) to the customer. o CSR would then send that product back to manufacturer, both defective and non-defective, and the manufacturer would send a new product to ME. This process takes approximately 1 week.
ME pays for shipping and handling cost if the product is returned within 30 days since the purchase; customer pays for shipping and handling cost if the product is returned after 30 days but within a year since the purchase.
Group 3 Memory Express Page 22 of 50
Make or Buy Decision
ME retails computers and related goods, and it does not make these products. Instead, the company purchases the goods from different manufacturers. There are a few reasons why
ME chooses to buy instead of making.
Currently, there are adequate number of suppliers for computers and computer peripherals, and this increases the level of competition between suppliers. This results in higher quality of products and lower cost of goods.
Another reason why the company buys instead of makes is because of the supplier’s specialization in manufacturing computers and its components. Manufacturing a computer requires a lot of machinery and technology, and ME does not have sufficient knowledge
(technology), skills and capital assets to make components in a finished product.
Thus, it is difficult for the company to make computer products itself, and buying finished goods from manufacturers is the best option the company can have.
If the company must make products themselves, it will have to spend money on research and development, machines, facility, utility, workforce, supervising staff, materials, insurance and transportation.
Industry or Firm-specific Issues
Although purchasing finished goods from reliable manufacturers has its benefits, there are some disadvantages. Since there are only a few manufacturers, the firm does not have much bargaining power; the firm has high cost of goods sold. As a result, this would ultimately reduce the profit margin of the firm.
According to the statistic report from Industry Canada, the pre-tax profit margin in the computer retailing industry was 4.1% in 2009. Having a low profit margin reduces the competitiveness of ME among other competitors.
Moreover, the firm is only involved in a small part of the whole supply-chain process. There are not much actions ME can take to reduce the cost of final goods purchased except the holding cost and part of the transportation cost.
Critique & Recommendations
Due to the fact that ME is an electronic and appliances retailing company, the firm is unable to cut down costs in manufacturing process. However, in terms of supply chain management,
ME can reduce costs within the firm’s control and stimulate sales generated by e-commerce.
Under the current structure, costs ME can reduce are transportation, storage and labour.
Group 3 Memory Express Page 23 of 50
Transportation
In a short to intermediate term perspective, ME can find a logistics company that provides the cheapest service as there are thousands of logistics companies available in the market.
For long-term planning, ME may establish long-term relationships or contracts with one or more logistics companies and negotiate for a cheaper service charge. The firm can also set up its own logistics department and hire staff to perform the work. However, the cost of setting up a logistics department is costly, and long-term costs could be cheaper or more costly than outsourcing depending on the market and economy.
Storage
For intermediate-term planning, the firm may order and store more inventory in the warehouse. This could help spreading out the fixed cost of storage.
For long-term planning, the company can optimize warehouse space by adding shelves above existing ones, adding shelves beside existing ones, or reducing existing storage area and transforming it into other uses.
Labour
For short-term planning, ME could reduce labour cost by rescheduling existing timetables in receiving dock, reducing wages or benefits per employee, hiring part-time employees instead of full-time employees, or laying off existing receiving dock employees.
For long-term planning, the firm could reorganize its process for receiving and stocking inventory. The firm could reorganize its storage area to a flow-shop like layout which would help to increase efficiency. Also, the firm may be able to reduce the amount of labour after reorganization due to a smoother layout.
E-commerce Sales
In the current supply-chain process, there are two ways to deliver merchandises to consumers
– in-store retailing and e-commerce. In-store retailing involves labour while e-commerce does not, and this results a less costly supply-chain in e-commerce. In order to increase profit margin of merchandises in terms of supply-chain management, ME should stimulate sales in e-commerce as it does not involve labour.
Quality Management
Memory Express (ME) intends to deliver quality products and services at competitive prices.
As a retail company, one of the main concerns that ME has is customer service. Customer
Group 3 Memory Express Page 24 of 50 service at ME is evaluated in the form of responsiveness, timeliness, results, reliability, integrity and trust. One of their goals is to “ get it right the first time, get it right on time, get it right every time
.” 7 By achieving this goal, they could provide exceptional customer service exceeding customer’s expectations.
To ensure customers get the best quality products, ME offers 7-days “no question asked” return policy, a 30-days exchange policy, 30-days limited warranty on clearance items and 1year limited warranty on new items 8 . By having such policies in place, customers may enjoy products they purchased without having to deal with the manufacturers.
In order to provide high quality computers and related accessories, suppliers must ensure their products meet the basic requirement for performance. For example, computers should work efficiently throughout its useful life and should perform for a reasonable amount of time.
Quality Culture
To ensure employees provide the best customer services in comparison to their competitors, the company treats its employees as family members and provides a work environment which has flexible hours and welcoming atmosphere. This environment allows sales reps and floor managers to continuously improve the overall customer service process. This method values the input of those directly involved with the customers resulting in a continuous feedback cycle. This environment enables employees and ME the ability to dedicate their expertise to provide exceptional service.
Quality Standards
In order to provide the customer with quick and reliable services, all members of Memory
Express are being tested on their knowledge of computers and related products. Before each employee is hired, his or her knowledge on computer and computer components would be tested. Store managers would prepare and ask this applicant a set of questions about product parts, performance, and prices. If the applicant passes this test, he or she will be hired.
Employees must identify the best option for customers based on limited information. This would require employees having sufficient knowledge on computers and accessories. The employee is encouraged to take adequate training courses and gain knowledge on products and parts.
7 http://www.memoryexpress.com/CompanyInfo/AboutUs.aspx
8 http://www.memoryexpress.com/Information/RetailStorePolicies.aspx
Group 3 Memory Express Page 25 of 50
In addition, before ME accepts responsibility to repair a manufacturer’s product line, the company requires the manufacturer certify ME’s employees for repairing products. Repair technicians at ME are required to take training which takes place once every three months at
ME’s head office for one day. Various technicians from the manufacturers are brought in to facilitate these training sessions. ME is responsible for the costs of training.
If there is a disagreement between ME and manufacturer on this subject matter, ME would choose not to carry the manufacture’s product line as this requires customers to deal with manufacturers directly. This ensures the company provides quality customer services.
ME provides quality products to customers by having high expectations of its suppliers.
Suppliers of ME are required to ensure that the defect rate is within an acceptable range.
From past experience, the company has an average yearly defect rate of around 6% on its products.
9
As mentioned above in “Quality Definition”, the company takes care of warranties and will deal with manufacturers if necessary.
If a product is covered under warranty, the firm examines and repairs the product if necessary. However, the firm would send back the product if repair technicians are unable to fix the product defect product to the supplier/manufacturer. If the company discovers a shipment has a defect rate of 10% or higher, they would call back all the items sold and require the supplier(s) to replace and send another shipment.
Critique & Recommendations
After closely examining the company’s existing policies and related activities to ensure quality standards, we concluded that ME has excellent system in place and therefore does not require any changes in the near future.
Inventory Management
Competitor Analysis
ME counts two product groups of inventory per day. They continuously update their inventory and account for shrinkage. For a comparison, Future Shop does a full inventory count for all their products once every 3 months.
Pros
Low cost
Memory Express (Daily Inventory Count)
Cons
Does not take accurate screenshot of all inventory
9 Second interview with Damian (Exhibit L)
Group 3 Memory Express Page 26 of 50
Takes less time to count Complex schedule for inventory count for different product groups
Updates inventory every day
Less chance of error due to low inventory count per day
Future Shop (Quarterly Inventory Count)
Pros
Inventory count done in one day
Cons
High cost to hire additional workers to count
Accurate snapshot of inventory for that day
More chance of error due to higher inventory count
Inventory count must be completed in one night
Takes a long time to trace or detect theft due to long inventory count cycle (quarterly)
From this inventory count comparison, it shows ME has a better inventory count model because it is less costly and it updates certain product groups inventory daily. ME would also detect shrinkage immediately during the inventory count, whereas Future Shop would only detect that shrinkage during their quarterly inventory count period.
Analysis
Currently ME has a total inventory of $40 million across their seven stores in Western
Canada. ME does not have a centralized warehouse but instead have a warehouse in each of their stores. For the Richmond Store, the total size of the warehouse is 7,000 square feet to hold their inventory. By having a large warehouse in back of each store, ME has quick access to all of their inventory, and all the shipments are directly delivered to their store. It also saves ME additional leasing costs if they had a central warehouse to store their entire inventory.
For highly obsolescent items such as laptops, video cards and motherboards, these items are promoted and placed on sale more frequently. ME tries to keep a low inventory count for these particular items in order to account for its obsolescence.
ME has a shrinkage rate of 1.5% for all the locations, which totals $600,000. This is a relatively low number compared to industry standards. Based on an interview of a Best Buy employee, their shrinkage for the store in Cambie/Broadway location was $200,000 per year.
Shrinkage costs include; customer or employee theft, damaged goods or missing goods.
Based on a quote given by Minh Ngo, Laptop memory, flash memory and hard drives contributed most to shrinkage. Our team conducted an ABC classification based on the shrinkage annual dollar value (Exhibit M: ABC Classification - Inventory Shrinkage).
Group 3 Memory Express Page 27 of 50
Laptop memory, flash memory, hard drives and computer accessories were classified in A with a total of 71%. Games/DVDs, and GPS were classified as B with a total of 18%; cameras and headphones were classified as C with a total of 11%.
ME uses a Min/Max system for inventory control. ME sets a minimum stock (reorder point) at two weeks in order to allocate the time it takes for their new shipment to arrive. Their minimum stock is set at two weeks, and their maximum is set at four weeks of stock.
Whenever ME stock level reaches the minimum stock point, an automatic reorder is placed to meet their target level of quantity.
Min / Max Inventory Replenish System10
Pros Cons
Simple method and easy to implement High chance of holding excess inventory
Rush shipments not needed
Stock outs don’t occur often
Always have inventory on hand
Obsolescence
High inventory holding costs
Reorder Point
For example, ME sells approximately 180 monitors per month. For a particular model,
“Samsung 20inch LCD monitor” we calculated a ROP of 13.93 units.
Samsung 20 inch LCD Monitor
ROP Demand 726.22 /year
Working days d =
365 /year
1.99 Units
ROP
Lead time
13.93 units
7 Days
Critique & Recommendations
Since ME just opened their first store in British Columbia, recommending a centralized warehouse would not be beneficial to ME. If ME plans to expand in BC, a centralized warehouse in between Alberta and BC would be needed in order to accommodate all the inventory for the stores.
10 http://www.driveyoursuccess.com/2010/03/simplifying-minmax-jit-inventory-do-you-knowwhat-your-company-should-run.html
Group 3 Memory Express Page 28 of 50
Currently, their inventory management is performing reasonably well based on their shrinkage rates and inventory controls. By monitoring their inventory levels for high obsolescence items, they are able to avoid items becoming obsolete or damaged. Because their employees are “paid well” according to Minh, the shrinkage rate is lower compared to its competitors such as Best Buy.
Since ME does not use a quantitative forecasting system, their Min / Max inventory replenish system is used to control their inventory stocks. This method works really well for ME because they always have stock in their store for any particular item at any given time.
Action Plan
Based on our research and recommendations, we suggest ME to reevaluate some of its weaker operational activities with an emphasis on:
Project Management
Forecasting
Product Design
To effectively implement some of the formal POM tools we have suggested, ME should set goals and explore each for ease of use, cost, and benefits to the company. ME will need to impose a time frame, and implementation plan which outlines the level of both management and staff. This plan should also take into consideration the training costs, times and controls to monitor the operations of the newly integrated policies or tools.
In the short-term, ME should delegate two managers to learn how to use Microsoft Project.
Since MS Project is an effective and easy tool to use, this will allow managers to have a great organizational tool for planning future projects. In addition to current forecasting method of
Jury of Executive Opinion, ME should take salespersons opinions in consideration as they deal with customers in daily and have a clearer sight on product’s demand. ME should also use exponential smoothing and MAPE in order to have a more accurate forecast result.
Lastly, ME could apply the house of quality to every new product ME makes in-house. By doing so, the company could meet customer requirements.
In conclusion, ME has done an excellent job maintaining their operational policies. If the company will consider our recommendation and action, we believe ME can minimize their capital and opportunity cost.
Group 3 Memory Express Page 29 of 50
Works Cited
All about calgary. (n.d.). Retrieved May 23, 2011, from www.business.allaboutcalgary.com/listing/608/memory_express.html
Cheytanov, D. (2011, May 27). Store Manager. (E. group, Interviewer)
Dean, J. (n.d.). The Laptop Trail. Retrieved May 22, 2011, from Wall Street Journal: http://online.wsj.com/public/article/0,,SB111825761813954442d4x_lQnm5A2GOO1NR6Wi_DBAyys_20050709,00.html?mod=blogs
Express, M. (2011). About us. Retrieved May 3, 2011, from www.memoryexpress.com
Governenment Canada. (2009). Retrieved July 13, 2011, from Industry Canada: http://www.ic.gc.ca/cissic/cis-sic.nsf/IDE/cis-sic443rdpe.html
Ngo, M. (2011, May 15). CEO. (J. Chu, Interviewer)
Nuss, R. (2010, March 2). Laptop Commodity Chain. Retrieved June 9, 2011, from Personal.psu: http://www.personal.psu.edu/rgn5002/laptop-commodity-chain.html
Minh. (2011, June 28). CEO. (E. group, Interviewer)
Simplifying Min/Max. (2010, April 8). Retrieved June 14, 2011, from Drive You Success: http://www.driveyoursuccess.com/2010/03/simplifying-minmax-jit-inventory-do-you-knowwhat-your-company-should-run.html
What's Inside Your Laptop . (2007, March 14). Retrieved June 4, 2011, from PC Magazine: http://dylan.tweney.com/writing.php?display=483
Group 3 Memory Express
Exhibits
Exhibit A: Organization Chart for Richmond Store
Page 30 of 50
Group 3 Memory Express
Exhibit B: House of Quality For Hard Drive Enclosure
Page 31 of 50
Group 3 Memory Express
Exhibit C: House of Quality Survey Data
Hard Drive Enclosure Survey (N= 40)
Page 32 of 50
40
20
0
2 3
7
9
13 14 15
17 18 19
21
Ряд1
Exhibit D: Raw Data from Memory Express
Sales Q Laptop HDD
Oct 131 576
Nov
Dec
Jan
146
116
136
118
595
528
549
552 Feb
Mar
Apr
May
June
140
143
121
133
665
575
642
578
Total
# of mo
Ave /mo
1184
9
5260
9
131.56 584.44
Camera Monitor TV
49
76
40
49
61
50
71
58
62
516
9
57.33
163
178
190
182
175
175
185
153
192
41
44
37
33
31
32
52
43
60
1593
9
373
9
177.00 41.44
Group 3 Memory Express Page 33 of 50
Exhibit E: Forecasting Summary
Forecasting for Laptops
Sales Q Laptop
α = 0.1 α = 0.2 α = 0.5 α = 0.0 (opt)
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
July
Aug
Sep
Oct
Nov
131
146 131.22 131.22 131.22
116 133.07 134.99 142.53
136 131.56 131.25 126.55
118 132.25 132.44 130.92
140 130.93 129.22 120.88
143 132.03 131.47 131.64
121 133.42 134.34 141.36
133 132.36 131.69 130.13
132.61 132.03 131.23
132.79 132.11 130.90
132.97
133.16
132.19
132.26
130.57
130.23
133.34 132.34 129.90
MAD 10.46 11.24 14.67
MSE 11.67 12.44 16.19
MAPE 8.14% 8.75% 11.43%
Forecasting Constants (Optimized)
Level (Alpha)
Trend (Beta)
Holt's Exponential
Mean Abs Err
Root Mean Sq Err
Mean Abs Per% Err
0.000
0.999
9.85
11.06
7.65%
Forecasting Data
Oct-2010
Nov-2010
Dec-2010
Jan-2011
Feb-2011
Mar-2011
Apr-2011
May-2011
Jun-2011
Jul-2011
Aug-2011
Sep-2011
Oct-2011
Nov-2011
[ST_DataSet1]
131.0000
146.0000
116.0000
136.0000
118.0000
140.0000
143.0000
121.0000
133.0000
131.22
131.44
131.67
131.89
132.11
132.33
132.56
132.78
133.00
133.22
133.44
133.67
133.89
9.85
11.06
7.65%
Level Trend Forecast Error
131.00 0.22
131.22 0.22 131.22 14.78
131.44 0.22 131.44 -15.44
131.67 0.22 131.67 4.33
131.89 0.22 131.89 -13.89
132.11 0.22 132.11 7.89
132.33 0.22 132.33 10.67
132.56 0.22 132.56 -11.56
132.78 0.22 132.78 0.22
133.00
133.22
133.44
133.67
133.89
Group 3 Memory Express Page 34 of 50
Forecasting for Hard Drives
Sales Q HDD
α = 0.1 α = 0.2 α = 0.5 α = 0.0 (opt)
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
July
Aug
Sep
Oct
Nov
576
595 576.22 576.22 576.22
528 578.51 580.95 590.53
549 573.36 569.22 548.55
552 570.59 563.22 538.17
665 568.21 558.57 537.94
575 578.33 581.71 626.09
642 578.41 581.96 612.39
578 585.81 597.95 646.45
586.00 597.15 614.36
586.97 600.34 616.50
587.93 603.53 618.64
588.90 606.72 620.77
589.87 609.91 622.91
576.22
576.44
576.67
576.89
577.11
577.33
577.56
577.78
578.00
578.22
578.44
578.67
578.89
MAD 35.47 37.04 46.47
MSE 46.54 48.82 59.97
MAPE 5.9% 6.1% 7.8%
34.33
44.68
5.7%
Forecasting Constants (Optimized)
Level (Alpha)
Trend (Beta)
Holt's Exponential
Mean Abs Err
Root Mean Sq Err
Mean Abs Per% Err
Forecasting Data
Oct-2010
Nov-2010
Dec-2010
Jan-2011
Feb-2011
Mar-2011
Apr-2011
May-2011
Jun-2011
Jul-2011
Aug-2011
Sep-2011
Oct-2011
Nov-2011
0.000
0.000
34.33
44.68
5.70%
[ST_DataSet2]
576.0000
595.0000
528.0000
549.0000
552.0000
665.0000
575.0000
642.0000
578.0000
Level
576.00
576.22
576.44
576.67
576.89
577.11
577.33
577.56
577.78
Trend
0.22
0.22
0.22
0.22
0.22
0.22
0.22
0.22
0.22
Forecast
576.22
576.44
576.67
576.89
577.11
577.33
577.56
577.78
578.00
578.22
578.44
578.67
578.89
Error
18.78
-48.44
-27.67
-24.89
87.89
-2.33
64.44
0.22
Group 3 Memory Express Page 35 of 50
Forecasting for Cameras
Sales Q Camera
α = 0.1 α = 0.2 α = 0.5 α = 0.0 (opt)
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
July
Aug
Sep
Oct
Nov
49
76 50.44 50.44 50.44
40 54.70 58.02 71.06
49 54.78 56.16 55.60
61 55.70 56.19 50.72
50 57.78 58.80 56.85
71 58.47 58.34 52.70
58 61.32 62.68 65.70
62 62.55 63.36 63.78
64.05 64.65 64.37
65.61 66.22 65.85
67.17 67.78 67.33
MAD
MAPE
Forecasting Constants (Optimized)
68.72 69.35 68.82
70.28 70.91 70.30
9.44 10.38 13.51
MSE 12.04 12.82 16.62
16.3% 18.4% 24.7%
Level (Alpha)
Trend (Beta)
Holt's Exponential
Mean Abs Err
Root Mean Sq Err
Mean Abs Per% Err
0.003
1.000
8.77
11.57
14.79%
Forecasting Data
Oct-2010
Nov-2010
Dec-2010
Jan-2011
Feb-2011
Mar-2011
Apr-2011
May-2011
Jun-2011
Jul-2011
Aug-2011
Sep-2011
Oct-2011
Nov-2011
[ST_DataSet3]
49.0000
76.0000
40.0000
49.0000
61.0000
50.0000
71.0000
58.0000
62.0000
50.44
52.04
53.49
54.94
56.45
57.90
59.45
60.95
62.46
63.96
65.47
66.98
68.48
8.77
11.57
14.8%
Trend Level Forecast
49.00 1.44
50.52 1.52 50.44
52.00 1.48 52.04
53.47 1.47 53.49
54.96 1.49 54.94
56.43 1.47 56.45
57.94 1.51 57.90
59.44 1.50 59.45
60.95 1.51 60.95
62.46
63.96
65.47
66.98
68.48
Error
25.56
-12.04
-4.49
6.06
-6.45
13.10
-1.45
1.05
Group 3 Memory Express Page 36 of 50
Forecasting for Monitors
Sales Q Monitor
α = 0.1 α = 0.2 α = 0.5 α = 0.0 (Opt)
Oct
Nov
163
178 166.22 166.22 166.22 166.22
Dec
Jan
190 170.74 172.27 178.28
182 176.20 180.22 193.24
169.44
172.67
175.89 Feb
Mar
Apr
175 180.37 185.05 193.91
175 183.37 187.11 186.01
185 185.99 188.28 179.32
179.11
182.33
185.56 May
June
July
Aug
Sep
Oct
Nov
153 189.33 191.08 182.39
192 188.78 185.39 160.58
192.21 188.91 177.03
195.32
198.44
201.55
204.66
191.11
193.31
195.51
197.70
177.76
178.50
179.24
179.98
188.78
192.00
195.22
198.44
201.67
204.89
Forecasting Data
Oct-2010
Nov-2010
Dec-2010
Jan-2011
Feb-2011
Mar-2011
Apr-2011
May-2011
Jun-2011
Jul-2011
Aug-2011
Sep-2011
Oct-2011
Nov-2011
MAD 11.39 12.68 16.39
MSE 15.71 16.61 18.59
MAPE 6.7% 7.5% 9.3%
Forecasting Constants (Optimized)
Level (Alpha)
Trend (Beta)
Holt's Exponential
Mean Abs Err
Root Mean Sq Err
Mean Abs Per% Err
0.000
0.000
10.64
14.76
6.23%
[ST_DataSet1]
163.0000
178.0000
190.0000
182.0000
175.0000
175.0000
185.0000
153.0000
192.0000
Level
163.00
166.22
169.44
172.67
175.89
179.11
182.33
185.56
188.78
Trend
3.22
3.22
3.22
3.22
3.22
3.22
3.22
3.22
3.22
10.64
14.76
6.2%
Forecast
166.22
169.44
172.67
175.89
179.11
182.33
185.56
188.78
192.00
195.22
198.44
201.67
204.89
Error
11.78
20.56
9.33
-0.89
-4.11
2.67
-32.56
3.22
Group 3 Memory Express Page 37 of 50
Forecasting Constants
Level (Alpha)
Trend (Beta)
Holt's Exponential
Mean Abs Err
Root Mean Sq Err
Mean Abs Per% Err
Forecasting Data
Oct-2010
Nov-2010
Dec-2010
Jan-2011
Feb-2011
Mar-2011
Apr-2011
May-2011
Jun-2011
Jul-2011
Aug-2011
Sep-2011
Oct-2011
Nov-2011
Forecasting for Televisions
Sales Q TV
α = 0.1 α = 0.2 α = 0.5 α = 0.0 (opt)
Oct
Nov
41
44 43.11 43.11 43.11 43.11
Dec
Jan
Feb
Mar
Apr
37
33
45.32
46.52
45.44
45.56
45.89
41.56
31 47.07 44.35 35.25
32 47.21 42.46 30.03
52 47.28 40.72 28.42
43 49.38 43.78 43.51
45.79
42.27
38.44
35.79
35.47
May
June
July
48.17
46.97
57.43
Aug
Sep
Oct
Nov
60 50.32 44.40 46.42
52.95 48.92 59.78
54.62 50.32 66.34
56.29 51.72 72.90
57.96 53.11 79.47
59.63 54.51 86.03
MAD 9.35 9.17 7.78
MSE 10.60 10.54 10.70
MAPE 25.6% 23.5% 17.6%
59.54
61.65
63.76
65.87
8.11
9.38
19.4%
0.500
0.500
7.777
10.698
17.62%
[ST_DataSet2]
41.0000
44.0000
37.0000
33.0000
31.0000
32.0000
52.0000
43.0000
60.0000
Level Trend Forecast Error
41.000
43.556
41.444
2.111
2.333
0.111
43.111
45.889
37.278 -2.028 41.556
33.125 -3.090 35.250
0.889
-8.889
-8.556
-4.250
31.017 -2.599 30.035
40.209 3.296 28.418
1.965
23.582
43.253
53.211
3.170
6.564
43.506
46.423
-0.506
13.577
59.776
66.340
72.904
79.469
86.033
Group 3 Memory Express
Exhibit F – Raw Data for Productivity
Total sales for major 5 product lines
Product Lines Total Sales (7 months) Avg $/month Avg $/unit
Laptop
HDD
Camera
Monitors
TV
$ 570,000 $ 81,428.57
$ 358,000 $ 51,142.86
$ 300,000 $ 42,857.14
$ 252,000 $ 36,000.00
$ 230,000 $ 32,857.14
$618.89
$87.50
$747.56
$203.33
$793.33
Capacity of the store
Area
Warehouse
Service area
Floor space
Total Sq. ft.
Square feet
7,000
2,000
14,500
23,500
Square feet for major product lines
Column1 Proportion of sq. ft.
Laptops
Hard drives
Cameras
Monitors
Televisions
Other product lines
Aisle
TOTAL
4.37%
1.45%
2.92%
3.63%
17.30%
15.38%
54.95%
100%
Square ft.
634
210
423
526
2,509
2,230
7,968
14,500
Page 38 of 50
Group 3 Memory Express Page 39 of 50
Exhibit G – Service Productivity
1. Sales $/ labour hour (per month)
Labour information
Product Lines
12 staff /day
8 hours / day
# of sales reps Monthly sales Productivity/labour hours
Laptops
Hard drives
Cameras
Monitors
Televisions
TOTAL
3
3
2
2
2
12
$81,429
$51,143
$42,857
$36,000
$32,857
$244,286
$3,392.86
$2,130.95
$2,678.57
$2,250.00
$2,053.57
$12,505.95
2. Sales $/ labor cost (per month)
Labour information
Product Lines
Laptops
Hard drives
Cameras
Monitors
Televisions
TOTAL
# of sales reps
3
3
2
2
2
12
12 staff /day
8 hours / day
$15 /hour
Monthly sales
$81,429
$51,143
$42,857
$36,000
$32,857
$244,286
Productivity/labour cost
$226.19
$142.06
$178.57
$150.00
$136.90
$833.73
3. Sales $/square ft. (per month)
Product Lines
Laptops
Hard drives
Cameras
Monitors
Televisions
Monthly
Sales
$81,429
$51,143
$42,857
$36,000
$32,857
Productivity / sq. ft.
$128.51
$243.25
$101.22
$68.40
$13.10
Group 3 Memory Express
Exhibit H: Work Breakdown Schedule
Page 40 of 50
Group 3
Exhibit I: Store Layout Plan
Memory Express Page 41 of 50
Group 3 Memory Express
Exhibit J:
Supply-chain Management of Sony Laptops
Page 42 of 50
Group 3 Memory Express
Exhibit K:
Reverse Logistics of Returned Products
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Group 3 Memory Express Page 44 of 50
Exhibit L:
Summary of Meetings
First Meeting
Name: Mr. Minh Ngo
– CEO & Owner
Mr. Damian Cheytano – Store Manager
Date: May 15th, 2011
Location: Memory Express Store in Richmond, BC
Summary:
This was our first formal face-to-face meeting with Mr. Ngo and Mr. Cheytanov. In our conversation our team enquired about the overview of the company and various information related to our POM audit. Memory Express graciously provided us with information in regards to the company’s organizational structure, business functions, refund and return policies, price-matching policy, and layout.
Mr. Ngo agreed to continuous provide us exclusive information about the inner workings of the company and appointed Mr. Cheytanov as our contact when he is unavailable and out of the province.
Second Meeting
Name: Damian Cheytanov
– Store Manager
Date: May 27th, 2011
Location: Memory Express Store in Richmond, BC
Summary:
Our team had a face-to-face interview with Memory Express’ store manager Damian
Cheytanov. In the interview, our team acquired information about ME’s business strategy, forecasting and productivity data for their top five product lines. Unfortunately, we found out that they did not do any quantitative forecasting, but instead used a jury of executive opinion forecasting. For productivity, we learned that they did not manufacture their own branded products, but instead outsourced it to a company in China.
We also inquired about project management regarding the opening of the Richmond store.
We learned that the opening of the store was anticipated for May 2010, but delays caused by
Group 3 Memory Express Page 45 of 50 a flood in the store pushed the opening to Oct 2010. For quality management, ME claimed that the products they received from their suppliers must have a 10% return rate or less or else ME would request for a new batch. For product design, ME had a team of designers for a television stand branded under Velocity. Once the design was approved by Minh, the specifications for the TV stand would be sent to China for manufacturing.
Third Meeting
Name: Minh Ngo
Date: July 28, 2011
Method: Phone Interview
– CEO & Owner
Summary:
Our team had a phone interview with the CEO of Memory Express, Minh Ngo. In our conversation, we asked him questions regarding inventory management, layout, supply-chain management and related issues in the firm.
For inventory management, we discussed about total inventory, shrinkage, obsolete inventory and inventory model. Minh said that their shrinkage rate was 1.5% across the seven stores of Memory Express. When we asked Minh how the shrinkage rate was so low,
Minh said that the employees were satisfied in working with Memory Express and because they were “paid well”.
For supply-chain management, Minh discussed that their Velocity branded products were outsourced to Asia and it took approximately 1 month for the product to arrive to each store.
Depending on where the products were manufactured and size of the order, it would take from 1 week to 1 month to arrive in Memory Express warehouse.
The items are delivered directly to each store’s warehouse because they do not have a centralized warehouse to store their products. Each store places its own order and is independent. For customer returns, the ME employee inspects, tests and returns the product from the customer to the manufacturer if necessary. ME is responsible for the shipping costs and it takes approximately one week for the product to return back to the retail location.
Group 3 Memory Express
Exhibit M: ABC Classification - Inventory Shrinkage
Item
Laptop memory
Flash Memory
Hard Drives
Computer Accessories
Games/Dvds
Average
Unit Cost
Units
Lost
Annual
Dollar
Value
$30 800 $24,000
$10 950
$75 125
$15 475
$20 325
$9,500
$9,375
$7,125
$6,500
% of Total ADV
34%
14%
13%
10%
9%
A
B
GPS
Cameras
$100
$250
60
20
$6,000
$5,000
9%
7%
C
Headphones
Total
$30 90 $2,700
70,200
4%
100%
Page 46 of 50
71%
18%
11%
Group 3 Memory Express Page 47 of 50
Exhibit N: Shrinkage Pareto
$30 000
MEMORY EXPRESS - Shrinkage Pareto
Chart
120%
$25 000 100%
$20 000
$15 000
$10 000
$5 000
$0
80%
60%
40%
20%
0%
Annual Dollar Value
Cummulative items that contribute to Shrinkage
Group 3 Memory Express
Exhibit O: MS Project Gantt Chart
Page 48 of 50
Group 3
Exhibit P: MS Project Schedule
Memory Express Page 49 of 50
Group 3 Memory Express Page 50 of 50
