Sarak Wholesale: Wishing for Control

The owner of a Cape Town, South Africa–based business, Sarak Wholesale Supplies, struggles to manage his cash flow and get his inventory under control (Sarak Wholesale has no formal order-cycle process). To improve the level of service Sarak Wholesale provided to its clients, he would need to formalize its ordering procedures. Excerpt UVA-OM-1570 May 19, 2017 Sarak Wholesale: Wishing for Control Sifiso Mulder looked through his inventory of goods, which he sold through his Cape Town, South Africa–based business, Sarak Wholesale Supplies. He had built the business through hustle and salesmanship…and perhaps a creative flair for figuring out what Cape Town tourists would find interesting. He supplied hundreds of entrepreneurial retailers, from the gift shop at Robben Island, to street vendors at Cape Town Stadium, to the shopkeepers at Bay Harbor Market in Hout Bay. None of his customers could afford a big inventory investment, so he had built his business through low costs and great service. Despite the growth in revenue—or perhaps because of it—Mulder struggled to manage his cash flow. He had convinced a few of his suppliers to provide inventory on consignment, but most required payment up front. Regardless, he knew that he needed to get his inventory under control if he wanted to make money. Because money was tight, he had started cutting back on inventory…but that had led to lots of out-of-stocks, which was hurting his reputation for customer service. Framing the Problem Mulder wasn't quite sure how to begin tackling the stock-out problem that had plagued Sarak Wholesale during the previous tourist season. He decided early on that his first goal should be to determine a reorder point for every stock-keeping unit (SKU) stocked by Sarak Wholesale to avoid missing sales revenue due to stock-outs without incurring needless costs. Mulder wasn't quite sure what would be an appropriate service level. He also wasn't convinced that the service level should be the same across all product categories. As an initial target, however, Mulder felt that Sarak Wholesale should have all standard gift items with the South African flag in stock and available for sale at least 90% of the time. He was less sure about the specialty with only the items that had the name of a particular destination like Robben Island or Table Mountain National Park printed on them. He thought such specialty items could have lower service levels because they were relevant to fewer customers. Mulder also wondered about deciding the right service level by product category. He worried about the competition in caps and coffee mugs, which mostly carried logos of the tourist attraction but could also be labeled with clever slogan, such as “I Love Hip-Hop” on his kiddie baseball caps. On the other hand, he knew his custom knives (sold on consignment) were not readily available to his customers from other wholesalers. After running his initial analysis, he decided that he should look at how adjustments to the service level would affect his safety stock levels, and ultimately his costs, in order to decide. . . .