Reference no: EM133526174
Elegance Furnishings is a publicly traded specialty retailer of luxury home furnishings, bath fixtures, textiles and unique home décor. The company sells high-end, high-quality, one-of-a-kind merchandise, including such items as a seven-foot French clock tower, a reproduction of a 19th-century clock from a famous village in Southern France. Elegance Furnishings sells its merchandise through its e-commerce website, direct mail catalogue and 150 stores across Canada and the United States. The company sources around 65 percent of its products from overseas, mainly from contract manufacturers in China. Elegance Furnishings is also the largest importer of Belgian linen and Italian bedding in the U.S. Six months ago, the company launched a new line of furniture called "Noir Blanc" in an effort to enter a new niche market of Millennials. Vice President of Global Transportation Jeff Smith has been facing two enormous challenges. These challenges have been affecting the company's first-quarter financial results and, as a result, investors' confidence in the company and share prices have been falling.
The Challenges
With its reliance on international merchandise, the demand for ocean freight is relatively high at Elegance Furnishings and the usual ocean freight liner bidding process has been inefficient. The company negotiates international ocean freight contracts with carriers individually. The carriers then provide their bids by email or spreadsheets. With the current process, the company cannot easily negotiate with carriers or correctly audit freight bills. Jeff has asked the Director of International Logistics, Kayla Shepherd, to research some alternative methods for the ocean freight liner bidding process.
Another challenge Jeff needs to resolve is low inventory, which has been affecting catalogue, online and in-store orders. Many customers have been waiting over a month for the delivery of items ordered from the company's catalogue. Several others have been complaining on the company's Facebook page, as well as through the customer care call centre, that when they order products online they have to wait three to four months for some of their items. One customer found Jeff's email on the company's website and emailed him directly, advising him that of all the items she selected through the e-commerce website, only 50 percent of them were in stock, with an estimated delivery time of 12 days or fewer. The items she selected that were not in stock online had an estimated delivery date of 60 to 80 days. Of those not in stock, some had a note advising customers they would be contacted within two months regarding delivery. Many customers have not been willing to wait, and the number of order cancellations has increased by 40 percent.
The company's executive team met to form a recovery plan. The ocean freight bidding process and the stock-out issues needed to be addressed urgently. In order of priority, CEO Rick Chase discussed the stock-outs with the team first.
Stock-in. Stock-out.
The team was aware the supply chain was not adequately prepared for the demand and that someone at Elegance Furnishings or in their network of suppliers was to blame. Fingers were being pointed everywhere. It was Rick who decided last year to announce the launch of the new line of furniture and then implement multiple sales channels for consumers. With sales coming through the store, the catalogue and online, it forced the supply chain to work more vigorously to meet customer demand. It also meant Elegance Furnishings needed to be able to accurately forecast the demand from all consumers, through all sales channels.
The delivery delay to the customer was further hampered by the nature of the company's line of products. Given the luxurious and unique line of merchandise carried by Elegance Furnishings, there are many product versions. For example, an upholstered couch can be sold in more than 100 fabrics and with different types of frames. There will be different lead times for each type of couch, as there will be some that are in stock and others that are not. A silver pendant lamp could be shipped to the customer within five days, whereas a brass version could take up to six months.
Rick and the chain executives were cautious with the inventory purchased for the "Noir Blanc" launch, and it seemed the demand for the merchandise exceeded what was expected. The "Noir Blanc" merchandise was advertised long before the shipping deadlines were set with the suppliers in the various countries. As Elegance Furnishings had to meet the launch date in the U.S. and Canada, the suppliers were given tight deadlines, which they could not meet. This meant some suppliers struggled to increase their production to meet the launch of the new line. Rick thinks the suppliers should be caught up in four months; Kayla and Chief Procurement Officer Jillian Styles believe it will take a lot longer. Products coming from the manufacturers in China usually take 30 to 60 days to get to the U.S. port in San Francisco.
Going Digital
Kayla came prepared to make a presentation to the executive team on her findings. After several days of receiving proposals and speaking to various agencies, Kayla presented the option of using Transpedia, a computerized system offered by Digimel, a cloud-based supply chain firm that is a part of an international software company. Transpedia was reported to have been used by some of the world's biggest carriers and shippers. It is an on-demand portal used for ocean transportation bids. The system would show how Elegance Furnishings could optimize transportation expenditures by running price scenarios and comparing carrier rates. The company could save up to 10 percent per year on freight costs. The tools from Digimel would allow Jeff and his team to see the exact rates and all the information behind those rates, allowing for accurate freight audits. All those involved-the Elegance Furnishings procurement team, the carriers and other logistic partners-would now have access to an online system that shows all data, including rates and service terms, making it much faster to compare proposals. They would be able to share and access data from all their trading partners, and then choose suppliers and carriers based on highly predictable performance data. Once Elegance Furnishings has finalized the carrier agreements, a contract is awarded and the system creates a digitized contract. Transpedia is then used as a transportation contract management system that can be managed by the carrier and Elegance Furnishings. Transpedia will also include ocean freight contract information to facilitate document exchange for importing. With Transpedia, there would be visibility into every order, document, cost and logistics event over the entire supply chain network, and one consolidated system of record for supply chain data.
Rick and Jeff were very impressed with the benefits of Transpedia. Jeff was curious to know what else Digimel could do to improve efficiency beyond the ocean freight bidding process. Seeing the potential success of the system, the company could continue to use Digimel to automate its entire supply chain network. Kayla informed the team that automating the supply chain network was possible. Digimel could provide the company with applications that monitored and automated all supply chain activities, from issuing purchase orders, through production, logistics and delivery, to final supplier payment. Jeff was pleased to see the potential for improvements and considered these applications a vital part of the company's global sourcing strategy.
Making the Next Move
Rick decided to make a formal announcement to Elegance Furnishings' customers that the company was experiencing supplier shortages, but was working with its suppliers to get the products from overseas and sent to customers within three months. The company would offer a 5 percent discount on orders due for delivery in 60 days or more. Rick trusted Jeff's judgement on the use of Transpedia for automating the entire supply chain network and requested negotiations to implement the system begin immediately.
Q: Identify which group of documents may be used for international trading between Elegance Furnishings and its suppliers in China? Give one example of a document in each group that Elegance Furnishings may specifically use.