Reference no: EM133212731
Operations Management
In 1997, Exito started to operate C&C stores, with CreditPlus, its bank and financial business, providing consumption credit for their customers. Traditional credit cards were also accepted at the stores.
The success of this type of business is based on the availability of innovative, creative and fashion products, different from those offered by the competition. The supply of products and services was resumed by the suppliers, who were eagerly waiting to restart business with the new administration.
With the availability of new products and an intense advertising effort, the sales of the chain started to increase significantly. The payment terms with the suppliers (mostly based on 60 and 90 days) and the financial institutions were honored, as per the restructuring agreements.
However, in 1998, Peru began to suffer a recession. The economic activity in the country decreased significantly. We have to have clear that in a country like this, quality education is not provided by the government but by the private sector. The quality of the health system also depends on who is the provider; on the same token, health services provided by the government are of a very low quality; people who wanted to have a quality health care service have to go the private sector and pay for it or for private health insurances. As you may conclude, the last concern that people had when difficult economic times are taking place is the renovation of home décor, new furniture, Persian rugs or new imported china. The focus of customers turned to cover the basic needs of their families.
The sales of the chain of stores decreased notably; the result was that the payment terms with the suppliers and the financial institutions couldn't be filled. Suppliers started to discontinue filling C&C's purchase orders.
The company tried to extend the payment terms to 90 and 120 days, but this attempt turned out to be counterproductive: suppliers stopped providing the company with so much needed product to keep the business going.
The problem was not limited to local suppliers; the company had in customs several containers of imported merchandise ready to be nationalized but the company did not have the financial resources to pay for them.
The Product Team was made up of 8 Category Managers, who had the responsibility of determining which products should be brought into the stores and the prices to charge for them. Basically, they had the commercial decisions on their hands.
The Purchasing team was made up of a Purchasing Manager, eight purchasers -each one of them responsible of keeping the right inventory levels of the products of one or tow categories- and the right allocation of them among the stores. The team also included a statistician, who was in charge of preparing the commercial reports for management and decision-making purposes.
It was obvious that the company was headed into another restructuring process that required protection from creditors, which is something that could take a long time. In the meantime, the business needed to be kept alive.
The Problem
You are the Purchasing Manager and your responsibility is to assure the continued supply of products to the stores.
- Think of innovative ways to make sure there is a continuous flow of products into the chain.
- As a result of these new ways of to assure supply, what payment terms would you propose to your suppliers
- Do you think you would you require a change in the structure of your team?
- How do you think the changes you may be proposing affect the relationship of your team with other areas of the company (finance, accounting, HR, sales, etc.)