Leitax Consumer Electronics Firm with Headquarters in Northern California

                      The case site is a consumer electronics firm with headquarters in northern California, and with a global sales presence. Leitax (the firm’s name and industry have been disguised) sold its electronic items primarily through retailers such as Best Buy and Target and has distribution centers (DC) in North America, Europe and the Far East. Production is handled by contract-manufacturers with plants in Asia and Latin America. Leitax maintained seven to nine models in its product portfolio, each of which had multiple SKUs. Product life ranged from fifteen to nine months and was getting shorter. High-end, feature-packed products tended to have the shortest product lives. Prior to 2001, the demand and master planning processes at Leitax were ill defined. For new product introductions and mid-life product replenishment, the sales group initially made forecasts that were informally disseminated to the operations and finance groups, sometimes via discussions in the hallways. These shared forecasts were intended to be used by the operations group to guide the communication of build requests to the supply chain, and by the finance group to guide financial planning and monitoring. Traditionally, Leitax’s sales directors forecasted sell-in sales, the expected sales from DCs to resellers. Sell-in sales tended to be a distorted signal of demand since the sales force had an incentive to influence sellin in the short-term and retailers had time-varying appetites for inventory. Not surprisingly, these sales’ forecasts were often mistrusted or second-guessed when they crossed into other functional areas. For example, with inventory shortages as its primary responsibility, the operations group would frequently generate its own forecasts to minimize their perceived risk of an inventory discrepancy, and marketing would 6 devise its own forecast when they suspected possible deviations to the sales forecast because of promotions (Figure 1 depicts this re-processing and proliferation of functional forecasts). Moreover, the sales organization believed that the final group exerted too much pressure on forecasts, frequently urging sales to increase forecasts that did not enable the company to meet its financial goals. Other aspects of a true demand planning process were also absent. It was not unusual for sales to arrange deals to extend production of products for which and end-of-life decision had been approved and the supply chain had been depleted. Data relevant to forecasting were usually inaccurate, incomplete, or unavailable, and the lack of objectives and monitoring mechanisms for the demand planning meant that process improvement could not be managed. Support for supply management was equally ill-defined as master production schedules were irregularly generated and unreliable, and suppliers had learned to mistrust those signals. These inefficiencies and lack of coordination, previously hidden by booming growth in the sector, caught up with Leitax in 2001 when poor planning and execution resulted on an inventory charge of roughly 15% of revenue for FY 2001-2002. The inventory write-offs were followed by major changes during the fall of 2001 including the appointment of a new CEO and new vice-presidents for product development, product management, marketing, sales, and operations. In December, the new senior vice-president for Global Operations recruited Kevin Fowler, made him responsible for the new Demand Management Organization (DMO), and charged him with defining and managing a set of initiatives for improving the planning process. Fowler assessed the situation as follows. The truth was that the root of the problem was not a “classic” forecasting issue in that it was not about getting another perfect data stream; it really didn't matter. We already had a number of forecasts that functional areas were utilizing. … [the problem was that] there was no tie, no formal sales and operations planning process. There was no getting together to discuss “what are you guys building vs. what do you want vs. what is the financial target.” In April 2002, Fowler’s group launched Project Redesign with the goal of improving the velocity and accuracy of planning information throughout the supply chain. By the summer of 2003 a stable planning and coordination system was in place that resulted in dramatic improvements in forecast accuracy and operational performance