Nordstrom's Perpetual Inventory System

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Case Details:

Case Code : OPER025
Case Length : 16 Pages
Period : 1994 - 2003
Organization : Nordstrom
Pub Date : 2004
Teaching Note :Not Available
Countries : USA

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Downslide Begins

In the early 1990s, the third generation of Nordstroms was ready to retire, but they did not feel that the fourth generation (most of them aged below 30) was quite ready to take over the company's reins. In a major departure from company norms, a few outsiders (not belonging to the Nordstrom family) were brought in to handle the business as Co-Presidents. Bruce Nordstrom remained Chairman along with the other two Nordstroms, John and Jim.

Meanwhile, the company got entangled in a series of controversies due to its strained relationships with employee unions. The tussle with the United Food and Commercial Workers Union that had begun in the late 1980s picked up momentum...

Inventory Management - A Key to Retailing Success

In the highly competitive US retailing industry, efficient supply chain management practices are not considered just a tool for deriving competitive advantage. Rather, putting in place a structure to manage the entire supply chain as effectively as possible is seen as a key for survival itself.

Since margins happen to be low for any typical retailer, cost control is considered another crucial issue. As costs related to the management of inventories are in the hands of the retailer to a large extent, inventory management has emerged as one of the key attributes that help derive a competitive advantage in the industry...

Taking the First Steps

Nordstrom made its first move towards modernizing its inventory management practices in the form of a new Windows NT based inventory management system, launched in November 1993. It was a very basic initiative that offered information to buyers as to the items that were to be stocked. Since all the stores were networked using this solution, sellers could find out the exact position of a particular item across the Nordstrom system. The effects of this initiative were felt within a year. The company reported an increase in net earnings from $141 million for the financial year 1994 to $202 million for 1995.

While this could be attributed to the overall improvement in the US economy, company sources agreed that the new system had played a major role in increasing the sales. Nordstrom's CFO, John Goesling said, "It is too early to measure the full impact of the system, but we like what we have seen thus far. We are going to continue to invest in merchandising information systems." Industry observers felt that Nordstrom had still not done enough to sustain this performance in the long run. As compared to the industry norms, its inventory management practices left a lot to be desired...

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