BTW | By the Way

BUSINESS PROCESS MODELLING DISC 230

SECTION 1
GROUP 2
Aimen Masud 21110343
Syed Muhammad Ismail 21110232
Ammar Waheed 21110359
Abdul Hadi Zahir 21110078
Usama Muhammed 19100208

Contents

Executive Summary...................................................................................3
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Operations Strategy..................................................................................4
Solutions...................................................................................................5
Inventory management/ Forecasting.......................................................5
Locational Planning...................................................................................8
Work Cited..............................................................................................11

Executive Summary
By the way (BTW) is bold, all-inclusive and forward-thinking female clothing company.
Inspired by the top ongoing trends on social media and popular culture, they deliver top quality
products that are in vogue and empowering. Starting in 2016, the company was initially just an
online store for women’s apparel, but now it has shops all over Lahore across 4 different main
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locations and inside 2 malls. Even though they deliver their products to customers country-wide
through their online platform, their physical stores only exist in Lahore and Karachi, with
Karachi only having one. Their aim is to establish themselves to such an extent that they open
and operate stores throughout the major cities of Pakistan, with their clothing designs including a
huge variety ranging from modern-day style to classical style to street style. As far as policy is
concerned, the company is always willing to update its designs based on the latest fashion trends
by constantly trying to evolve the designs in such a way that all the cultures are exhibited to
some extent. Apart from keeping local cultures in check, the company also tries to blend in
eastern and western cultures together. Their focus on women empowerment especially stands
out, portraying the idea that women of all ages learn to love and accept themselves and do so by
buying vibrant products at affordable prices.
This report will focus on the problems faced by BTW in the areas of Inventory Management in
terms of forecasting sales and locational planning. BTW’s forecasting of sales (demand) for its
products causes them problem in Inventory management, as inaccurate predictions lead to
mismanagement of inventory. The supply can’t meet the demand and safety stock isn’t able to
help BTW much as limited storage capacity stops the management from buffering stock that
would be quite useful in meeting excess demand. We considered BTW’s forecasting techniques,
in which they failed to consider the variations that could affect the actual sales figure causes the
disequilibrium in supply and demand season-wise. The current forecasting technique of Moving
Average isn’t working for BTW, so we recommended that seasonality should accounted for
according to seasonal relatives. This method is also easy to compute and will accommodate any
seasonal variations the might be present.
The last problem faced by BTW is locational planning as they want to expand their operations in
Karachi for which they need new sites. To consider different alternatives in locational planning
different factors such as proximity to the customers, infrastructure and availability of Labor are
to be considered. Each site that was open for selection was analyzed by using factor ratings to
choose the highest rated alternative. In the end the location of Lucky One Mall was
recommended to BTW as it had the highest ratings. With certain shortcomings for both these
methods, identified mostly by our source Mr. Waqas Waheed, and operations manager at BTW,
like security concerns regarding location planning and weather variations for seasonality, we
understood our solutions were imperfect but can be used as a useful platform to build on in order
to improve the company’s operations.

Operations Strategy

As with any modern organization, the mission statement of BTW,” fast fashion at an affordable
price” is the crux of its operations strategy. BTW aims to attain the utmost level of satisfaction
and loyalty from its customers, through the provision of latest fashion trends in the shape of
casual, high casual, semi-formal and western ready to wear clothing articles, in a timely manner.
That’s why the organization tries to bring in new articles each week, thus providing variety to
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customers, promoting impulse buying, and conforming to the fast-changing fashion trends in
today’s world. Hence, BTW invests heavily in design and development and thus, they view each
article as an investment, which they try to liquefy as soon as possible, as a major portion of the
profit earned from sales is fed into design and development. For this, the organization aims to
have a lead time of no more than 90 days for semi-formalwear and at most 60 days for all other
categories of clothing, which would allow them to introduce newer trends each week.
To fully implement their operations strategy, BTW needs to come up with an effective
replenishment model, combined with swift logistics. Currently, BTW has been facing the issue
of lost sales, leading to customer dissatisfaction in some of its major outlets such as the ones at
packages and emporium. That’s because right now, they’ve got limited storage capacity at their
stores, and Although, they do know about how much of an article must be replenished at a
particular store, keeping in mind the demand for that product in the locality of the store, they
have been somewhat unable to predict the correct time period after which the stock must be
replenished. Due to inefficiencies in the replenishment schedule the warehousing department
must quite often react to negative feedback from stores, which isn't a reliable way to restock the
inventory, as it significantly slows down the operations. To rectify this issue, BTW needs to
come up with a more centralized distribution system which relies more upon the storage capacity
of a couple of large warehouses rather the miniscule storage capacity of their stores. To achieve
this, BTW needs to implement latest business intelligence and forecasting technologies such as
Microsoft Power BI, and they must particularly focus on replenishment of major outlets which
have been operational for over two years. That’s because, these outlets have yielded scores of
data thus far, so their forecasts will be more accurate. Hence, over 60% of the stock must be
dispatched to these outlets, as there’s low risk in doing so, due to their accurate forecasts.
Moreover, BTW already has a reliable, logistical system as they possess their own transportation,
but in order to fully utilize this system they must stock most of their inventory at a couple of
warehouses, centrally located amongst the network of their outlets. Furthermore, rather than
sending negative feedbacks to warehouses, in case of sudden demand of a item(s) at a franchise,
franchises must coordinate amongst themselves to replenish that item by bringing it in from an
outlet where it’ll be having a relatively lower demand, thus reducing both lost sales and dead
stock.
The following recommendations will help BTW achieve their most significant organizational
goal of having a lead time of no more than 60 days for most of their articles, which will allow
them to keep on introducing designer clothing at a highly affordable price, whilst making a
profit.

Solutions

The solutions to the problems we identified, we suggested to Mr. Waqas were 1) Inventory
Management/Forecasting and 2) Locational Planning. We’ll look at each of these problems and
their solutions in detail as the report follows.
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Inventory management/ Forecasting

This strategic decision area highlights the need for operations management practices that
maximize capacity and satisfaction and minimize inventory management costs. Poor inventory
management hampers operations, diminishes customer satisfaction, and increases operating
costs. In the manufacturing sector, mainly retail stores, inventory of finished goods can be
maintained, and we’ll be focusing on how much through forecasting. Efficient inventory
management is pivotal to the success and sustainability of the business. The management at
BTW also recognizes this crucial fact and acknowledges the fact that success in this strategic
area is the harbinger of the overall performance of the entity.

A perpetual inventory system is employed, which keeps track of the continuous removal of items
from the inventory levels maintained by each outlet. The number of Ready to Wear, Accessories
and Bottoms (with their subcategories) are. sold, as determined by the point of sales system. The
BTW team makes deductions of inputs from current inventory levels, according to Mr. Waqas.
To reconcile it with actual inventory levels, a physical inventory count is also performed at the
end of each day as well as at the end of the week, accounting for any discrepancies.
Burger Hub currently follows a moving average system to forecast their upcoming sales.  A
moving average forecast uses a number of the most recent actual data values in generating a
forecast. They use a MA3, which refers to a three-period moving average. In this method, as each
new actual value becomes available, the forecast is updated by adding the newest value and
dropping the oldest and then recomputing the average. Consequently, the forecast “moves” by
reflecting only the most recent values. BTW wants its forecasts to be responsive so they have
chosen a three period for this reason. However, as uncovered by our analysis, they fail to take
into account fluctuations in demand.

Recommendations

The current forecasting method employed by BTW is working for them, but we suggested that
they use a seasonal relatives method. The reason for this is that any drastic change to their
forecasting method would affect various costs such as that of inventory holding and
transportation, etc. We therefore suggested to Mr. Waqas a change in their said process and put
forth the idea of a seasonal relative method. Seasonality may refer to regular annual variations.
Familiar examples of seasonality are weather variations (e.g., sales of winter and summer
clothes) and vacations or holidays (e.g. Eid ul Fitr). Seasonality in a time series is expressed in
terms of the amount that actual values deviate from the average value of a series. If the series
tends to vary around an average value, then seasonality is expressed in terms of that average (or a
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moving average); if trend is present, seasonality is expressed in terms of the trend value.  We’re
further suggesting a multiplicative model and in the multiplicative model, seasonality is
expressed as a percentage of the average (or trend) amount (e.g., 1.10), which is then used to
multiply the value of a series to incorporate seasonality. The seasonal percentages in the
multiplicative model are referred to as seasonal relatives. Knowledge of seasonal variations is an
important factor in retail planning and scheduling. Moreover, seasonality can be an important
factor in capacity planning for systems that must be designed to handle peak loads. Hence, we
thought it would fit perfectly to BTW’s operations.

According to the sales data provided by Mr. Waqas from June 2018 to March 2019 (10 months),
we calculated the seasonal relatives separately of Packages and Emporium Mall in Lahore, as
well as Dolmen Mall in Karachi. Since these three malls had the highest sales, we’ll be focusing
on them for the purpose of this report.

Months Packages Sales MA3 Seasonal Relatives Packages

Jun-18 3502 - -
Jul-18 994 2826.67 0.35
Aug-18 3984 1929.67 2.06
Sep-18 811 1928.00 0.42
Oct-18 989 2380.67 0.42
Nov-18 5342 2980.67 1.79
Dec-18 2611 3339.33 0.78
Jan-19 2065 1871.33 1.10
Feb-19 938 1458.33 0.64
Mar-19 1372 - -

Months Emporium Sales MA3 Seasonal Relatives

Jun-18 2126 - -
Jul-18 807 1669.33 0.48
Aug-18 2075 1130.33 1.84
Sep-18 509 1131.33 0.45
Oct-18 810 1810.67 0.45
Nov-18 4113 2793.00 1.47
Dec-18 3456 3191.33 1.08
Jan-19 2005 2147.00 0.93
Feb-19 980 1454.33 0.67
Mar-19 1378 - -
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Months Dolmen Mall Sales MA3 Seasonal Relatives

Jun-18 2159 - -
Jul-18 899 1712.00 0.53
Aug-18 2078 1293.00 1.61
Sep-18 902 1403.33 0.64
Oct-18 1230 1002.33 1.23
Nov-18 875 1691.00 0.52
Dec-18 2968 2180.33 1.36
Jan-19 2698 2154.67 1.25
Feb-19 798 1594.67 0.50
Mar-19 1288 - -

Our analysis showed the highest seasonal relative for the three locations to be in August, and the
reason we think that is so, is because of Eid-ul-Azha. Females nationwide rush to stores to buy
different outfits for the three main days of Eid.

Other high seasonal relatives occurred in November, and we suspect that so because of End of
Summer sales and the Winter Arrivals. We can also observe an increased seasonal relative in the
months of December 2018 and January 2019, the reasons we associate to these high figures and
that confirmed by our discussion with Mr. Waqas, are the annual end of year sales and the new
year arrivals (winter).
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Shortcomings

However, after having a detailed discussion with Mr. Waqas, one of the possible shortcomings of
this suggested method, and we noted that seasonal relatives pertaining Eid-ul-Azha and Eid-ul-
Fitr would change according to which month they lie in. Every year, both eids are prolonged by
10 or so days so it really depends on the month they fall in. Other than that, winter/summer sales
(discounts) and winter/summer arrivals can increase the units sold overall in BTW.

Also, as observed from the graph, Karachi seasonal relatives are overall fluctuating because of
the overall constancy in the weather, it’s a coastal area, so there isn’t much winter in Karachi.
Lahore outlets on the other hand can have fluctuations in demand due to weather. For example,
this year, winters were quite prolonged so looking at this factor, there can be differences in the
seasonal relatives for the upcoming years.

Another point to be noted is that the data we could acquire from Mr. Waqas was for 10 months
only from June 2018 to March 2019. If we’d been able to get more data for previous years, our
calculated figures (relatives) would be more accurate.  

Locational Planning

Locational analysis is a decision-making process dealing with the study and development of
different models, techniques and tools to provide decision makers with good solutions to realistic
locational decision problems. These decisions require an organization to choose the optimal
location for, in this case, their shops that meet some predetermined factors, whether this location
is for expansion, relocation, or a new branch. These location decisions play an essential role in a
company's strategic planning process. This importance is mainly due to the large amounts of
fixed and variable costs associated with these decisions along with the lack of flexibility as any
desired changes may be hard and costly to implement. If incorrectly chosen, a sub-optimal or bad
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location may incur high transportation costs, have insufficient availability of required labor, and
might not even be close to the targeted market to ensure ease of access.

BTW has branches at MM Alam, Emporium and Packages malls, and Y Block DHA IN Lahore,
They started expansion in Karachi by opening a branch in Dolmen Mall Clifton, and plan on
expanding throughout Karachi as they have in Lahore. They chose their Lahore locations
according to certain factors:

Proximity to Customers

The company used STP (segmentation, targeting, and positioning) analysis during its branch
location analysis in setting up outlets. The target market was segmented using the geographic
and demographic factors, targeting modern, fashion-loving women and locations that were easily
approachable to them. For example, MM Alam is one of the biggest areas in Lahore, and Y
Block market is one of the central areas of DHA, making them easily accessible to customers,
Dolmen, packages and emporium malls speak for themselves, with these malls being the
shopping hubs for the respective populations in the two cities.

Availability of Labor

Lahore, being one of the biggest cities of Pakistan, attracts a large pool of workers with varying
skills catering to all types of white collar to low paid jobs. The commercial areas of the city are
without a doubt an attraction for these inhabitants or others from smaller nearby cities searching
for employment opportunities. This ensures availability of relevant skills and aptitude to make up
for BTW’s targeted workers who don’t have to be too skilled. Their expansion to Karachi will
also enable them to have access to an even higher number of available workers, with Karachi
having one of the largest populations in the country.

Infrastructure

All the locations are well connected by the rest of the city with well-developed roads. Good
sewage, sanitation, electricity supplies etc. is ensured in order uphold the high standards of the
products BTW offers, and the stores it offers them in. The convenience and comfort of the
potential customers, that is middle class and the above, is catered to while locating the outlets.
The outlets are also located in the commercial hubs of the two cities to ensure that the outlets are
noticeable and close to the competitors so the customers have a variety of choices and can
regularly come shop there.

Our Recommendation
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The analytical techniques available to BTW to aid in its locational analysis were as follows:
·         Cost Volume Profit Analysis
·         Factor Rating
·         Center of Gravity Method
·         Transportation and Simulation Models
Of these, the two deemed most relevant to the decision-making process were Cost Volume Profit
Analysis and Factor Rating due to their ease of understanding and simplicity.

For BTW, opening a branch in Karachi will have two potentially very good locations in Lucky
One Mall, since it is the biggest mall in Pakistan, and in Bahadurabad, a go-to place for women
to shop for clothes. Using the Factor Rating methods and keeping in mind the aforementioned
factors, we assigned the following ratings to these factors by consulting Mr. Waqas:

1.      Proximity to Target Customers (0.60)

2.      Availability of Infrastructure (0.30)
3.      Availability of skilled Labor (0.10)

For both locations, each factor was scored from 0-100 and then multiplied by the respective
weightages to determine which location was the best. For example, Lucky One Mall had scores
for each factor as follows:
a)      Proximity to Target Customers (80)
b)      Availability of Infrastructure (70)
c)      Availability of skilled Labor (50)

Bahadurabad had the following scores:

a)      Proximity to Target Customers (60)
b)      Availability of Infrastructure (50)
c)      Availability of skilled Labor (30)

Thus, The Score for Lucky One mall turned out to be = (0.5*80) + (0.3*70) + (0.1*50) = 56.
LuckyOne Mall was seen to be the better location as Bahadurabad scored = (0.5*70) + (0.5*50)
+ (0.1*30) = 53. Hence, according to this method, LuckyOne mall would be a better location
keeping in mind the mentioned factors.

The shortcomings, as discussed with Mr. Waqas, of this method could be the various external
factors that we cannot take into account. He mentioned the difficulty of doing business in
Karachi because of the political, economic and security situations in Karachi, along with poor
infrastructure like that of roads etc. Prevalence of robberies and land grabbing techniques may
make warehousing more difficult and security more costly.
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Furthermore, this method does not tell us about the relative costs that have to be kept in mind
like that of rent, transportation etc. so might not be that accurate. This could be done using a
detailed Cost Volume profit analysis. Since we did not have the relevant information and data
regarding these costs, we could not make this analysis to give a better picture of the locations the
company could expand to in Karachi.

Work Cited

 Stevenson, William J. Operations Management. McGraw-Hill College, 2017.

Primary Data:
 https://we.tl/t-5WGzDPiftE?src=dnl
Secondary Data:
 https://drive.google.com/file/d/0B4gr9kTtD2z1TkFzSFNMcmwya1FDVG5UTFV0X19i
RjBaS19F/view?usp=sharing
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“By the Way Clothing Lahore Pakistan.” BTW I BY THE WAY, btwonline.pk/.