Question

Founded in 1962 by Bernard Sliwin, Athletic Knit (AK), a manufacturer of sports team uniforms, specialized in hockey jerseys, with 80 per cent of its revenue coming from the sales of hockey-related products. AK sold both stock and customized products in Canada and the United States. The company’s mission was to provide high quality sportswear and high quality service to its customers. Daniel Sliwin, the founder’s grandson, became AK’s vice president in 2009. He and his brother David improved the family business while striving to keep many of their grandfather’s values. They aggressively increased AK’s product lines, focused on bigger orders and worked on providing an “Authorized Dealer Login” function for the company’s website. Daniel and David tried to enforce more scheduling and planning for the company; however, changing policies in a family-run business proved more difficult than first thought.

Sales and Distribution: AK enjoyed a sales model that was focused on the use of sales representatives who promoted its products through the use of catalogues and the website to retailers. Unlike companies such as Nike or Adidas, AK never dealt with final customers directly. This type of sales model required strong, preferably long-term relationships with retailers through regular interactions. Overall, retailers had a favourable impression of AK based on the high quality products offered at reasonable prices. [Our store] has been working with AK for 14 years now. We sell both stock and customized items, and AK ranks No.1 within the “customization suppliers” category because it has high quality service and good product selection. We are satisfied with AK’s fast response; usually it only takes AK one day to ship stock items to us, and no more than two weeks for customization items. — from a loyal AK retailer. AK achieved quick deliveries by stocking inventories and by replenishing its inventories (in the event of stock-outs) faster than its competitors. By storing excess fabric on its shelves, AK was able to produce back order items within hours. Daniel believed that these inventory policies separated the company from its competitors, especially those from China. However, they also emphasized the need for excess inventory to fulfill demand and underlined the effectiveness of AK’s inventory controls. According to Daniel, one of AK’s biggest challenges was trying to keep inventory as lean as possible without dealing with stock-outs. Although stock-outs were very rare, when they occurred, lead times would increase from an average of four days to over four weeks. At that point, AK’s lead times were equal to the low cost importers, but at a significant price premium

Production: Unlike some of its competitors who outsourced parts of their production, AK continued to use the “locally made, one-stop shop” production model. As a local independent manufacturer, AK had extensive on-site fabric knitting facilities and used various printing and stitching methods for its products (Exhibit 2). All manufacturing, from cloth knitting, cutting and sewing to final design printing, were completed at AK’s Toronto manufacturing facility (Exhibit 3). This approach allowed AK to reliably deliver high quality products within days (stock items) or weeks (customized SKUs). Knitting the jerseys was an important aspect of the production process. AK used a variety of knitting machines, with the striped knitting machine being the most crucial one as it was able to produce all 40 different styles and colour combinations that the company offered (see Exhibit 4). Currently, AK operated nine of these machines and owned another two that were broken but could potentially be repaired for a cost of $25,000 each. AK had a capacity to produce 460 jerseys per eight-hour shift on these machines. One employee was responsible for operating three machines and was paid $18.50 per hour. Labour laws allowed AK to run two hours of overtime per day and six hours overtime on a Saturday. Overtime pay was 1.5 times regular pay. Changing the set-up of the machine to another style required on average three labour hours. Each jersey was produced from 1.5 metres of woven cloth on rolls. The cost of material was on average $9.50 per kilogram.5 In addition, the dyeing of the fabric cost $3 per kilogram of cloth. Daniel estimated that AK’s holding cost of inventory was around 10 per cent. However, this estimate was before taking cost of obsolescence or cost of capital into account.

Inventory and Production Planning : The manufacturing of hockey jerseys was a highly seasonal business. Historically, the peak time for hockey jersey sales was from August 15 to October 31: during this period, AK usually sold 44 per cent of its products. During the periods from July 15 to August 14 and November 1 to November 30, AK usually sold 10 per cent of its products, respectively. For each of the remaining months of the year, AK sold between 4 per cent and 6 per cent of its products. Because of capacity constraints, AK knitted at a constant rate throughout the year to ensure enough inventory for peak season. Inventory usually peaked in the middle of May, with about 24 to 28 weeks of stock, and then slowly decreased to only eight to 10 weeks in December. To ensure that the knitting department was operating efficiently, AK had a minimum order quantity policy of 360 units. Although predicting demand was extremely difficult, the inventory built up in advance of the peak selling season had proven to be enough to meet the vast majority of customer demands.

CONCLUSION As Daniel watched the truck pull away, he could not help but think of the substantial write down in inventory and the impact it would have on the company’s financial statements. Daniel and David knew that there must be a better way to manage the inventory, keep up with the high levels of service that customers had come to expect and minimize future obsolescence.

As Daniel and his brother are new to AK, what kind of resistance would you expect from the management and production staff? How can they manage the resistance

Answer 1

As Daniel and his brother are new to AK, resistance that could be expected from the management and production staff is in the form of non agreeableness to the change management processes and new procedures being introduced in the organization by the brothers. Since both of them belong to new generation, hence their work ideologies are different than older generation and they give more importance to the use of technology and employ different methods to make the process streamlined, lean and reduce waste. Some of these techniques might not be accepted by the management and the production staff and there could be resistance from them. However the brothers need to find a way to manage that resistance and move ahead by bringing new ways and means to identify and improve existing processes to make them more streamlined and capture more market, thereby increasing customer satisfaction as well.