Mis
ShopKo uses its information system to determine appropriate markdown prices for overstocked items. The traditional system determined a product's markdown price based on the clearance price used in previous years. Since the information system was unable to factor local geography and culture into the equation, a product's clearance price was the same at all stores. The traditional information system was ineffective, in that ShopKo was losing money, and the system was not helping the company realize its business objectives. In contrast, the new system (Markdown Optimizer) allowed the company to price its products based on various factors, including season, geography, local tastes, and historical demand. The Markdown Optimizer "stores the previous recommendation for each item in each individual store so that it can evaluate past results and then produce recommendations for the closeout of the current cycle." Because of the improved system, ShopKo saw a 25 percent increase in its gross margin, decreased payroll costs by 24 percent, and the percentage of unsold goods was reduced from 7 percent to 2 percent.
As the case scenario indicates, Pamida's strategy is to maintain a high in-stock-rate. However, Pamida's traditional system did not help the company achieve its objective. Stores were out of stock on items, while the same items were sitting in Pamida's warehouses. Although Pamida changed its warehouse from a flow-through facility to a full-service distribution center, it did not update or replace its warehousing software. According to Pamida's CIO Dan Nicklen, the reason the warehouse management software was not updated was because "the software had been working fine under the old distribution system." As a result of the inadequate warehouse management information system, bottlenecks occurred, earnings declined in the first nine months of 2001, and ShopKo lost $6.7 million in overall revenue. As a result of the product supply shortage for the 2000...
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