Reebok NFL Case study

Q1: Given the uncertainty associated with player demand, how should Reebok approach inventory planning for NFL replica jerseys? Ans: There are different ways Reebok can approach inventory planning. Postponement and risk pooling: Given the uncertainty associated with player demand, Reebok should make use of postponement and try to push back the decision to print the players' number and name on the jersey as back as possible. By postponing the decision to nearer the regular season, Reebok will have a better idea of the demand for the individual players. This will help prevent Reebok from having too many jerseys of a player it does not need. Postponement also means that Reebok is aggregating the jerseys and such aggregated forecast are more accurate. Reebok will be able to enjoy some of the benefits from risk-pooling as high demand for a certain player in a team will be offset by a lower demand for another. Reebok will be able to enjoy some of the benefits from risk-pooling as high demand for a certain player in a team will be offset by a lower demand for another. Push-Pull Systems: Currently, there are two screen printing facilities within Reebok's supply chain: one is at the Contract Manufacturers, and the other one is at Reebok's distribution centre. Since there are very high variations for the dressed jerseys of each player, Reebok might consider not ordering any dressed jerseys from the CMs. That is, the manufacturing process should start by making a generic product that is later differentiated into a specific end-product. Till this time there can be push strategy in place. Moreover, the pull strategy of which the supply chain is driven by demand would be helpful in this scenario since the lead time from Screen Printing at Reebok is 1 week, relatively low compared to the current scenario of which the lead time is about 4+1=5 weeks because it includes the transportation time. In this way, the company will achieve the higher service level by deploying a responsiveness and flexible supply chain, which will work well for its products,

Reebok NFL Case study

which are characterized by very high uncertainty. So the push-pull boundary is between the contract manufacturing and Reebok distribution centre. Lower inventory could be achieved if Reebok were to look into the possibility of getting the CMs to hold inventory of just white (or black) jerseys, which are dyed and sewed with the teams colors only when there is demand for the specific team. This will provide even greater flexibility for Reebok in meeting the uncertainty of demand. Postponing localization also affects the level of safety stock. Since safety stock is kept of only the generic jerseys, customizing teams and numbers as demand is realized, focus should be on aggregate demand levels and, therefore, aggregate demand has a much smaller standard deviation than individual demand, requiring less safety stock than the currently existing system. In this scenario, Reebok would therefore enjoy a reduction in production cost as it produces dressed jerseys at a higher volume. In addition, dollars can also be saved from transportation economies of scale, due to the standardization of production process of generic jerseys. That is, we could reduce the transportation costs of the reordering the dressed jerseys many times. Q2: What should Reeboks goal be? Should Reebok minimize inventory at the end of the season? Or maximize profits? Can Reebok achieve both? What service level should Reebok provide to its customer? Ans: Reebok's goal should be to maximize profits, while taking into account the production costs, the revenue it can get from a sale, inventory holding costs and salvage value of the excess jerseys. This is because although Reebok may want to minimize inventory, it needs to consider the impact such an action will have on the service level and its profitability. Reebok should provide high service level to its customers- providing all customer order, including the revised order.

Reebok NFL Case study

Q3: What is the cost of underage for a dressed Jersey? What is the cost of overage for a dressed Jersey? How might Reebok decide between dressed jerseys and blank jerseys? Ans: The meaning of underage is under stocking and overage is over stocking. Cost of blank jersey = $9.5 Cost of Dressed jersey = $10.9 Cost of decorating a blank jersey in Indianapolis = $2.4 Salvage value = $7 (These values are given) For dressed jersey: Cost of underage if blank available = $1.00 Cost of underage if blank not available = $24.00 10.90 = 13.10 Approx. cost of underage = 0.92*$1.00 + (1 - 0.92)*$13.10=$1.96 (0.92 is the critical ratio for blank jersey calculated in the next question) Cost of overage for a dressed jersey: cost of dressed jersey- salvage value = $10.9-$7 = $3.9 For Blank Jersey: Overage cost of blank jersey= Inventory holding cost= $1.045 Underage cost of blank jersey= lost of sale cost = Wholesale Price - Blank Jersey Average Cost - Decorate Cost = $24-$9.5-$2.4 =$12.1

Reebok NFL Case study

Thus Reebok should order more of blank jerseys as it would also account for underage dressed jerseys. Moreover it can also be carried over to next season. Q4: Using the forecast for the New England Patriots, what is the optimal quantity to order for each player? For blank Jerseys? Ans: We use single period inventory model for this. For dressed jersey: Cost of overage = $10.90 7.00 = 3.90 Cost of underage if blank available = $1.00 Cost of underage if blank not available = $24.00 10.90 = 13.10 Approx. cost of underage = 0.92*$1.00 + (1 - 0.92)*$13.10=$1.96 P<= Cu/(Co+Cu) =1.96/(3.9+1.96) =1.96/5.86=0.33 For blank jersey: Cost of under stocking Cu=$12.1 and cost of over stocking Co=$1.045 P<= Cu/(Co+Cu) =12.1/(1.045+12.1) = 12.1/13.145= 0.92 The quantity has been found out in the excel sheet attached.