SCM CaseReebok NFL Replica Jerseys:

A Case for PostponementMembers: Cherry

Sam Robbin

Sarah

Outline

Reebok background

About NFL

Retailer states

Demand for NFL replica jerseys

The sales cycle

Reebok supply chain

Purchase planning

Question & Answer

Reebok background

In 1979, Paul Fireman acquired North American license for selling Reebok

In 1985, Reebok USA acquired Reebok British and Reebok International went public

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About NFL

National Football League (NFL)

American Football Conference (AFC)

National Football Conference (NFC)

About NFL

AFC

North

East

South

West NF

C

North

East

South

West

AFC - North and South teams

Baltimore RavensCincinnati BengalsCleveland BrownsPittsburgh Steelers

Houston TexansIndianapolis ColtsJacksonville JaguarsTennessee Titans

AFC - West and East teams

Denver BroncosKansas City ChiefsOakland RaidersSan Diego Chargers

Buffalo Bills

Miami Dolphins

New England Patriots

New York Jets

NFC - North and South teams

Chicago BearsDetroit LionsGreen Bay PackersMinnesota Vikings

Atlanta Falcons

Carolina Panthers

New Orleans Saints

Tampa Bay Buccaneers

NFC - West and East teams

Dallas CowboysNew York GiantsPhiladelphia EaglesWashington Redskins

Arizona Cardinals

San Francisco 49ers

Seattle Seahawks

St. Louis Rams

2003 Super bowl

Problem

I have a warehouse full of jerseys out there and retailers are screaming for the teams and players I don’t have!

Every year it seems like we have the right mix of inventory going into the season, and then some team that no one expected to do well gets off to a 4-0 start and the team everyone expected to contend for the Super Bowl Is losing games.

Suddenly I have 1000s of jerseys I can’t sell and 1000s of order I can’t fill

Retailer states

The Reebok line is great. We’re excited and anxious at the same time. [In the past] the fear was that one team jersey could be found from five different manufacturers at five different stores in the mall. Now the [question] is, will the consumer have to pay an extra $20 for a team jersey because it is from Reebok?

As a top-tier retailer in apparel, we’ll only have access to that one brand.

I think that Reebok makes great product. We just hope they can deliver because we won’t have options B, C, or D to go to.

Demand for NFL replica jerseys

Customer demand fluctuate Driven by the excitement and passions feel for the game. One way to express their support is by adorning the

jerseys of the favorites player on the favorites teams.

Hot market demand Hot market item (demand), is an item that was either not

expected to sell well before the season or an unknown item that had no prior sales expectations.

For example : 1. Some team that no one expected to do well gets off and

the team everyone expected to contend is losing games 2. Regular player become super star.

Jersey

BlankJersey

• Jersey with team colors and marking but without a player name or number

• Purpose using blank jersey :• Fill demand for the player that are

order in small quantities• To respond quickly to demand for

popular player• To meet immediate demand for player

that suddenly change teams

DressedJersey

• Jersey with the player name and number• Contract Manufacturer and Reebok have

an agreed minimum order level of 1,728 units for the dressed jersey for any players.

The sales cycleJan-Feb •Retailers get discount to place pre-season orders for delivery in May

Feb-Apr •Limited ordering by retailers to re-balance stocks; some short LT orders to respond to player movements

May-Aug •Retailers order to position stock in their DC’s and stores in anticipation of season, and expect 3 – 4 week delivery LT

Sep-Jan •Retailers order to replenish stores, chase the demand, and expect 1 – 2 week LT for Hot Market items

Raw Material Suppliers

Contract Manufacturers

Reebok Warehouse

Retail Distribution

CentersRetail Outlets

Consumers

2 - 16weeks

4 - 8weeks

3-12 weeks 1 week

1-2 weeks or less 1 week

Normal Demand

“Hot Market” Demand

Reebok supply chain

Fabric Inventory

Cut, sew, and

assembly

Blank Inventory at

supplier

FG Inventory

Shipping

2 - 16weeks

4weeks

4 weeks

Screen Printing

Screen Printing

Blank Goods Inventory

1 weeks

Contract Manufacturers (CM) Reebok (Indianapolis)

Reebok supply chain

Purchase planning

July-Oct •Reebok places orders on CMs for April delivery; primarily orders blanks (~20% of annual buy)

Jan-Feb •Reebok places orders for dressed jerseys based on retailers’ advance orders & remaining inventory (~ 15 – 20%) Reebok orders dressed & blank jerseys, based on forecasts and inventory targets

Mar-June •Last purchase phase is most challenging

Question

Given the uncertainty associated with player demand, how should Reebok approach inventory planning for NFL

What should Reebok’s goal be? Should Reebok minimize inventory at the end of the season? Or

Maximizing profits? Can Reebok achieve both? What service level should Reebok provide to its customer?

Are the models in Section 2.2.2 helpful here? 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 Jersey and blank Jersey?

Using the forecast for the New England Partiots, what is the optimal quantity to order for each player? For blank Jerseys? What profit do you expect from Reebok? How much and what type of inventory is expected to be leftover at the end of the

season?

Question 1

Generate team and player level forecast Offer ±20% discount for early order in January-February

Prepare 1,728 dressed Jerseys for any player Prepare blank Jerseys (shared with other

apparel items) Provide printing facility in the Reebok’s DC

(capacity 10,000 Jerseys per day) Outsource the deficit of production local

manufacturing

Given the uncertainty associated with player demand, how should Reebok approach inventory planning for NFLGiven the uncertainty associated with player demand,

how should Reebok approach inventory planning for NFL

Question 2

The goal: To provide customer with a quality product, in the right time, and in the right quantity.

Reebok should minimize its inventory to maximize its profit by reducing holding cost and the risk of leftover in each season

Yes, the key is in the forecast. The more accurate, the greater chance to achieve both of the goals.

High service level: providing all customer order, including the revised order

What should Reebok’s goal be? Should Reebok minimize inventory at the end of the season? Or Maximizing profits? Can Reebok achieve both? What service level should Reebok provide to its

customer?

Question 3

Yes. Reebok company uses combination of forecast and known demand to place order for their supplier. Forecast developed based on: past sales, team and player performance, market intelligence, advance order, informed guess. Forecast is revised as the sales cycle unfold.

Cost of blank jersey = $9.5Cost of Dressed jersey = $10.9

Cost of decorating a blank jersey in Indianapolis = $2.4Salvage value = $7

Cost of underage for dressed jerseys: 1.Finished in contract manufacturers: $10.9

2.Finished in Indianapolis: $9.5+$2.4=$11.9 Cost of overage for dressed jerseys:

$10.9 - $7 = $3.9

Are the models in Section 2.2.2 helpful here? What is the cost of underage for a dressed Jersey? What is the cost of

overage for a dressed Jersey?

Question 3

Order on July-October: blank Jersey (stored in CM) , January-June: dressed Jerseys (known demand) ,combination of dressed Jerseys (order) and blank Jersey (forecast).

Dressed Jerseys are made based on the order and minimum order quantity for each player. While blank Jerseys are alocated for unexpected demand and hot-market item.

How might Reebok decide between dressed Jersey and blank Jersey?

Question 4Using the forecast for the New England Partiots, what is the optimal quantity to order for each player? For blank Jerseys? What profit do you expect from Reebok? How much and what type of inventory is expected to be leftover at

the end of the season?

The first step is to calculate the overage and underage costs for both Blank and Dressed

Given information

Wholesale sale price (P) = $24 Cost of blank (Cb) = $9.5

Cost of dressed (Cd) = $10.9 Cost to decorate in North American (Cnad) = $2.4

Salvage value for blank (Sb) = $8.46 Salvage value for dressed (Sd) = $7

Cost of capacity (Cc) =$0

The next step is to calculate the critical ratio

Overage for blank = Cb - Sb = 9.5-8.46 =1.04Underage for blank = P - Cb – Cnad –Cc =24-9.5-2.4 = 12.1Overage for dressed = Cd – Sd = 10.9-7 = 3.9Underage for blank = P-Cd = 24-10.9 = 13.1Critical ratio (Blank) = underage / (underage + overage) =12.1/(12.1+1.04)=0.92Critical ratio (Dressed) = underage / (underage + overage) =12.7/(12.7+3.48)=0.77

To calculate the optimal quantities , assume the provided forecasts are normally distributed

Question 4Using the forecast for the New England Partiots, what is the optimal quantity to order for each player? For blank Jerseys? What profit do you expect from Reebok? How much and what type of inventory is expected to be leftover at

the end of the season?

Following this purchase plan , Reebok can expected the following sales results:

Player Q E[Sold] E[unsold] E[unmet] E[profit]

NEW ENG PATRIOT

Tom #12 41018 28918 12100 1845 331640.24

TY#24 14092 9935 4157 634 113938.27

TROY#80 10879 7670 3209 487 87955.3

ADAM#04 10501 6688 3812 581 72748.54

TEDY#54 7983 5084 2898 442 55302.94

ANTOWAIN#32

3059 1948 1111 169 21192.31

Other players

38027 22898 15129 377 224946.72

Total 125558 83142 42416 4537 907724.33