SCM CaseReebok NFL Replica Jerseys: A Case for Postponement

AmitkumarDibya Ranjan OttaSamvedna kumariParkash Tiwari

Group 1

Outline

Reebok background

Background

• Tony Responsible for NFL Replica jersey.• Employees strength – 7400.• Known for sports apparel & foot wears.• Total revenue of $ 3485 M & income operation $ 157 M –

2003.• M. Paul Fireman CEO.• Signed 10 year contract with NFL as sole licensee in Dec.

2000.• NFL as premier professional league for American football 32

teams.• Licensed Apparel Business- high margin- lucrative business.• Demand is highly fluctuative due to many uncontrollable

factor.• Retailers’ worry no option - Reebok mono provider for NFL

jersey as Hot – Market item.

About NFL

About NFL

Case Reebok developed its expertise in licensed Apparel

through acquisition and expansion. Purchased LogoAthletic located in Indianapolis

having extensive experience and expertise in sports apparel as well past relationship with NFL.

Reebok located Licensed Apparel management at former LogoAthletic facilities in Indianapolis.

4 Category of jersey- 5-ounce nylon diamond back mesh body, nylon dazzle sleeves/yoke in team color & white, 8.6-ounce polyester flat knit rib collar, and stripe knit rib collar, and stripe knit insert for selected teams.

Sales – Demand Pattern : Highest in Aug. & Sept. Off season from Feb.

to Apr.

Jersey

The sales cycle

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

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)

Purchase planning

Improved Supply Chain

FabricInventory

Cut, Sew, Assembly Blank GoodsInventory

ScreenPrinting FG Inventory

2

Reebok Ware houseRD centre

Misc. Demand

Hot Market& Chase

Retailer Outlet

Up til RD at Indianapolis

Changes

Increase the size of Indianapolis. Club together all the activities at one place. Plant high speed improved sewing machine. Widened the outsourcing option. Since nature of clothes is not changed so go for

bulk purchase avail discount. Keep high inventory of white unprinted jersey

because types of jersey is same. Plant high efficiency screen printing facility

machine. Strengthen CM Relationship lower down lead time

problem follow JIT experiment in Apparel and footwear business.

Advantages of New Supply Chain

Saves time to a large extent more consumer satisfaction by fast delivery.

Reduce shipping cost and air cost to great extent. More Orders can be met as per the demand. Can reduce inventory of outdated or unsold jersey

due to variability of players and team color pattern by keeping more storage of prepared white jersey.

Reduce the chances of discount selling to great extent.

More security to retailer in terms of placing order even in shorter period.

Use of MIS and better forecasting can be done on several parameter mentioned in case.

Contd…

Focus on Pull based supply chain for international customers.

More focus on push-pull strategy. Will follow the concept of cross-docking. By following the concept of e-business can fulfill

worldwide demand and will add value in terms of better service value to customer end.

Question

Case Discussion Questions 1st question is best explained by improved model

given by our team. 2nd Answer- the goal of is to minimize the

finished goods inventory and maintain the inventory of white jersey in order to meet the further demands at the end of season.

Maximize the profit by improved supply chain model.

Customer will be more satisfied with timely delivery of their choice by offering pull based supply chain policy.

3rd Answer- Retailer wholesale Price- $24/ J Retailer sale at - $ 50/J Cost of Decoration- $2.4/J Discount Sale Reebok get return- $7/J Cost of Holding unsold blank Jersey-

$1.045/J ( 11% 0f manufacturing cost ) Salvage value for dressed (Sd) = $7 Underage = cost of not stocking enough unit. Overage = cost of stocking to many units. Overage for blank = 9.5 – 8.46 = 1.04 Underage for blank = 24 – (9.5 + 2.4) = 12.1 Overage for dressed = 10.9 - 7 = 3.7 Underage for dressed = 24 – 10.9 = 13.1

Marginal profit obt. from selling blank jersey during this season = 24-(9.5+2.4)= 24-11.9= 12.1

Marginal cost of not sold additional blank jersey =24-11.9 + 1.04(11%of 9.5)

=24-12.94 = 11.06Marginal profit for dressed=24-10.9 = 13.10Marginal cost for dressed =10.9+1.19-7 =12.09-7=5.09As in both case MP > MC and also running with good

margin so, Reebok can order more than the average demand.

Q4) Newsvendor-based Approach Solve newsvendor for entire team to get total

quantity of blanks and dressed jerseys to buy, and more importantly:

Get service measure for team = probability of not stocking out (critical ratio)

Solve newsvendor for each star player to determine how many dressed jerseys to procure from CM, where underage cost reflects option to use blanks

Given the dressed jersey quantities, re-solve newsvendor for entire team to find blank jerseys to procure

Critical ratio – cost of underage/(cost of overage + cost of underage) = probability of not stocking out.Critical ratio – cost of underage/(cost of overage + cost of underage) = probability of not stocking out.

Newsvendor Model with Risk Pooling for NE Patriots

Determine total quantity to buy, assuming blank jerseys are the marginal units to buy

For blank jerseys: Cost of overage = $9.50 – 8.46 = 1.04 Cost of underage = $24.00 – 11.90 = 12.10 Prob. of not stocking out of blanks(critical

ratio) =

12.1/(12.1+1.04) = 0.92

Newsvendor Model with Risk Pooling for NE PatriotsGiven the stock-out probability for the team: Consider each dressed jersey (i.e. for each star

player): 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 =

.92*$1.00 + (1 - .92)*$13.10=$1.96 Critical ratio = 0.33

Newsvendor purchases 51000 dressed jerseys

Newsvendor Model with Risk Pooling for NE Patriots

Given the quantities for dressed jerseys, determine demand for blanks: the unmet demand for star players plus demand for the other players

Solve newsvendor for blanks: Cost of overage = $9.50 – 8.46 = 1.04 Cost of underage = $24.00 – 11.90 = 12.10 Prob. of not stocking out of blanks = 0.92

Newsvendor purchases 71000 blank jerseys Expected profit is $1.04 M

Purchase E[sold] E[unsold] E[short]

Dressed 87531 60244 27287 4161

Blanks 38027 22898 15129 377

Total 125558 83142 42416 4537

Purchase E[sold] E[unsold] E[short]

Dressed 51227 44265 6962

Blanks 70932 42712 28221

Total 122159 86976 35183 703

Results: Newsvendor with Risk Pooling

Results: Simple Newsvendor

4. Optimal quantity of order of dressed jersey for 6 player should be equal to forecasted demand.

and in case of another player ,as there is agreement between Reebok & C.M for minimum order quantity i.e. 1728 per player for dressed jersey .

so we can’t recommend to give order for dressed jersey. Reebok should give order for blank jersey equal to forecasted demand i.e. 23,275 .

Profit for dressed jersey = 843705.5 Profit for blank jersey= 257421.5

As replenishment of retail outlet is done through retail distribution centre.

With the help of Information& telecommunication system it is possible to reduce the leading time to great extent as there is big lead time .

• Considering all those factors we see that by clubbing all activity at Indianapolis there will be significant fall made at CM end from 9.5 on blank jersey and 10.9 on dressed jersey.

• If we keep blank or white (same) jersey with high inventory RBK has to incur only cost of decoration which will be much cheaper option.

• RBK need to go for less discount selling again loss in cost will be reduced, even if done for few jersey of any team it will be saving option only.

• Ann. Cost of holding is also only 11% of capital cost for inventory & costs for storage and handling so if we store more white jersey this will be less then all other costs saved for transportation from CM end and discount selling. (note- cost of any unsold blank jersey until next season- $1.045/J)

• What RBK need to incur with centralized production is Cost of decorating, Inventory cost, Cost of transportation to retail, Screen printing.

There still chances of further reducing the cost if we follow measures of efficient forecasting by MIS, improved marketing research methodologies on the factors such as Past sales, team and player performances, marketing intelligence, advanced ordering, no. of jersey in warehouse etc.

Thank you