SCM Case Reebok NFL Replica Jerseys: A Case for Postponement

Group 1
Amitkumar Dibya Ranjan Otta Samvedna kumari Parkash Tiwari

Outline

Reebok background
Headquarter in Canton, Massachussets

Started as small British shoe company In 1979, Paul Fireman acquired North American license for selling Reebok In 1985, Reebok USA acquired Reebok British and Reebok International went public

In 2000, Reebok signed 10 years contract with NFL

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

National Football League (NFL)

American Football Conference (AFC)

National Football Conference (NFC)

About NFL

North

North

West

AFC

East

West

NFC

East

South

South

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, 8.6ounce 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
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.

Dressed Jersey

Blank Jersey

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

The sales cycle

Jan-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 Retailers order to position stock in their DCs and stores in anticipation of season, and expect 3 4 week delivery LT Retailers order to replenish stores, chase the demand, and expect 1 2 week LT for Hot Market items

May-Aug

Sep-Jan

Consumers

Raw Material Suppliers

Contract Manufacturers

Reebok Warehouse

Retail Distribution Centers

Retail Outlets Normal Demand

2 - 16 weeks

4-8 weeks

3-12 weeks

1 week

Hot Market Demand

1-2 weeks or less

1 week

Contract Manufacturers (CM) Fabric Inventory Cut, sew, and assembly Blank Inventory at supplier

Reebok (Indianapolis) Blank Goods Inventory

Shipping

Screen Printing

S creen Printing

FG Inventory
2 - 16 weeks 4 weeks 4 weeks 1 weeks

Purchase planning

July-Oct

Reebok places orders on contract manufacturers(CMs )for April delivery; primarily orders blanks (~20% of annual buy)

Jan-Feb

Reebok places orders for dressed jerseys based on retailers 20%) Reebok advance orders & remainin inventory (~ orders dressed & blank jerseys, based on forecasts and inventory tar ets

Last purchase phase is most challen in

Mar-June

Improved Supply Chain

Fabric Inventory

Cut, Sew, Assembly Misc. Demand Hot Market & Chase

Blank Goods Inventory

Screen Printing

FG Inventory

2 RD centre Reebok Ware house

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

What should Reeboks 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 artiots, 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?

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 = 11.06 Marginal profit for dressed=24-10.9 = 13.10 Marginal cost for dressed =10.9+1.19-7 =12.09-7=5.09 As 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.

Newsvendor Model with Risk Pooling for N 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 N Patriots

Given 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 N Patriots



Given the quantities for dressed jerseys, determine demand for blanks:
 

the unmet demand for star players plus demand for the other players 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

Solve newsvendor for blanks:

  

 

Newsvendor purchases 71000 blank jerseys Expected profit is $1.04 M

Results: Newsvendor with Risk Pooling

Purchase Dressed Blanks Total 51227 70932 122159

E[sold] 44265 42712 86976

E[unsold] 6962 28221 35183

E[short]

703

Results: Simple Newsvendor

Purchase Dressed Blanks Total 87531 38027 125558

E[sold] 60244 22898 83142

E[unsold] 27287 15129 42416

E[short] 4161 377 4537

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 cant 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