Inventory and Reebok

When dealing with a securities industry segment that has high variable need, it is important to analyze non plainly your current scrutinize levels, but also set out prospective demand forecasts. This is beca lend oneself an roll shortage piece of tail cause the company to lose future shekels and lost good exit. In the case of Reebok, the former NFL licensed tee shirt producer, many primeval decisions must be made to reduce line be in issues of low demand while maximizing profits in periods of high demand for impostor specific island of Jerseys.Using the newsagent precedent to determine the optimal order quantity and leftover schedule, we will familiarize a possible approach to inventory planning with uncertain demand. unsure Demand Within the imitation tee shirt industry, sequenceality plays a vital divorce in keeping sufficient inventory to cover customer demand. Seasonality is headspring-ordered periodic fluctuations, usually within a 12 month period whereas trend is an overall, persistent, long-term movement. For instance, the NFL eon drives much of the demand with sales highest in August/September in anticipation of the upcoming NFL season. Later in the season, consumer demand is driven by holiday presents and the anticipation of the playoffs. After the season is over, sales decline rapidly until the start of the next season. From a translate chain perspective, however, it is maximizing revenues from lumpy hot-market items as much as hold in obsolesce comprises. Postponement Reebok must order must its guild decision at the start of a period, though it is concerned with inventory at the end of the period. Postponment allows Reebok to extend the life musical rhythm of its tee shirts as healthy as capture lumpy spiffed up to kill(p) product demand. whitened jerseys ar shipped directly to the Reebok scattering center with no pseudo name or number. However, teams often change the style or color of their uniforms betw ixt seasons. Further, the consumer may want the latest and most up-to-date dressed jersey for each individual role player that they argon a fan. Given player demand changes so much from year to year along with the particular that player movements occur during the off season (February to April), holding dressed jerseys at end-of-season is most risky.Indeed, Reeboks general practice is to sell leftover dressed jerseys at $7 but hold unobjectionable space jerseys for next season. End-of-season inventory Reebok uses blank jerseys during the off-season to bear on immediate demand for popular player movements, development its Indianapolis capacity to print (dress) up to 10,000 units per day. Given a take place magazine for all jerseys from contract manufacturers of 30 days, these blanks must al construct be on hand as end-of-season inventory to catch any player movement value during February, March and April.The 30 day lead eon along with the 60 sea-shipping means ordering CM dres sed jerseys can be delayed as late as May to meet the August rush, assuming CMs pose the blanks on hand. (CMs carry 4 weeks inventory of blanks. Figure 5-11). In reality, the sequence by which inventory is added or subtracted does not matter. Jump-start ordering In January/February, retailers are offered discounts so that 20% of their annual order arrives 8-12 weeks later, in May. This is a key strategy that Reebok ineluctably to continually employ because it shifts inventory holding costs to retailers.It also allows Reebok to place orders with CMs resultn a cognize demand. Then, throughout the rest of the year, retailers place up-to-level orders on a weekly basis. However, we cannot be sure of inventory levels at any other point within a period (because of random demand) MSD pg. 290. Reeboks Management Focus It takes 4-8 weeks on average for the Reebok contract manufacturers to deliver the jerseys to the warehouses from the beginning to end. While this is happening, the demand is ever-changing before the jerseys even reach the warehouse.Thus it is critical that Reebok provide flexible contracts with the scattering centers to get their orders fulfilled on time. Reebok must work with their contract manufacturers to ever so make sure they have the appropriate resources and materials to deliver the quantities needed, as well as continuously maintain some level of inventory ready for customization and super-fast delivery even air transport is available. Reebok should also continue to give the option of early order discount jerseys so that the retail distribution centers can have their own inventory prior to the season.By working with the twain ends of the supply chain, Reebok can deliver up to date forecasting that will help all parties to virtualize inventory and respond quickly to demand, despite the uncertainty. optimal coordinate measuring with postponement To determine the anticipate Profit-Maximizing Order Quantity for NFL replica jerseys given t wo options for done for(p) goods, we must use two quantitys that give us two critical fractals first, the chance of not stocking out and second, the The quest information is given. Retailer sweeping scathe = $24 Discount bell of unsold dressed Jersey = 7. contract manufacturers value includes delivery to Reeboks Distribution Center in India polis terms of Blanked jersey, = $9. 50* address of dressed jersey from contract manufacturers = $10. 90* Blank jerseys can also be finish in Indianapolis for an surplus cost of $2. 40 make up of dressed jersey from Indianapolis= $9. 50 + $2. 40 = $11. 90 Holding costs are incurred for any jersey held-over to the following season, reducing the value of the unsold blanked jersey this requires the assumption that the jersey would have been re-purchased at the initial purchase cost.Holding cost for unsold blank Jersey = $1. 045 Value of unsold blanked jersey = $8. 46 Step 1 Probability that demand for blank jerseys is less than Q No stoc kout Co Cost of overage = cost of blanked jersey value of unsold blanked jersey = 9. 5 8. 46 = 1. 04 Cu Cost of minor = retailer wholesale price cost of dressed jersey from Indianapolis = 24 11. 9 = 12. 1 Step 2 Determining cost of finish jerseys from CM and finished jerseys from Indianapolis.Cost of overage = Cost of dressed jersey from CM Discount price of unsold dressed Jersey = 10. 9 7. 0 = 3. 9 Cost of underage (blank is available) = Cost of dressed jersey from Indianapolis Cost of dressed jersey from contract manufacturers = 11. 9-10. 9 = 1. 0 Cost of underage (blank is unavailable) = retailer wholesale price Cost of dressed jersey from CM =24 10. 9 = 13. 1 As we know from tempo 1, the blank jersey has a 92% probability of not stocking out. Here is the cost of underage based on critical fractile of 0. 2 and using the costs from step 2. Cost of underage = 92% * cost of underage (blank is available) + (1 92%) * cost of underage (blank is unavailable) 0. 92*1+0. 0 8*13. 1 = 1. 97 Demand regard for NFL Team, New England Patriots The following table was provided showing the forecast for the New England Patriots The Expected Profit-maximizing Order Quantity use NORMINV(critical fractile,m ,s) in Excel The following example is calculating the quantity of dressed jersey of Tom Brady Quantity of dressed jersey = NORMINV(0. 3,30763,13843) = 24673 Mean(blank jersey) = Mean(dressed jersey) Quantity(Dressed jersey) = 30763-24673 = 6090 Quantity of blank jersey(New England Patriots) = NORMINV(0. 92,Mean(blank jersey), Stdev of demand) = NORMINV(0. 92,37009,19211) = 64001 Revenue = retailer wholesale price * Total Demand = 24 * 87680 = 2104320 Cost = dressed jersey cost + blank jersey cost + decorate cost inventory value = 10. 9 * 50671 + 9. 5 * 64001 + 2. 4 * 37009 8. 46 * (64001-37009) = 1020193 Profit = 2104320 1020193 = 1083527Leftover inventory expected to be Blank Jersey Leftover Quantity 64001-37009 = 26992 Recommendations Referring to the newsvendor model, it is my recommendation that Reebok should use the newsvendor model to plan their purchasing. The purchasing rhythm method starts 14 months prior to the regular NFL season. Due to unpredictable demand, it is difficult to generate a reliable forecast. The purchasing plan should be to purchase the jerseys that have the highest probability to be the hot-market item. The second purchasing plan goes into much more detail than the first plan.The planning manager can use the newsvendor model to forecast the optimal quantity for the dressed jersey and the blank jersey. The most important thing in the NFL season is updating players and team s performance and status of a draft. The newsvendor model provides a statistical and quantitative analysis solution. Reducing cycle time will improve responsiveness and reduce inventory requirements. too reducing order fulfillment time is better for responding to the customer needs which improves the overall customer service level. Co nclusion Inventory planning of NFL replica jersey is based on many factors.The complexity of market needs Reebok to respond quickly to the changes in the customer demand. It is impossible for Reebok to generate immaculate forecast, but they can reduce supply and order lead time and properly assess the salvage value of the leftover blank jerseys. Reebok should not only improve their customer service to meet NFL licensing agreement, but also to maximize the profit. this analysis was to maximize the profit. The solution here is Reebok should hold comparatively more blank jersey than dressed jersey, and postpone the decoration step until the demand is known.