Best Reebok Approach Inventory Planning for NFL Replica Jerseys
Reebok NFL Replica Jerseys: A Case for Postponement
Maria Franco-Cortes
Liberty University
Reebok NFL Replica Jerseys: A Case for Postponement Best Reebok Approach Inventory Planning for NFL Replica Jerseys
Kourentzes et al. (2020) affirm that inaccurate forecasts can be costly for company operations. In managing inventory, it is critical to quantify the demand unce4tainty, typically encapsulated in forecasts of the demand over the lead period. In this case, Reebok can approach inventory planning in a variety of ways. Reebok could use postponement to push the decision to print the players\’ number and name on the jersey back as far as possible, given the uncertainty surrounding player demand. Reebok will have a better notion of demand for the individual players if the decision is postponed until closer to the regular season. This will keep Reebok from stocking up on jerseys for players it does not need. The postponement also means that Reebok is aggregating the jerseys, resulting in a more accurate forecast. Reebok will reap some of the benefits of risk-pooling because a high demand for one player in a team will be counterbalanced by lower demand for another. High demand for one player in a team will be offset by lower demand for another, allowing Reebok to reap some of the risk-pooling benefits.
Reebok\’s supply chain has two screen printing facilities: one at Contract Manufacturers and Reebok\’s distribution center. Because the dressed jerseys of each player vary so widely, Reebok may decide not to order any dressed jerseys from the CMs. The manufacturing process should create a generic product, which will then be differentiated into a specific end-product. There can be a push strategy in place until then. Furthermore, the pull strategy, in which the supply chain is driven by demand, would be beneficial in this scenario because the lead time from Reebok\’s Screen Printing is one week, which is relatively short compared to the current scenario, which has a lead time of 4+1=5 weeks due to transportation time. By deploying a responsive and flexible supply chain, the company will achieve a higher level of service for its products, characterized by a high level of uncertainty. As a result, the contract manufacturing and Reebok distribution center are separated by a push-pull boundary. Lower inventory could be achieved if Reebok looked into having the CMs keep only blank (or dressed) jerseys on hand, dyed and sewed with the team\’s colors only when there is a demand for that team. Reebok will be able to respond to demand fluctuations with even more flexibility as a result. The level of safety stock is also affected by delaying localization. Since only generic jerseys are kept as safety stock, customizing teams and numbers as demand is realized, the focus should be on aggregate demand levels, which has a much smaller standard deviation than individual demand and requires less safety stock than the current system. Reebok would benefit from lower production costs in this scenario because it produces more dressed jerseys at a higher volume. Additionally, due to the standardization of the generic jersey production process, dollars can be saved through transportation economies of scale. That is, we could significantly reduce the transportation costs of reordering the dressed jerseys.
Reebok’s Goal and its Service Level
Al-Shboul et al. (2017) argue that supply chain management (SCM) has become a crucial strategy for firms to enhance their profitability and stay competitive. Research studies have indicated that a higher level of adoption, implementation, and improvement in SCM will directly lead to the overall firm’s; performance. Therefore, the goal for Reebok should be to maximize profits while accounting for production costs, sales revenue, inventory holding costs, and the salvage value of excess jerseys. While Reebok may want to reduce inventory, it must also consider the impact this will have on service quality and profitability. In other words, the company’s goals should be to minimize the inventory of finished goods and maintain the inventory of the blank jersey. This goal will help the company to meet further demands at the end of the season.
Reebok Decision Between Dresses Jerseys and Blank Jerseys
The meaning of underage is understocking and overage is overstocking.
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
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
Therefore, Reebok should order more blank jerseys as it would also account for underage dressed jerseys. It can also be carried over to the next season.
Optimal Quantity to Order for Each Player
The service measure of the team is the probability of the not stocking out which is the critical ratio. Assuming that the blank jerseys are the marginal units for buying, the cost of overage of blank jersey is $9.50+/-8.46=1.04. Cost of the underage of blank jersey of $24.00+/-11.90=12.10.
Probability of not stocking out the blank jersey is the critical ratio which is ((12.1)/ (12.1+1.04)) =0.92. Given that the stock out probability for the team, consider every dresses jersey for each of the star player. Cost of the underage when the blank is available is one dollar.
Cost of the overage of the dresses jersey is $10.90+/-7.00=3.90. Cost of the underage dresses jersey when the blank is not available is $24.00+/- 10.90=13.10. The approximate cost of the underage is 0.92($1.00) +(1-0.92) ($13.10) =$1.96. The critical ratio is 0.33.
There is purchase of fifty-one thousand dresses jerseys. Given the quantitate of dresses jerseys the demand for the blank jerseys is determined by the unmet demand for the star player plus demand for other players. The cost of the overage for blank jerseys is $9.50 +/- 8.46=1.04. The cost of the underage of the blank jersey is 424.00+/- 11.9=12.10. Probability of not stocking out of blank jerseys is 0.92. Therefore, the results of the newsvendor with risk pooling are as follows. Dresses jerseys purchased is; dresses jerseys E(sold) is 44,265. Dresses jerseys E(unsold) is 6,962. Blank jerseys purchased is 70,9320. Blank jerseys E(sold) is 42,712. Blank jerseys E (unsold) is 28,221. Total purchase of dresses jersey purchased is 122,159. Total purchase of dresses jerseys E(sold) is 86,976. Total purchase of dresses jerseys E(unsold) is 35,183. Total E (short) is 703.
The optimal quantity of dressed jerseys ordered for six players must be equal to the forecasted demand. In the case of the other player, there is agreement among Company RR and the team leader for the minimum order quantity to be one thousand seven hundred and twenty-eight per player of dresses jersey. Company RR should give an order of blank jerseys equal to the demand forecasted, which is twenty-three thousand two hundred and twenty-five. The profit for the dressed jersey is 843,705.5. The profit for the blank jerseys is 257,421.5. Reducing the lead time can be done by using the updated technology in communication.
References
Al-Shboul, M. A. R., Barber, K. D., Garza-Reyes, J. A., Kumar, V., & Abdi, M. R. (2017). The effect of supply chain management practices on supply chain and manufacturing firms’ performance. Journal of Manufacturing Technology Management, 28(5), 577- 609. https://doi.org/10.1108/JMTM-11-2016-0154
Kourentzes, N., Trapero, J. R., & Barrow, D. K. (2020). Optimizing forecasting models for inventory planning. International Journal of Production Economics, 225, 107597. https://doi.org/10.1016/j.ijpe.2019.107597Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2021). Designing and Managing the Supply Chain 3e with Student CD (4th ed.). McGraw-Hill Education.
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