SCM Case

Reebok NFL Replica Jerseys:

A Case for Postponement
Amitkumar
Group 1 DibyaRanjan Otta
Samvedna kumari
Parkash Tiwari
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
 Consumers

Raw Contract Reebok Retail

Material Manufacturers Warehouse Distribution Retail
Suppliers Centers Outlets

Normal Demand
2 - 16 4-8 3-12 weeks 1 week
weeks weeks
“Hot Market” Demand
1-2 weeks or less 1 week
Contract Manufacturers (CM) Reebok (Indianapolis)

Cut, sew, Blank

Fabric Inventory at
Inventory and Blank Goods S creen
assembly supplier S hipping Inventory Printing

S creen Printing
FG Inventory

2 - 16 4 4 1
weeks weeks weeks weeks
Purchase planning
Improved Supply Chain

Fabric Cut, Sew, Assembly Blank Goods Screen

FG Inventory
Inventory Inventory Printing
Misc. Demand

Hot Market 2
& Chase
Retailer Reebok Ware house
RD centre
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 = 11.06
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 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 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 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
 Results: Newsvendor with Risk Pooling

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

Dressed 51227 44265 6962
Blanks 70932 42712 28221
Total 122159 86976 35183 703
Results: Simple Newsvendor

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

Dressed 87531 60244 27287 4161
Blanks 38027 22898 15129 377
Total 125558 83142 42416 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 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