Reebok nfl replica jerseys a case for postponement solution

21 May 2019

B.Sc. – Supply Chain Management (elective)

Reebok NFL Replica Jerseys: A Case for Postponement

e Kai Foerstl Professor of Supply Chain Management & Logistics

German Graduate School of Management and Law (GGS)

mailto:Kai.Foerstl@ggs.de
Kai Foerstl | 2

Planning Question

Reebok NFL Replica Jerseys: A Case for Postponement

How should Reebok plan and manage inventory to manage costs while providing the flexibility required to meet demand for NFL Replica jerseys?

Source: Stephen C. Graves 2005

Kai Foerstl | 3

Guiding Questions for the Reebok Case Analysis

Reebok NFL Replica Jerseys: A Case for Postponement

Consider the case “Reebok NFL Replica Jerseys: A Case for Postponement”. Please address the following questions and use Excel for calculations:

 Please submit the excel-file and

 Submit a three page word-document in which you provide notes on your approach and give clear answers

to each (sub-)question.

Preparation Questions:

1. Given the uncertainty associated with player demand, how should Reebok approach

inventory planning for NFL replica jerseys? Consider the newsvendor model. 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 jerseys and blank jerseys?

2. Using the forecast for the New England Patriots, analyze the cases where (a) dressed

jerseys are used for the star players and blank jerseys for the other players and (b) blank

jerseys are used for all players. For each case: What is the optimal quantity of dressed

jerseys to order for each player? For blank jerseys? What profit do you expect for Reebok?

How much and what type of inventory is expected to be left over at the end of the season?

3. Could Reebok use a “partial postponement” strategy, satisfying demand for each star player

with dressed and with blank shirts? What would be the advantages of such a strategy? How

should Reebok determine the order quantities under such a strategy? (Calculations for such

a strategy are a little tricky, therefore sketch your reasoning in your report)

Kai Foerstl | 4

Outline of Case Discussion

Reebok NFL Replica Jerseys: A Case for Postponement

 Discuss business context, nature of demand, the

sales cycle, key success factors, failure modes

 Discuss supply chain, planning cycle, planning

challenges

 Frame as single-season planning problem; relate to

newsvendor model

 Develop approach and key insights with NE Patriots

example

 Report on findings for NFL

Kai Foerstl | 5

Licensed Apparel Business

Reebok NFL Replica Jerseys: A Case for Postponement

Situation Impact

 Reebok received an NFL

exclusive license in 2000

 Highly seasonal & very uncertain

demand for player jerseys

 Teams are more predictable, but

correlated with success

 Hot-market players and teams

emerge during season

 High margins, fashion item

 Demand driven by availability

 Unsold jerseys can become

instantly obsolete – trades; design

changes

 No direct competition for

product – 100% market share

 Demand is concentrated over

five month period

 If product is not quickly

available to meet demand the

opportunity is lost

 Lost sales cost more than

inventory overstocks, but

come with a high risk of

obsolescence

Kai Foerstl | 6

Nature of Consumer Demand

Reebok NFL Replica Jerseys: A Case for Postponement

 Sales are highest at start of season, August – Sept.

 “Hot market” players and teams emerge over course of season

 Increase at end of season for contending teams & stars: Christmas,

playoffs and Super Bowl

Off season is slower, with demand spikes for big-name player movements

Kai Foerstl | 7

Annual Sales Cycle

Reebok NFL Replica Jerseys: A Case for Postponement

 Retailers order to replenish stores, chase the

demand, and expect 1 – 2 week LT for Hot

Market items

Jan - Feb

May - Aug

March -

April

Sept -

Dec

 Retailers get discount to place pre-season

orders for delivery in May

 Limited ordering by retailers to re-balance

stocks; some short lead time (LT) orders to

respond to player movements

 Retailers order to position stock in their DC’s

and stores in anticipation of season, and

expect 3-4 week delivery LT

Kai Foerstl | 8

Outline of Case Discussion

Reebok NFL Replica Jerseys: A Case for Postponement

 Discuss business context, nature of demand, the

sales cycle, key success factors, failure modes

 Discuss supply chain, planning cycle, planning

challenges

 Frame as single-season planning problem; relate to

newsvendor model

 Develop approach and key insights with NE Patriots

example

 Report on findings for NFL

Kai Foerstl | 9

Supply Chain Overview

Reebok NFL Replica Jerseys: A Case for Postponement

Kai Foerstl | 10

Internal Supply Chain

Reebok NFL Replica Jerseys: A Case for Postponement

Kai Foerstl | 11

Annual Purchasing Cycle

Reebok NFL Replica Jerseys: A Case for Postponement

 Reebok places orders on Contract Manufacturers

(CMs) for April delivery; primarily orders blanks

(~20% of annual buy)

 Reebok orders dressed & blank jerseys, based

on forecasts and inventory targets

 Last purchase phase is most challenging

 Reebok places orders for dressed jerseys based

on retailers’ advance orders & remaining

inventory (~ 15 – 20%)

July-Oct

Jan-Feb

Mar-June

Kai Foerstl | 12

Outline of Case Discussion

Reebok NFL Replica Jerseys: A Case for Postponement

 Discuss business context, nature of demand, the

sales cycle, key success factors, failure modes

 Discuss supply chain, planning cycle, planning

challenges

 Frame as single-season planning problem; relate to

newsvendor model

 Develop approach and key insights with NE Patriots

example

 Report on findings for NFL

Kai Foerstl | 13

Single Season Planning Problem

Reebok NFL Replica Jerseys: A Case for Postponement

 What volume and mix of jerseys to purchase during March to June?

 Planning framework:

 Given forecasts (and advanced orders) for team and players

 Decide inventory targets for dressed and blank jerseys for season

 Place orders guided by these targets

 Revise forecasts (say) each month based on current information; update targets accordingly

 How should we set inventory targets at the start of the

season?

Kai Foerstl | 14

Outline of Case Discussion

Reebok NFL Replica Jerseys: A Case for Postponement

 Discuss business context, nature of demand, the

sales cycle, key success factors, failure modes

 Discuss supply chain, planning cycle, planning

challenges

 Frame as single-season planning problem; relate to

newsvendor model

 Develop approach and key insights with NE Patriots

example

 Report on findings for NFL

Kai Foerstl | 15

2003 Forecast – As of March 1, 2003

Reebok NFL Replica Jerseys: A Case for Postponement

What should inventory target be for dressed

jerseys for each player and for blank jerseys?

Side condition:

CMs have minimum order quantities of 1728 -> Qdi = 0 oder

Qdi = 1,728

Kai Foerstl | 16

Representative numbers for Replica Jerseys

Reebok NFL Replica Jerseys: A Case for Postponement

 Recommended retail price ---- more than $50  Wholesale price = $24.00  Purchase costs undressed = $9.50 costs of dressing at contract manufacturer = + $1.40 -> $10.90 costs for dressing at Reebok = + $2.40 -> $11.90  Clearance price for dressed shirts = $7  Ficticious clearance price (holding costs) for blank shirts = $1.045  CR stock-out (blanks) =

Co/(Cu+Co)=1.045/(12.10+1.045)=0.08

 Order Qblanks (Qb) so that the probability of stocking out blanks is equal to 8%

 Alternatively, this means that the expected service level for blanks will be 92%

Kai Foerstl | 17

Representative numbers for Replica Jerseys

Reebok NFL Replica Jerseys: A Case for Postponement

 Overage dressed: Cod = 10.90 – 7.00 = $3.90  Underage dressed (no blanks): Cudnb = 24.00 – 10.90 = $13.10  Underage dressed (blanks available): Cudba = 11.90 – 10.90 = $1.00

 Cud = E(ba)x$1.00 + E(nb)x$13.10  Cud = (0.92)x$1.00 + (0.08)x$13.10 = $1.96

 CR (dressed) = Cod/(Cu+Cod) = 3.90/(1.96+3.90) = 0.67

 Order Qd (for each Star Player), so that the probability of stocking out dressed shirts is equal to 67%;

 in other words the service level for dressed shirts is 33%.

Kai Foerstl | 18

Outline of Case Discussion

Reebok NFL Replica Jerseys: A Case for Postponement

 Discuss business context, nature of demand, the

sales cycle, key success factors, failure modes

 Discuss supply chain, planning cycle, planning

challenges

 Frame as single-season planning problem; relate to

newsvendor model

 Develop approach and key insights with NE Patriots

example

 Report on findings for NFL