Reebok’s end should be to maximise net incomes. while taking into history the production costs. the gross it can acquire from a sale. stock list keeping costs and salve value of the extra New Jersey. This is because although Reebok may desire to minimise stock list. it needs to see the impact such an action will hold on the service degree and its profitableness.
A low stock list may intend lower retention costs and lower hazards of holding inordinate dressed New Jerseies after the terminal of season. which may go disused due to participants exchanging squads or alterations in New Jersey design. However. it could besides intend a lower service degree as it takes 4-8 hebdomads for New Jersey to get at their warehouse from the CM. By that clip. the demand would hold yet changed once more as the NFL games are played about every hebdomad. Therefore. it would be better for Reebok to take at maximising net income. as that will take all the hazard. service degree and stock list into history.
MANAGING UNCERTAINTY IN DEMAND
Demand for the New Jersey is really seasonal and is unsure as a batch depends on the public presentations of the squad. This is particularly so for the months of Oct – Dec when the NFL regular season is in drama. Here is when certain New Jerseies become hot-market points. ensuing in deficits. In add-on. the sign language on of new participants or altering of squads of participants during the off-season besides add to the trouble in holding an accurate prognosis for the figure of New Jerseies to bring forth.
Delay and Risk-pooling
Given the uncertainness associated with participant demand. Reebok should do usage of delay and seek to force back the determination to publish the players’ figure and name on the New Jersey every bit back as possible. This is because the longer the skyline. the worst the prediction. By proroguing the determination to nearer the regular season. Reebok will hold a better thought of the demand for the single participants. This will assist forestall Reebok from holding excessively many New Jerseies of a participant it does non necessitate. Postponement besides means that Reebok is aggregating the New Jersey and such aggregated prognosis are more accurate. Reebok will be able to bask some of the benefits from risk-pooling as high demand for a certain participant in a squad will be offset by a lower demand for another.
Delaying Product Differentiation
One manner of accomplishing delay and risk-pooling would be through process standardisation. This involves standardising as much of the procedure as possible for different merchandises. and so custom-making the merchandises every bit tardily as possible. Merchandises and fabrication procedures are designed so that determinations about which specific merchandise are manufactured can be delayed until after fabrication is under manner.
Presently. there are two screen publishing installations within Reebok’s supply concatenation: one is at the CMs. and the other 1 is at Reebok’s DC. Since there are really high fluctuations for the appareled New Jersey of each participant. Reebok might see non telling any appareled New Jersey from the CMs. That is. the fabrication procedure should get down by doing a generic merchandise that is subsequently differentiated into a specific end-product. Furthermore. the pull scheme of which the supply concatenation is driven by demand would be helpful in this scenario since the lead clip from new Screen Printing is 1 hebdomad. comparatively low compared to the current scenario of which the lead clip is approximately 4+1=5 hebdomads because it includes the transit clip. In this manner. the company will accomplish the higher service degree by deploying a reactivity and flexible supply concatenation. which will work good for its merchandises. which are characterized by really high uncertainness.
The above would assist towards aggregating the New Jersey for each squad. More could be done and therefore. lower stock list could be achieved if Reebok were to look into the possibility of acquiring the CMs to keep stock list of merely white ( or black ) New Jersey. which are dyed and sewed with the squads colourss merely when there is demand for the specific squad. This will supply even greater flexibleness for Reebok in run intoing the uncertainness of demand. Postponing localisation besides affects the degree of safety stock. Since we keeps safety stock of merely the generic New Jersey. custom-making squads and Numberss as demand is realized. we will be able to concentrate on aggregative demand degrees and. hence. aggregative demand has a much smaller criterion divergence than single demand. necessitating less safety stock than the presently bing system. In this scenario. Reebok would therefore bask a decrease in production cost as it produces appareled New Jerseies at a higher volume. In add-on. dollars can besides be saved from transit economic systems of graduated table. due to the standardisation of production procedure of generic New Jerseies. That is. we could cut down the transit costs of the reordering the appareled New Jersey many times.
However. there are assorted of import factors coming into drama at this point. First. Reebok needs to reexamine the contract with CM. measuring the cost for undertaking out the appareled New Jersey and the relationship among them. The company may besides keep a higher stock list degree of clean New Jerseies. However. Reebok will cut down the hazard of holding dressed New Jerseies left over. which would be greater in magnitude if the demand prognosis is incorrect and unexpected squads or participants become “hot” . High demand prognosis mistake has a damaging impact on supply concatenation public presentation. ensuing in lost gross revenues. disused stock list. and inefficient use of resources. Therefore. aggregative demand information will be more accurate than disaggregate informations. the push part of the supply concatenation. which is blank-jersey production. will hold less forecast mistake.
These tradeoffs should be quantified when consider to spread out the capacity of screen printing at Reebok’s DC and take the screen printing at CM. In other words. we need to weigh the set-up cost and benefit from implementing procedure standardisation.
Hazard Sharing with Retailers
Reebok is confronting a batch more hazard than its retail merchants as it is the party that will be left keeping the extra and unwanted stocks should at that place be any forecasting mistakes ( which more frequently than non would decidedly go on ) and overrun. The hazard could besides come from the alteration in the manner of teams’ uniforms. Therefore. Reebok would prefer to non bring forth as many New Jerseies and would instead wait for the orders to come in from its retail merchants before adorning or bring forthing more. But this waiting for orders will decidedly hold an impact on the service degree that is provided to its clients.
At the same clip. its retail merchants faced with the hazard of holding non plenty stocks to run into the spike in demand when it occurs as the NFL season advancements. Deficits might happen if Reebok does non bring forth adequate New Jersey. and the replenishment lead clip would be longer if Reebok postpones adorning. Therefore. the retail merchants would prefer Reebok to order more appareled New Jersey before the merchandising season.
In order to happen a tradeoff between the conflicting aims of Reebok and the retail merchants. it is good for both parties to portion the hazards of keeping left over stock list. so that Reebok will hold more inducements to order more New Jerseies from its CMs. and therefore improves the service degree it provides to the retail merchants.
Presently. Reebok provides some inducements for retail merchants to put early orders utilizing a discounted sweeping monetary value. There are some other attacks that could assist to portion the hazard between these two parties. For illustration. a lower sweeping monetary value will be charged if the retail merchants were to perpetrate to a certain sum of New Jerseies for certain participants or for certain squads.
Another attack is to implement a capacity reserve contract. The retail merchants pay to reserve a certain sum of New Jersey. and incur extra cost for put to deathing orders. In this manner. Reebok partly delegates the duty of bring forthing before detecting the demand to the retail merchants. and hence achieve the end of hazard sharing.
Optimizing the Current Supply Chain – Newsboy Model
Reebok’s pattern is to maintain clean New Jerseies for the following season. and hence the overage cost for cover New Jersey OB is the stock list keeping cost. that is. Blank Jersey Average Cost ? Annual Holding Cost = $ 1. 05.
The remnant dressed New Jersey is sold at a price reduction. so the overage cost for dressed New Jersey OD is
Dressed Jersey Average Cost – Discount Price = $ 3. 90.
The clean New Jerseies are chiefly used to fulfill the pressing demand. and hence short lead clip ( 1~2 hebdomads ) is required. If Reebok runs out of clean New Jerseies. the demand can non be satisfied within 1~2 hebdomads. because the fabrication clip and the transportation clip greatly exceeds the expected lead clip. Therefore. the underage cost for cover New Jersey UB is the lost-of-sale cost. that is.
Sweeping Price – Blank Jersey Average Cost – Decorate Cost = $ 12. 10.
For the appareled New Jersey. the extra demand can be met by adorning the clean New Jersey. As a consequence. the underage cost for appareled New Jerseies UD is calculated by
Blank Jersey Average Cost + Decorate Cost – Dressed Jersey Average Cost = $ 1. 00.
Suppose that all the New Jerseies ordered are clean New Jerseies. Harmonizing to the newsboy theoretical account. the figure of New Jerseies we should order Q is. where F-1 ( • ) denotes the reverse map of the cumulative distribution map of the entire demand.
However. adorning clean New Jerseies in Indianapolis incurs higher cost than telling dressed New Jerseies from the CM. Therefore. we would wish to order some dressed New Jerseies for each participant I. Harmonizing to the newsboy theoretical account. the optimum measure Qi is calculated by. where Fi-1 ( • ) denotes the reverse map of the cumulative distribution map of the entire demand for participant I. Note that there is a minimal order degree for appareled New Jersey. Since the hazard will be reduced if less appareled New Jerseies are ordered. we could put Qi = 0 if the optimum measure Qi calculated by the newsboy theoretical account is less than the minimal order degree.
Based on these values. the figure of clean New Jerseies we should order is.
Examples: New England Patriots
Harmonizing the above analysis. the optimum ordination measure for each drama and the clean New Jerseies are shown in Table 1.
We should order a entire figure of 114. 738 New Jersey. and therefore the expected remnant of all New Jerseies is 114. 738 – 87. 680 = 27. 058. Since the figure of appareled New Jerseies ordered is much lower than the expected demand for each participant. we expect that there are no remnant dressed New Jerseies. All the 27. 058 left over New Jerseies should be clean and hence can be used in the following season.
Table 1: Optimum order measure
DescMeanStdevCritical FractileNewboy SolutionOrder QuantityProb ( Demand ? Production )
New Eng Patriot Total87. 68019. 2110. 9205114. 73877. 22292. 05 %
Brady. Tom # 1230. 76313. 8430. 204119. 31319. 31320. 41 %
Law. Ty # 2410. 5694. 7560. 20416. 6356. 63520. 41 %
Brown. Troy # 808. 1593. 6710. 20415. 1235. 12320. 41 %
Vinatieri. Adam # 047. 2704. 3620. 20413. 6623. 66220. 41 %
Bruschi. Tedy # 545. 5263. 3160. 20412. 7832. 78320. 41 %
Smith. Antowain # 322. 1181. 2710. 20411. 0670
Other Players23. 27510. 4740. 2041 0
The unit net income of appareled New Jersey and cover New Jersey is $ 13. 10 and $ 12. 10 severally. The net income from selling the dressed New Jerseies are $ 13. 10 ? ?i Qi = $ 491. 461. and the net income from selling the clean New Jerseies are $ 12. 10 ? ( 77. 222 – 27. 058 ) = $ 606. 983. Furthermore. the stock list cost for the remnant New Jersey is $ 1. 05 ? 27. 058 = $ 28. 275. As a consequence. the entire net income is calculated by $ 491. 461 + $ 606. 893 – $ 28. 275 = $ 1. 070. 169.
Therefore. with a chance of 92 % . we can fulfill the demand utilizing ordered appareled New Jersey or clean New Jerseies. and so the supply lead clip should be no greater than 1~2 hebdomads. The chance for the demand transcending the order measure is simply 8 % . In this instance. Reebok needs to order from the CM during the season and incurs a longer lead clip.
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Reebok's goal should be to maximize profits, while taking into account the production costs, the revenue it can get from a sale, inventory holding costs and salvage value of the excess jerseys. This is because although Reebok may want to minimize inventory, it needs to consider the impact such an action will have on the service level and its profitability.
A low inventory may mean lower holding costs and lower risks of having excessive dressed jerseys after the end of season, which may become obsolete due to players switching teams or changes in jersey design. However, it could also mean a lower service level as it takes 4-8 weeks for jerseys to arrive at their warehouse from the CM. By that time, the demand would have yet changed again as the NFL games are played almost every week. Therefore, it would be better for Reebok to aim at maximizing profit, as that will take all the risk, service level and inventory into account.
MANAGING UNCERTAINTY IN DEMAND
Demand for the jerseys is very seasonal and is uncertain as a lot depends on the performances of the team. This is especially so for the months of Oct - Dec when the NFL regular season is in play. Here is when certain jerseys become hot-market items, resulting in shortages. In addition, the signing on of new players or changing of teams of players during the off-season also add to the difficulty in having an accurate forecast for the number of jerseys to produce.
Postponement and Risk-pooling
Given the uncertainty associated with player demand, Reebok should make use of postponement and try to push back the decision to print the players' number and name on the jersey as back as possible. This is because the longer the horizon, the worst the...