Discussion

Posted: January 5th, 2023

Discussion

Student’s Name

Institutional Affiliation

Course

Instructor

Due Date

Discussion

Question 1: Given the uncertainty associated with player demand, how should Reebok approach inventory planning for NFK replica jerseys?

Reebok should employ the science of theoretical minimums (STM) as an inventory planning approach because of its ability to minimize order, delivery and production lead times. The science of theoretical minimums is an inventory management model that provides a visibility of the entire supply chain (Duckworth, 2016). It is a methodical supply chain optimization approach used for identifying leakages in the supply chain, in form of excess inventory, inaccurate demand projection, slow response to demand changes, and long lead times. The model is highly dependent on high quality data of all value points along the entire value and supply chain (Choi et al., 2017). Demand for NFL replica jerseys fluctuates significantly within and between the football seasons as players gain fame from their performance thus driving demand while team performance changes between seasons increasing or lowering demand. Forecasting these demands requires continuous and accurate tracking of player performance and using this information to predict jersey demand, as recommended in the continuous review policy. Consequently, this information is used in the STM model to reduce informational lead times (ILTs) by ensuring that demand spikes are met with immediate availability and replenishment of jersey stocks.

Question 2: What should Reebok’s goal be? Should Reebok minimize inventory at the end of the season? Or maximize profit? Can Reebok achieve both? What service level should Reebok provide to its customers?

Reebok’s goal should be to avail NFL merchandise, especially jerseys on time to discerning customers. Reeboks goal should be to maximize profit at the end of the season. Since Jerseys made by contract manufacturers (CMs) come either as blanks or dressed jerseys, higher profits can be accrued from dressed jerseys made by the CMs (Simchi-Levi, Kaminsky & Simchi-Levi, 2021). It costs $1 less to produce a dressed jersey at the CM than at the Reebok facility in Indianapolis, creating a larger profit margin (Simchi-Levi, Kaminsky & Simchi-Levi, 2021).. Besides, demand spikes lead to hot-market items, which deliver large profits in short periods. However, Reebok can also achieve minimum inventory at the end of the season to protect the profits accumulated during the high-demand season. This can be facilitated by using accurate demand analysis and forecasting, and discounted sales towards the end to the season. Outstanding inventory at the end of the season present significant loss-making risks, including obsolescence when teams change colors and design, or players transfer to other teams or retire. Besides, holding stocks requires capital, which erodes the profits accrued.

Reebok should provide a trademark service level to its customers, which is the highest service level assigned to customer service. This means that Reebok should strive to be the gold standard in NFL apparel business to be emulated by others, considering that it has an exclusive contract with the professional football league. In this regard, Reebok should benchmark its service level at 95% to allow for 5% overstocking or understocking (Rahimi, Baboli & Rekik, 2017).   

Question 3: Are the models in section 2.2.2 helpful here? 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?

Yes they are. These models relate to the business environment and demand scenario that reebok operates, that is a sector that exhibits rapid and unpredictable demand fluctuation and uncertainty (Simchi-Levi, Kaminsky & Simchi-Levi, 2021). The single period, initial inventory, and multiple opportunities models that are presented in this section address risk pooling associated with uncertain demand (Diabat,  Dehghani & Jabbarzadeh, 2017). They address specific uncertainties presented by erroneous forecasting of demand, forecast horizon span, and matching supply and demand, which replicate the scenario at Reebok. 

Underage and overage costs are associated to the profits lost from insufficient and excess inventory, respectively (Wei, Xiong & Li, 2019). The underage cost is given by the selling price of a dressed jersey less the cost of manufacturing it. In this case the selling price of dressed jerseys is $24 while the cost of manufacturing at the CM is $10.90 while that of producing and decorating a blank jersey at the CM and Indianapolis facility is $9.50 and an extra $2.40 for decorating, giving a total of $11.90. Therefore the underage cost for dressed jersey made at the CM is $24 less $10.90, which is $13.10, which that for a dressed jersey decorated at the Indianapolis facility is $24.00 less $11.90, which is $12.10. Contrastingly, the overage cost given by the loss incurred for holding excess stock, which is the cost of manufacturing of the jerseys at the CM and at the Indianapolis facility respectively, giving $10.90 and $11.90, respectively. The decision between the dressed and blank jerseys is dependent on the quantity of jerseys of the number of players that reach the CM manufacturing threshold of 1,728 units per player and the demand from other NFL players and teams based on their performance and not met by the minimum order level (Simchi-Levi, Kaminsky & Simchi-Levi, 2021). If the number of units from players with demand higher than the minimum order level outstrips that from units from players with a lower than minimum order level demand, then dressed jerseys are preferable to blank ones, and vice versa. 

Question 4: Using the forecast for the New England patriots, what is the optimal quantity 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? What service level?

Optimal Order Quantity for Each Player

Optimal order quantity, also known as economic order quantity, is calculated using the formula  (Çalışkan, 2021). The calculation for the optimal order quantity for each player is illustrated in table 1.

Table 1. Optimal order quantity for the 6 players that for CM manufacturing

Player	D	S per unit	S	H per unit	H	2DS	2DS/H	Q
Brady (12)	30,763	10.90	335,316.70	1.045	32,147.34	670,633.40	641,754.45	801.10
Law (24)	10,569	10.90	115,202.10	1.045	11,044.61	230,404.20	220,482.49	469.56
Brown (80)	8,159	10.90	88,933.10	1.045	8,526.16	177,866.20	170,206.89	412.56
Vinatieri (4)	7,270	10.90	79,243.00	1.045	7,597.15	158,486.00	151,661.24	389.44
Bruschi (54)	5,526	10.90	60,233.40	1.045	5,774.67	120,466.80	115,279.23	339.53
Smith (32)	2,118	10.90	23,086.20	1.045	2,213.31	46,172.40	44,184.11	210.20

Optimal Quantity for Blank Jerseys

For other players, 23,275 jerseys will be dressed at the Indianapolis facility, which raises the order cost to $11.90 per jersey up from $10.90 at the CM. The formula for calculating the optimal quantity is still  . The optimal quantity of blank jerseys of 729 units, as illustrated in table 2.

Table 2: calculation for optimal number of blank jerseys

	D	S Per Unit	S	H Per Unit	H	2DS	2DS/H	Q
Other Players	23,275.00	11.90	276,972.50	1.045	24,322.38	553,945.00	530,090.91	728.07

Profit Expected by Reebok

Reebok expected to make profits from two manufacturing processes, with the CM production of single player jerseys generating more profit that those dressed in the Indianapolis facility. The profit margin for the jerseys is the selling price less the manufacturing price. For the CM manufactured jerseys, the profit margin is $24 less $10.90, giving $13.1 per jersey, while that for blank jerseys is $24 less $11.9, yielding $12.1 per jersey. The total profit projected from all the jerseys sold according to the projected demand is summarized in table 3.

Table 3. Profit from projected jersey sales according to demand

Type of jersey manufacturing process	Total units	Profit
	Per unit ($)	Total ($)
CM	64,405	13.1	843,705.50
CM + Indianapolis printing	23,275	12.1	281,627.50
Total			1,125,333.00

Inventory Outstanding at the End of the Season

It the actual sales match the projected demand, then all the inventory would be sold out at the end of the season, leaving no outstanding inventory. In this regard, the service level would be 100% because the entire demand for customers would be fulfilled. 

References

Çalışkan, C. (2021). The economic order quantity model with compounding. Omega, 102, 102307. https://doi.org/10.1016/j.omega.2020.102307

Choi, T. M., Govindan, K., Li, X., & Li, Y. (2017). Innovative supply chain optimization models with multiple uncertainty factors. Annals of Operations Research, 257(1), 1-14. https://doi.org/10.1007/s10479-017-2582-4

Diabat, A., Dehghani, E., & Jabbarzadeh, A. (2017). Incorporating location and inventory decisions into a supply chain design problem with uncertain demands and lead times. Journal of Manufacturing Systems, 43, 139-149. https://doi.org/10.1016/j.jmsy.2017.02.010

Duckworth, N. (2016). Science of supply chain optimization: Researchers affirm benefits of eliminating information delay. Retrieved from https://supplychainbeyond.com/science-of-supply-chain-theoretical-minimums/.

Purchase, C. L. (2016). The perfect formula for determining the right amount of inventory. Modern Materials Handling. Retrieved from https://www.mmh.com/article/the_perfect_formula_for_determining_the_right_amount_of_inventory.

Rahimi, M., Baboli, A., & Rekik, Y. (2017). Multi-objective inventory routing problem: A stochastic model to consider profit, service level and green criteria. Transportation Research Part E: Logistics and Transportation Review, 101, 59-83. https://doi.org/10.1016/j.tre.2017.03.001

Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2021). Designing and Managing the Supply Chain: Concepts, Strategies and Case Studies (4th ed.). New York, NY: Richard D. Irwin, Inc.

Wei, Y., Xiong, S., & Li, F. (2019). Ordering bias with two reference profits: Exogenous benchmark and minimum requirement. Transportation Research Part E: Logistics and Transportation Review, 128, 229-250. https://doi.org/10.1016/j.tre.2019.06.007