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BPT09002 Debraj

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Reebok NFL Replica Jerseys:

A Case for Postponement

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Reebok Background Small British shoe company when J Foster

invented spiked running shoe.

1894 His grandsons formed Reebok (African

antelope) which absorbed the shoe company1958

Paul Fireman acquired North Americanlicense for selling Reebok1979 Reebok USA acquired Reebok British and Reebok

International went public1985 Reebok signed 10 years exclusive contract with NFL

for uniforms and other licensed merchandise for$250million2000

Acquired by Adidas for $ 3.8 billion @ $ 59 per share.

Market share of Adidas-Reebok jumped to 21% from9%2005 2

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National Football League- premier professional leaguefor American football

Most popular sporting league (USA Today)

Super Bowl- championship game. Highest TVviewership ratings & Ad spot costs

32 teams, each team- 16 games, total 256 games

2011-12 season-Opening game- 8th Sep 2011Super Bowl- 5th Feb 2012

About NFL

3

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NationalFootball League

(NFL)

(32)

AmericanFootball

Conference (AFC)

(16)

NationalFootball

Conference (NFC)

(16)

AFC

North

(4)

East

(4)

South

(4)

West

(4)NFC

North

(4)

East

(4)

South

(4)

West

(4)

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Baltimore Ravens

Cincinnati Bengals

Cleveland Browns

Pittsburgh Steelers

AFCHouston Texans

Indianapolis Colts

JacksonvilleJaguars

Tennessee Titans

SouthNorth

EastWest

Denver Broncos

Kansas City Chiefs

Oakland Raiders

San Diego Chargers

Buffalo Bills

Miami Dolphins

New England Patriots

New York Jets5

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Chicago Bears

Detroit Lions

Green Bay Packers

Minnesota Vikings

NFC SouthNorth

EastWest

Atlanta Falcons

Carolina Panthers

New Orleans Saints

Tampa Bay Buccaneers

Dallas Cowboys*

New York Giants

Philadelphia Eagles

WashingtonRedskins

Arizona Cardinals*

San Francisco 49ers

Seattle Seahawks

St. Louis Rams6

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All NFL Jerseys

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High margin & lucrative business

Risk associated with tying a product to an on-fieldperformance

Demand influenced by uncontrollable factors

Reebok developed expertise in Licensed Apparel by

acquiring LogoAthletic in 2001 which has experience &expertise in sports apparel as well as past relationshipswith NFL

Licensed Apparel Business

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Many number of teams Reebok has exclusive rights, no competition Customer demand fluctuates-

Driven by the excitement and passions feel for the game. One way to express their support is by adorning the jerseys of the favorites player

on the favorites teams.

Hot market demand- Hot market item (demand), is an item that was either not expected to sell well

before the season or an unknown item that had no prior sales expectations.

For example :

1. Some team that no one expected to do well gets off andthe team everyone expected to contend is losing games

2. Regular player become super star.

Demand for NFL replica jerseys

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Jersey with team colors and marking but without a playername or number

Purpose using blank jersey : Fill demand for the player that are order in small quantities To respond quickly to demand for popular player

Blank

Jersey

Jersey with the player name and number

Contract Manufacturer and Reebok have an agreedminimum order level of 1,728 units for the dressedjersey for any players.

Dressed

Jersey

Jersey

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Raw

Material

Suppliers

Contract

Manufacturers

Reebok

Warehouse

Retail

Distribution

Centers

Retail

Outlets

Consumer

2 -16weeks

4 - 8weeks

3-12 we eks 1 wee k

1-2 weeks or less 1 wee k

Normal Demand

Hot M arket Demand

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Fabric

Inventory

Cut, sew,

and

assembly

Blank

Inventory at

supplier

FG Inventory

Shipping

2 - 16

weeks

4

weeks4

weeks

Screen Printing

Screen

Printing

Blank Goods

Inventory

1

weeks

Contract Manufacturers (CM) Reebok (Indianapolis)

CM- El Salvador, Honduras, Guatemala

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Jan-Feb

Retailers get discount to place pre-season orders fordelivery in May

Feb-Apr

Limited ordering by retailers to re-balance stocks; some

short LT orders to respond to player movements

May-Aug

Retailers order to position stock in their stores inanticipation of season, and expect 3 4 week delivery LT

Sep-Jan

Retailers order to replenish stores, chase the demand, andexpect 1 2 week LT for Hot Market items

The sales cycle

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Purchase Planning

July-Oct

Reebok places orders on CMs for April delivery; primarilyorders blanks (~20% of annual buy)

Jan-Feb

Reebok places orders for dressed jerseys based on retailersadvance orders & remaining inventory (~ 15 20%) Reebokorders dressed & blank jerseys, based on forecasts andinventory targets

Mar-June Last purchase phase is most challenging

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Fabric

InventoryCut, Sew, Assembly

Blank GoodsInventory Screen

Printing

FG Inventory

RD centre

Hot Market

& Chase

Retailer

Outlet

Given the uncertaintyassociated with player demand,how should Reebok approach

inventory planning for NFL

Q 1

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CM RW

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This will entail the following changes- Increase the size of Indianapolis warehouse facility.

Since nature of clothes is not changed so go for bulk purchase availdiscount. Plant high efficiency screen printing facility machine. Strengthen Contract Manufacture relationship to lower down the

lead time problem.

Advantages of the new Supply Chain- Saves time to a large extent resulting in more consumer satisfaction

by fast delivery. Reduce shipping cost and air cost to great extent. 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.

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The goal: To provide customer with a quality product, in the righttime, and in the right quantity.

Reebok's goal should be to maximize profits. This is becausealthough Reebok may want to minimize inventory, it needs toconsider the impact such an action will have on the service level andits profitability.A low inventory may mean lower holding costs and lower risks ofhaving excessive dressed jerseys after the end of season, which maybecome obsolete due to players switching teams or changes in jersey

design. However, it could also mean a lower service level as it takes4-8 weeks for jerseys to arrive at their warehouse from the CM. Bythat time, the demand would have yet changed again as the NFLgames are played almost every week. Therefore, it would be betterfor Reebok to aim at maximizing profit, as that will take all the risk,service level and inventory into account.

Yes, the key is in the forecast. The more accurate, the greater chanceto achieve both of the goals.

What should Reeboks goal be?Should Reebok minimize inventory atthe end of the season? Or Maximizing

profits? Can Reebok achieve both?

Q 2

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High service level is higher for products with-High profit margin (+)

High volume (+)

Low variability (-)

Short LT (+/-)Therefore, it will be a challenge for Reebok to providehigh service levels.

18

What service levelshould Reebok provide

to its customer?

Q 2

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Yes. Reebok company uses combination of forecast and knowndemand to place order . Forecast developed based on:

Past sales

Team and player performanceMarket intelligenceInformed guess

Forecast is revised as the sales cycle unfold

RiskPooling concept is used

Also, PostponementTheory is practiced

19

Are the models inSection 2.2.2 helpful

here?

Q 3

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What is the cost of underage fora dressed Jersey? What is thecost of overage for a dressed

Jersey?

Q 3

Cost of dressed jersey= $10.9Salvage value of dressed jersey= $7

Underage = lost profit foregone by not stocking enough jerseysOverage = cost of stocking too many jerseys

Overage cost for dressed jersey = 10.9 - 7 = 3.7Underage cost for dressed jersey = 24 10.9 = 13.1

Therefore, Underage cost > Overage cost, quantitatively & qualitatively

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Dressed Jerseys are made based on the order and

minimum order quantity for each player. While blankJerseys are allocated for unexpected demand and hot-market item.

Reebok should place the purchase order only for blankjerseys from the CMs. The decoration of the blank jerseysshould be done centrally by Reebok.

21

How might Reebokdecide between dressed

jersey and blank jersey?

Q 3

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22

Using the forecast for the New England Partiots,what is the optimal quantity to order for eachplayer? For blank Jerseys? What profit do you expectfrom Reebok? How much and what type of inventory

is expected to be leftover at the end of the season?

Q 4

Mean Lots to order (rounding to nearestdecimal ahead)

Q

Total 87680

# 12 30763 30763/1728=18 1728*18= 31104

# 24 10569 7 12096

# 80 8159 5 8640

# 04 7270 5 8640

# 54 5526 4 6912

# 32 2118 2 3456

Others 23275 23275

Assuming that EOQ for dressed jersey= 1728

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Question 4

Assuming that supply matches demand exactly and

all blank jerseys are sold after decoration

Demand Ordered Cost Sold toRetailers

Sold on discount TotalProfit

DressedJerseys

64405 70848 70848*10.9=772243.

2

64405*24=1545720

(70848-64405)*7=45101

(1545720+45101)772243.2=

818577.8

BlankJerseys

23275 23275 23275*(9.5+2.4)=276972.

5

23275*24=558600

Nil 558600276972.5 =281627.5

1100205.3

23

Salvage value of dressed jersey=$7Decoration cost= $2.4

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Thank You

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