Reebok NFL Replica Jerseys: A Case for Postponement

BPT09002 Debraj BPT09008 Arup BPT09014 Vikrant Bpt09020 Abhishek

Reebok Background

1894

Small British shoe company when J Foster invented spiked running shoe. His grandsons formed Reebok (African antelope) which absorbed the shoe company Paul Fireman acquired North American license for selling Reebok
Reebok USA acquired Reebok British and Reebok International went public Reebok signed 10 years exclusive contract with NFL for uniforms and other licensed merchandise for $250million Acquired by Adidas for $ 3.8 billion @ $ 59 per share. Market share of Adidas-Reebok jumped to 21% from 9%

1958 1979
1985 2000 2005

About NFL

National Football League- premier professional league for American football Most popular sporting league (USA Today) Super Bowl- championship game. Highest TV viewership ratings & Ad spot costs 32 teams, each team- 16 games, total 256 games 2011-12 seasonOpening game- 8th Sep 2011 Super Bowl- 5th Feb 2012

National Football League (NFL) (32)

American Football Conference (AFC) (16)

National Football Conference (NFC) (16)

North (4)
West (4)

North (4)

West (4)

AFC

East (4)

NFC

East (4)

South (4)

South (4)
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North

AFC

South
Houston Texans

Baltimore Ravens Cincinnati Bengals Cleveland Browns Pittsburgh Steelers

West Denver Broncos Kansas City Chiefs Oakland Raiders San Diego Chargers

Indianapolis Colts
Jacksonville Jaguars Tennessee Titans

East Buffalo Bills Miami Dolphins New England Patriots New York Jets

North Chicago Bears Detroit Lions Green Bay Packers Minnesota Vikings West Dallas Cowboys* New York Giants Philadelphia Eagles Washington Redskins

NFC

South
Atlanta Falcons
Carolina Panthers New Orleans Saints Tampa Bay Buccaneers

East

Arizona Cardinals* San Francisco 49ers Seattle Seahawks St. Louis Rams

All NFL Jerseys

Licensed Apparel Business

High margin & lucrative business Risk associated with tying a product to an on-field performance

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 relationships with NFL

Demand for NFL replica jerseys

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 and the team everyone expected to contend is losing games 2. Regular player become super star.

Jersey
Dressed Jersey
Jersey with the player name and number Contract Manufacturer and Reebok have an agreed minimum order level of 1,728 units for the dressed jersey for any players.

Blank Jersey

Jersey with team colors and marking but without a player name 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

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Consumers

Raw M aterial Suppliers

Contract M anufacturers

Reebok Warehouse

Retail Distribution Centers

Retail Outlets

Normal Demand
2 - 16 we e ks
4-8 we e ks 3-12 we eks 1 we e k

Hot M arket Demand

1-2 we eks or less 1 we e k

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Contract Manufacturers (CM) Fabric Inventory Cut, sew, and assembly Blank Inventory at supplier

Reebok (Indianapolis)

Shipping

Blank Goods Inventory

Screen Printing

Screen Printing FG Inventory

2 - 16 weeks 4 weeks 4 weeks 1 weeks

CM- El Salvador, Honduras, Guatemala

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The sales cycle

Jan-Feb

Retailers get discount to place pre-season orders for delivery in May

Feb-Apr

Limited ordering by retailers to re-balance stocks; some short LT orders to respond to player movements
Retailers order to position stock in their stores in anticipation of season, and expect 3 4 week delivery LT Retailers order to replenish stores, chase the demand, and expect 1 2 week LT for Hot Market items

May-Aug

Sep-Jan

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

July-Oct

Jan-Feb

Reebok places orders for dressed jerseys based on retailers advance orders & remaining inventory (~ 15 20%) Reebok orders dressed & blank jerseys, based on forecasts and inventory targets

Last purchase phase is most challenging

Mar-June

Q1
CM Fabric Inventory

Given the uncertainty associated with player demand, how should Reebok approach inventory planning for NFL

RW Screen Printing FG Inventory

Blank Goods Cut, Sew, Assembly Inventory

Hot Market & Chase Retailer Outlet RD centre

Improved Supply Chain

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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 avail discount. 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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Q2

What should Reeboks goal be? Should Reebok minimize inventory at the end of the season? Or Maximizing profits? Can Reebok achieve both?

The goal: To provide customer with a quality product, in the right time, and in the right quantity. Reebok's goal should be to maximize profits. 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. Yes, the key is in the forecast. The more accurate, the greater chance to achieve both of the goals. 17

Q2

What service level should Reebok provide to its customer?

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 provide high service levels.

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Q3

Are the models in Section 2.2.2 helpful here?

Yes. Reebok company uses combination of forecast and known demand to place order . Forecast developed based on: Past sales Team and player performance Market intelligence Informed guess

Forecast is revised as the sales cycle unfold Risk Pooling concept is used Also, Postponement Theory is practiced

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Q3

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

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

Underage = lost profit foregone by not stocking enough jerseys Overage = cost of stocking too many jerseys Overage cost for dressed jersey = 10.9 - 7 = 3.7 Underage cost for dressed jersey = 24 10.9 = 13.1 Therefore, Underage cost > Overage cost, quantitatively & qualitatively

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Q3

How might Reebok decide between dressed jersey and blank jersey?

Dressed Jerseys are made based on the order and minimum order quantity for each player. While blank Jerseys are allocated for unexpected demand and hotmarket item. Reebok should place the purchase order only for blank jerseys from the CMs. The decoration of the blank jerseys should be done centrally by Reebok.

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Q4
Mean Total # 12 # 24 # 80 # 04 # 54 # 32 Others 87680 30763 10569 8159 7270 5526 2118 23275

Using the forecast for the New England Partiots, what is the optimal quantity to order for each player? For blank Jerseys? What profit do you expect from Reebok? How much and what type of inventory is expected to be leftover at the end of the season?

Lots to order (rounding to nearest decimal ahead)

30763/1728=18 7 5 5 4 2

1728*18= 31104 12096 8640 8640 6912 3456 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 to Retailers 64405*24= 1545720 Sold on discount Total Profit (1545720+ 45101) 772243.2= 818577.8

Dressed Jerseys

64405

70848

70848*1 0.9= 772243. 2

(70848-64405)*7= 45101

Blank Jerseys

23275

23275

23275*( 9.5+2.4) = 276972. 5

23275*24= 558600

Nil

558600 276972.5 = 281627.5

1100205.3

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

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Thank You

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