supply chain simchi levi nfl case study

2. Reebok background
About NFL
Retailer states
Demand for NFL replica jerseys
The sales cycle
Reebok supply chain
Purchase planning
Question & Answer

3. Headquarter in Canton, Massachussets
Started as small British shoe company
In 1979, Paul Fireman acquired North American license for
selling Reebok
In 1985, Reebok USA acquired Reebok British and Reebok
International went public
In 2000, Reebok signed 10 years contract with NFL

4. National
Football
League (NFL)
American
Football
Conference
(AFC)
National
Football
Conference
(NFC)

5. AFC
North
East
South
West NFC
North
East
South
West

6. Baltimore
Ravens
Cincinnati
Bengals
Cleveland
Browns
Pittsburgh
Steelers
Houston
Texans
Indianapolis
Colts
Jacksonville
Jaguars
Tennessee
Titans

7. Denver
Broncos
Kansas City
Chiefs
Oakland
Raiders
San Diego
Chargers
Buffalo Bills
Miami
Dolphins
New England
Patriots
New York Jets

8. Chicago
Bears
Detroit Lions
Green Bay
Packers
Minnesota
Vikings
Atlanta
Falcons
Carolina
Panthers
New Orleans
Saints
Tampa Bay
Buccaneers

9. Dallas
Cowboys
New York
Giants
Philadelphia
Eagles
Washington
Redskins
Arizona
Cardinals
San Francisco
49ers
Seattle
Seahawks
St. Louis
Rams

11.  I have a warehouse full of jerseys out there and retailers
are screaming for the teams and players I don’t have!
 Every year it seems like we have the right mix of
inventory going into the season, and then some team
that no one expected to do well gets off to a 4-0 start
and the team everyone expected to contend for the
Super Bowl Is losing games.
 Suddenly I have 1000s of jerseys I can’t sell and 1000s
of order I can’t fill

12.  The Reebok line is great. We’re excited and
anxious at the same time. [In the past] the fear was
that one team jersey could be found from five
different manufacturers at five different stores in the
mall. Now the [question] is, will the consumer have
to pay an extra $20 for a team jersey because it is
from Reebok?
 As a top-tier retailer in apparel, we’ll only have
access to that one brand.
 I think that Reebok makes great product. We just
hope they can deliver because we won’t have
options B, C, or D to go to.

13.  Customer demand fluctuate
 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.

14. • 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
• To meet immediate demand for player that suddenly change
teams
Blank
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.
Dressed
Jersey

15. 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
May-Aug
• Retailers order to position stock in their DC’s and stores in
anticipation of season, and expect 3 – 4 week delivery LT
Sep-Jan
• Retailers order to replenish stores, chase the demand, and
expect 1 – 2 week LT for Hot Market items

16. Raw
Material
Suppliers
Contract
Manufacturers
Reebok
Warehouse
Retail
Distribution
Centers
Retail
Outlets
Consumers
2 - 16
weeks
4 - 8
weeks
3-12 weeks 1 week
1-2 weeks or less 1 week
Normal Demand
“Hot Market” Demand

17. Fabric
Inventory
Cut, sew,
and
assembly
Blank
Inventory at
supplier
FG Inventory
Shipping
2 - 16
weeks
4
weeks
4
weeks
Screen Printing
Screen
Printing
Blank Goods
Inventory
1
weeks
Contract Manufacturers (CM) Reebok (Indianapolis)

18. July-Oct
• Reebok places orders on CMs for April delivery; primarily orders
blanks (~20% of annual buy)
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
Mar-June
• Last purchase phase is most challenging

19. Given the uncertainty associated with player demand, how should
Reebok approach inventory planning for NFL
What should Reebok’s goal be? Should Reebok minimize inventory at
the end of the season? Or Maximizing profits? Can Reebok achieve
both? What service level should Reebok provide to its customer?
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 Jersey
and blank Jersey?
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?

20.  Generate team and player level forecast Offer
±20% discount for early order in January-February
 Prepare 1,728 dressed Jerseys for any player
 Prepare blank Jerseys (shared with other apparel
items)
 Provide printing facility in the Reebok’s DC
(capacity 10,000 Jerseys per day)
 Outsource the deficit of production local
manufacturing
Given the uncertainty associated with player demand, how
should Reebok approach inventory planning for NFL
Given the uncertainty associated with player demand, how should
Reebok approach inventory planning for NFL

21.  The goal: To provide customer with a quality product, in
the right time, and in the right quantity.
 Reebok should minimize its inventory to maximize its
profit by reducing holding cost and the risk of leftover in
each season
 Yes, the key is in the forecast. The more accurate, the
greater chance to achieve both of the goals.
 High service level: providing all customer order,
including the revised order
What should Reebok’s goal be? Should Reebok minimize inventory at the
end of the season? Or Maximizing profits? Can Reebok achieve both?
What service level should Reebok provide to its customer?

22.  Yes. Reebok company uses combination of forecast and known
demand to place order for their supplier. Forecast developed
based on: past sales, team and player performance, market
intelligence, advance order, informed guess. Forecast is revised
as the sales cycle unfold.
 Cost of blank jersey = $9.5
Cost of Dressed jersey = $10.9
Cost of decorating a blank jersey in Indianapolis = $2.4
Salvage value = $7
 Cost of underage for dressed jerseys:
1.Finished in contract manufacturers: $10.9
2.Finished in Indianapolis: $9.5+$2.4=$11.9
 Cost of overage for dressed jerseys:
$10.9 - $7 = $3.9
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?

23.  Order on July-October: blank Jersey (stored in CM) ,
January-June: dressed Jerseys (known
demand) ,combination of dressed Jerseys (order) and
blank Jersey (forecast).
 Dressed Jerseys are made based on the order and
minimum order quantity for each player. While blank
Jerseys are alocated for unexpected demand and hot-
market item.
How might Reebok decide between dressed Jersey and blank
Jersey?

24. 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?
The first step is to calculate the overage and underage costs for both Blank and Dressed
Given information
Wholesale sale price (P) = $24 Cost of blank (Cb) = $9.5
Cost of dressed (Cd) = $10.9 Cost to decorate in North American (Cnad) = $2.4
Salvage value for blank (Sb) = $8.46 Salvage value for dressed (Sd) = $7
Cost of capacity (Cc) =$0
The next step is to calculate the critical ratio
Overage for blank = Cb - Sb = 9.5-8.46 =1.04
Underage for blank = P - Cb – Cnad –Cc =24-9.5-2.4 = 12.1
Overage for dressed = Cd – Sd = 10.9-7 = 3.9
Underage for blank = P-Cd = 24-10.9 = 13.1
Critical ratio (Blank) = underage / (underage + overage) =12.1/(12.1+1.04)=0.92
Critical ratio (Dressed) = underage / (underage + overage) =12.7/(12.7+3.48)=0.77
To calculate the optimal quantities , assume the provided forecasts are normally distributed

25. 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?
Following this purchase plan , Reebok can expected the following sales results:
Player Q E[Sold] E[unsold] E[unmet] E[profit]
NEW ENG
PATRIOT
Tom #12 41018 28918 12100 1845 331640.24
TY#24 14092 9935 4157 634 113938.27
TROY#80 10879 7670 3209 487 87955.3
ADAM#04 10501 6688 3812 581 72748.54
TEDY#54 7983 5084 2898 442 55302.94
ANTOWAIN#
32
3059 1948 1111 169 21192.31
Other players 38027 22898 15129 377 224946.72
Total 125558 83142 42416 4537 907724.33