Reebok nfl
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Analysis of the Reebok-NFL jersey case
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Reebok nfl
- 1. “Chasing The Hot Market” Rakesh B. R. Anand S. Thokal 1
- 2. Planning Question How should Reebok plan and manage inventory to manage costs while providing the flexibility required to meet demand for NFL Replica jerseys? 2
- 3. Outline of Case Discussion • Discuss business context, nature of demand, the sales cycle, key success factors, failure modes • Discuss supply chain, planning cycle, planning challenges • Frame as single-season planning problem; relate to newsvendor model • Develop approach and key insights with NE Patriots example • Wrap up and summary of learning 3
- 4. Situation Licensed Apparel Business Impact Reebok received an NFL exclusive license in 2000 Highly seasonal & very uncertain demand for player jerseys Teams are more predictable, but correlated with success Hot-market players and teams emerge during season High margins, fashion item Demand driven by availability Unsold jerseys can become instantly obsolete – trades; design changes No direct competition for product – 100% market share Demand is concentrated over five month period If product is not quickly available to meet demand the opportunity is lost Lost sales cost more than inventory overstocks, but come with a high risk of obsolescence 4
- 5. Nature of Consumer Demand • Sales are highest at start of season, August – Sept. • “Hot market” players and teams emerge over course of season • Increase at end of season for contending teams & stars: Christmas, playoffs and Super Bowl • Off season is slower, with demand spikes for big-name player movements 5
- 6. Annual Sales Cycle Jan - Feb May - Aug March - April Sept - Dec Retailers get discount to place pre-season orders for delivery in May Limited ordering by retailers to re-balance stocks; some short LT orders to respond to player movements Retailers order to position stock in their DC’s and stores in anticipation of season, and expect 3 – 4 week delivery LT Retailers order to replenish stocks, chase the demand, and expect 1 – 2 week LT for Hot Market items 6
- 7. Outline of Case Discussion • Discuss business context, nature of demand, the sales cycle, key success factors, failure modes • Discuss supply chain, planning cycle, planning challenges • Frame as single-season planning problem; relate to newsvendor model • Develop approach and key insights with NE Patriots example • Wrap up and summary of learnings 7
- 8. Supply Chain Overview 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 8
- 9. Internal Supply Chain 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) Stephen C. Graves Copyright 2003. All Rights Reserved 9
- 10. Purchasing Cycle Reebok places orders on CMs for April delivery; primarily orders blanks (~20% of annual buy) 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 July- Oct Jan-Feb Mar- June 10
- 11. Outline of Case Discussion • Discuss business context, nature of demand, the sales cycle, key success factors, failure modes • Discuss supply chain, planning cycle, planning challenges • Frame as single-season planning problem; relate to newsvendor model • Develop approach and key insights with NE Patriots example • Wrap up and summary of learnings 11
- 12. Single-Season Planning Problem • What volume and mix of jerseys to purchase during March to June? • Planning framework: • Given forecasts (and advanced orders) for team and players • Decide inventory targets for dressed and blank jerseys for season • Place orders guided by these targets • Revise forecasts (say) each month based on current information; update targets accordingly • How should we set inventory targets? 12
- 13. Outline of Case Discussion • Discuss business context, nature of demand, the sales cycle, key success factors, failure modes • Discuss supply chain, planning cycle, planning challenges • Frame as single-season planning problem; relate to newsvendor model • Develop approach and key insights with NE Patriots example • Wrap up and summary of learnings 13
- 14. Representative Numbers for Replica Jersey Suggested Retail Price ---- more than $50 Wholesale Price = $24.00 Blank Cost = $9.50 Cost to dress at CM = + $1.40 Cost to dress at Reebok = + $2.40 Salvage Value for unsold Dressed Jersey = $7 Holding Cost for unsold Blank Jersey = $1.04 Salvage Value for unsold Blank Jersey = $9.50 - 1.04 = $8.46 14
- 15. 2003 Forecast – As of March 1, 2003 CMs have minimum order quantities of 1728 What should inventory target be for dressed jerseys for each player? And blank jerseys for team? 15
- 16. 16 Style Mean SD Qty BT 30763 13843 23564.64 LTY 10569 4756 8095.88 Btroy 8159 3671 6250.08 VA 7270 4362 5001.76 Btedy 5526 3316 3801.68 SA 2118 1217 1485.16 Other 23275 10474 17828.52 Total 66027.72 From:- Q = Mean – (k * SD) Probable Orders Given The Total Mean Quantity is 60,000 Jerseys Here k = 0.52
- 17. Outline of Case Discussion • Discuss business context, nature of demand, the sales cycle, key success factors, failure modes • Discuss supply chain, planning cycle, planning challenges • Frame as single-season planning problem; relate to newsvendor model • Develop approach and key insights with NE Patriots example • Wrap up and summary of learning 17
- 18. Conclusion • Context – fashion items, seasonal, high uncertainty in demand • Newsvendor with Risk Pooling provides way to plan for and exploit postponement options • Results in higher profits, 95% service level, better mix of end-of-year inventory. • Results in much different inventory plan – greater use of blanks and local finishing • Project resulted in planning tool and new insights for planning for Reebok, and a thesis! A second project focused on forecasting 18
- 19. THANK YOU 19
Notes de l'éditeur
- What are the characteristics of this business? Distinctive elements? How could Reebok lose its license?
- This reflects sales at retailers
- This is Reebok’s sales cycle – sales by Reebok to retailers.
- Reebok warehouse in Indy Contract manufacturers – Asia, but more and more are being moved to central America and Caribbean (Honduras, El Salvador, DR) Many contract manufacturers – why? Most sales through large sports retailers, and thru distributors.
- Indy has capability to do screen printing – for NFL roughly 30000 jerseys per week. Case does not tell us enough about whether or not this is constraining….but does indicate there are options to outsource locally at 10% premium. It’s more expensive to screen print in Indy than at CM Reebok has postponement opportunity -- but it costs more to dress in Indy than at CM, and there can be capacity and/or QR considerations too.
- Note ordering in July 2005 for 2006 season! During season (Sept. – Nov.) Reebok can expedite jerseys from CMs – by pulling forward the supply; that is in 2005 season, they can pull forward jerseys that have been ordered for 2006 season. This is expensive (air freight, special handling ,etc.) so Reebok does not plan on this – but will do to avoid shortages and lost sales.
- Focus discussion on March to June time window. Framework – how we wish to frame the problem for purposes of building a model? Given framework, how do we set inventory targets? Suggest using newsvendor model, as we have a single period problem, i.e., effectively a single purchase opportunity. This is key to have students think about how they would plan and manage procurement and inventories – with lots of SKUs; multiple CMs with constraints on what they can do; time delays due to shipping; and forecast dynamics as season gets closer in time. Simple approach – view as a single period planning problem; create inventory targets for each player and for each team; place orders to build pipeline of stock, with objective to build to these targets; revise targets as get better forecasts….
- Representative but not actual numbers; the salvage numbers are for Reebok, not for the retailer. In general, quite difficult to develop estimates for these salvage values. Salvage value of blank jersey is cost of a blank, net of cost to hold in inventory for a year. ($9.50 – 1.04 = 8.46) --- if I have leftover blanks, Reebok will use next season, assuming no changes in design; but Reebok will incur a holding cost for having the jersey in stock for about one year. For dressed – it can reflect what a jersey could be sold at discount for and/or cost of jersey net of risk-adjusted holding cost (to capture chance of becoming obsolete). The $7 reflects an estimate of what a discounter would pay Reebok to take the leftover dressed jersey. Dressed have lower savage value – because of risk that player retires, gets traded, stinks, etc. Note that at retailer – end of season mark down is about $35; and they can’t return to Reebok.
- Note that these 6 players could be manufactured to stock, and have quantities that exceed minimum order quantity of 1738 These questions occur for each team – and each team has similar numbers, 5 – 6 players that have significant demand, and then all the others. Developing such a forecast is most difficult – largely judgmental, with some history of past sales; estimates of standard deviations are best guesses of the forecast error, again based on past years. For analysis will assume a normal distribution – which would be a typical, reasonable assumption. Ideally, one would look at forecast errors from prior years and see if this is a good fit.