CASE: Reebok NFL Replica Jerseys: A Case for Postponement

Prepared by: Shaheen SardarSCM Lab. Department of Industrial and Management Engineering, Hanyang University, South Korea

Reebok Introduction

• Type: Subsidiary• Parent: Adidas• Industry: Sports equipment• Products: Sportswear, Footwear• Founded: 1895 (as J.W. Foster and Sons)• Founder: Joseph Williams Foster

Reebok Vision Statement

“Continue to bring

inspiration to

present and future athletes,

while

maintaining the

company's standard of quality

for

its products.”

Reebok Mission Statement

“At Reebok, we see the world

a little differently

and

throughout our history have made our mark when we’ve had the courage

to challenge convention.

Reebok creates products and marketing programs that reflect the brand’s unlimited

creative potential.”

Reebok Product Line

1) Shoes (athletic)

2) Apparels (clothing)

3) Sports equipment (accessories)

4) Exercising/ health products

5) Personal grooming

Reebok Logistics Facts

• 40 Main Footwear Factories in 8 Countries

• 600 Apparel Factories in 29 Countries

• 450 Raw Material Suppliers

• 27 Freight ForwardersTransportation modes include Ship, Truck, Rail and Air

• 34 Custom Brokers

• Over 5,000 purchase orders placed each month

NFL: National Football League

How should Reebok plan and manage inventory to manage costs while providing flexibility required to meet demand for NFL Replica jerseys?

Licensed Apparel BusinessSituation 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

Channel Strategy and Practices:

•Many uncontrollable Factors:• Players and Teams generate demand based

on performance• Players get hurt, Players trade teams, Teams do

poorly• Team changes colors, design

•Forecast Demand? •Postponement Production? “HOT” Items

•1-2 weeks lead time•New Player Jerseys, Championship T-Shirts, New Color Jerseys, New Designs

“STABLE” Items •3-12 weeks lead time•Hats, Regular Jerseys, Regular T-Shirts, Sweatshirts etc

Postponement Strategy

A business strategy that

maximizes possible benefit and

minimizes risk by

delaying further investment into a product or service

until the last possible moment

Two-stage production with postponement

1. Take advantage of lower labor costs by outsourcing the production of blank jerseys to Central America.

2. Optimize service levels by souring the final assembly in the US. This also creates local jobs in the areas of textile and silk-screen printing.

Reebok carefully structured its supply chain to handle different types of items based on customer demand patterns, items such as hats, jerseys, shirts etc.

Offshore Manufacturing of blank Jerseys in Central America

Low costs, Treaties, Human rights regulation, Distance.

Reebok Finishing Facility for screen printing and embroidering in US.

The cost of lost sales is greater than the cost to ship, unpack, and reship a jersey from a local finishing center.

Supply > Demand

•Problem Now: Should Reebok:

• Sell to discounters?• Keep blank jerseys for

Next year?

Supply Chain Challenges

Purchase Order Management

• Lack of complete purchase order visibility to trading partners

to manage lead time & inventory.

• Difficult to extend internal systems to link different supply

chain parties.

• Difficult to accurately implement customer specific services

(e.g. ASN, pre-ticketing, labeling, mark-for-store).

Supply Chain Challenges

Transportation Logistics Management

• Different carriers, different ways to trace & track.

• Non-completeness of consignment check point.

• Manual processes for smaller carriers, air and exceptions.

• Last minute inventory management difficult.

Communication Methods: Fax, Mail, Couriers, site visits, EDI, proprietary file transfers

the Old Way

Country Liaison Offices

Label Providers Banks

Factories

Raw Material &

& Component

Suppliers

TransportationProviders

Customs

ReebokHQ

Drop ship

customersReebok Trading Hong Kong

the New Way

Business-to-Business data sharing /Vendor Neutral E-Hub/ Hosted Environment (ASP model)

Communication Methods: Workflow, message alerts, back office integration with reporting capabilities

Reebok HQ

Country/Liaison Offices

Raw material &Component

supplies

Factories

Banks

Employees

Drop ship

customers

CustomsTransportation

Providers

Label Providers

Custom-built e-HUB with LINE,

a division of container port operator, Hutchison

Whampoa in Hong Kong

Reebok Trading Hong Kong

Purchasing and Sales Timeline

Simple Newsvendor Model

Notation

Simple Newsvendor Model

Given Information

Given Forecasts

Simple Newsvendor Model

The Objective

• Expected revenue:$24*E[Dressed_Sold] + 24*E[Blanks_Sold] + $7*E[Dressed_Unsold] + $8.46* E[Blanks_Unsold]

• Expected Cost: $9.50*Blanks + $10.90*Dressed + $2.40*E[Blanks_Sold]

Simple Newsvendor Model

• Step 1: Calculate the Overage and Underage costs.

Simple Newsvendor Model

• Step 2: Calculate the Critical ratios (target stocking level).

Simple Newsvendor Model

• Step 3: Calculate the Optimal quantities.

• Assume the provided forecasts are normally distributed.

Results (Optimal quantities)

Expected unsold and expected unmet demand

Sales Results

Expected units sold for all of New England would be 85179 units, based on a stocking plan of 118485 units. The net profit would be $986000.5

Possibility to deal with unmet demand

• We assumed that blank jerseys would never be used to meet unmet demand from selected players.

• In reality, if blank jerseys were available (as indicated by the quantity shown as E(Sold), then extra blanks would be used to meet the unmet demand.

Best Case situation

• Jerseys were available to satisfy all unmet demands for all player jerseys.

Best Case situation

Expected units sold increases by the 1875 units met with blanks to 87,055 and total expected profits increase to $1048819.524.

References• Simchi-Levi, E., & Kaminsky, P. (2008). Designing and managing the supply chain: Concepts,

strategies, and cases (3rd edition). United-States: McGraw-Hill.

• Rietze, S. M. (2006). Case studies of postponement in the supply chain (Masters dissertation, Massachusetts Institute of Technology). http://dspace.mit.edu/handle/1721.1/34601#files-area

• Parsons, J. C. W. (2004). Using a newsvendor model for demand planning of NFL replica jerseys (Masters dissertation, Massachusetts Institute of Technology). http://dspace.mit.edu/handle/1721.1/28506

• Graves, S. C., & Parsons, J. C. (2005). Using a newsvendor model for inventory planning of NFL replica jerseys. In Proc. MSOM Conference.

• http://dspace.mit.edu/bitstream/handle/1721.1/71720/15-762j-spring-2005/contents/lecture-notes/reebok_draftscg.pdf

• http://www.reebok.com

• http://en.wikipedia.org/wiki/Reebok