Question
Our monogramming subcontractor gets $13 for each sweater. They also charge a 3% holding cost based on the $73.88 per sweater cost. Shipping cost is
Our monogramming subcontractor gets $13 for each sweater. They also charge a 3% holding cost based on the $73.88 per sweater cost. Shipping cost is paid by the customer when the order is placed.
Cost Information for the Big Ten Sweaters | ||||
China Supplier Cost | ||||
Materials | $ 32.00 | |||
Labor | 10.50 | |||
Overhead | 1.25 | |||
Transportation within China | 1.00 | |||
Supplier Profit | 8.95 | |||
Agent's Fee | 2.68 | |||
Freight (Ocean Carrier) | 1.50 | |||
Duty, Insurance, etc. | 3.00 | |||
Total Supplier Cost | $60.88 | |||
Domestic Subcontractor Cost | ||||
Monogram Material | $ 5.00 | |||
Labor | 8.00 | |||
Total Subcontractor Cost | $13.00 | |||
Total Cost (per sweater) | $73.88 | |||
In addition to the cost data, you also have some demand information, as shown below. The exact sales numbers for last year are given. The exhibit indicates the retail ($125/sweater) or “full price” sales for the sweaters. Sweaters that we had at the end of the season were sold through eBay for $65 each and were not monogrammed. Keep in mind that the retail sales numbers do not accurately reflect actual demand since they stocked out of the OSU sweaters toward the end of the season.
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School Name | AVG Game Attendance | EBAY Sales Last Yr | Last Yrs Actual Sales | This Yrs Average Forecast |
OSU | 105,261 | 102 | 2,398 | 2600 |
Michigan | 108,933 | 177 | 1,323 | 1867 |
Pitt | 50,457 | 31 | 969 | 1100 |
Michigan State | 74,741 | 1717 | ||
Indiana | 41,833 | 617 | ||
Penn State | 107,008 | |||
Wisconsin | 80,109 | |||
Iowa | 70,214 | |||
Illinois | 59,545 | |||
Minnesota | 50,805 | |||
Northwestern | 24,190 | |||
Nebraska | 85,071 | |||
Rutgers | 31,478 | |||
Maryland | 75,327 | |||
Total | 310 | 4690 | 7901 |
As for advertising the sweaters for next season, Rhonda is committed to using the same approach used last year. The firm placed ads in the football program sold at each game. These worked very well for reaching those attending the games, but she realized there may be ways to advertise that may open sales to more alumni. She has hired a market research firm to help identify other advertising outlets but has decided to wait at least another year to try something different.
Forecasting demand is a major problem for the company. You have asked Rhonda and Steve to predict what they think sales might be next year. You have also asked the market research firm to apply their forecasting tools. Data on these forecasts are given.
Based on advice from the market research firm, you have decided to use the average demand forecast to determine your orders.
You will allocate your order to the individual schools based on their expected percentage of total demand. You discussed your analysis with Rhonda and Steve and they are OK with your analysis. They would like to see what the order quantities would be if each school was considered individually. You were also able to work with your suppliers and worked towards increasing a positive relationship, they have lowered your order minimum to 500 sweaters. They have also reduced their lead time to 8 weeks.
Set up a spreadsheet with all the data from above and you are ready to do some calculations.
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