National Football League (NFL) has granted Nike an exclusive license to manufacture, market, and sell NFL replica jerseys. Nike sells the NFL jerseys to retailers at a wholesale price of $26 per jersey and the average retail price equals $80 per jersey.

Nike outsources the cutting, sewing and assembly operations to offshore contract manufacturers (CM). Because of the long production and shipment lead times, Nike must decide in advance how much inventory to hold at the DC in anticipation of retailers’ orders for the coming season. Nike developed the following demand forecasts for the New England Patriots, assuming independent normal demand distributions.

 

Description	Mean	Standard Deviation
Tom Brady, #12	30,000	14,000
Randy Moss, #81	10,000	5,000
Laurence Maroney, #39	8,000	3,000
Tedy Bruschi, #54	7,000	4,000
Other Players	28,000	11,000

For popular players (like the first four listed above), the CMs print the player’s name and number on the jersey and ship the completely finished good, known as a dressed jersey, to Nike’s DC. The cost to Nike of a dressed jersey is $11.  At the end of the season, Nike sells its unsold jerseys at a discount price of $9 per jersey.

For less popular players (“Other Players”), the CMs ship a blank jersey to Nike’s DC at a price of $10. After receiving the orders from retailers, Nike prints the name of the player and number on the jersey, which costs Nike $2.5 per jersey. At the end of the season, unsold blank jerseys have a value of $8.7, which reflects the cost of holding these jerseys until the next season.

 

a) How many dressed jerseys and blank jerseys should Nike order to maximize expected profits?

b) What is the expected profit for Blank Jerseys?

c)  Nike is considering switching to a full-postponement model. In particular, instead of ordering a mix of dressed and blank jerseys, Nike would now order only blank jerseys and decorate them at $2.5 each after they receive the retailers’ orders. Under this postponement model, how many blank jerseys should Nike order?