Western Ranchman outfitters (WRO), a family-owned and operated mail order and retail store business in Cheyenne, Wyoming,

Question:

Western Ranchman outfitters (WRO), a family-owned and operated mail order and retail store business in Cheyenne, Wyoming, bills itself as "The Nation's Finest Western Store" and carries high-quality western apparel and riding supplies. Its catalog is mailed all over the world; the store and its president, John Veta, have appeared in a short article in Fortune magazine, and clothes from WRO were featured in the August 1980 Mademoiselle. One of WRO's staple items is the button front, shrink-to-fit blue jean made by Levi Strauss (model no. 501). This is the original riveted denim pant that cowboys shrunk by sitting in a tub of hot water. It is the epitome of durability and fit and is still a popular jean. When Mr. Veta was asked his stockout philosophy for this item, he answered, "Would you expect a drugstore to have aspirin?" Further, Mr. Veta has had a pleasant relationship with Levi Strauss for all the years of his business career.
Don Randell, director of merchandising, takes a physical inventory of this item once a month. His records show annual usage, amount on hand, quantity ordered, and quantity received (which has been averaging 185 pairs per month, except in January-March when it averages 150 pairs per month), all dated by the month. The store attempts to keep a safety stock adequate for 60 days for two reasons: production problems of the supplier and a hedge against unusually large orders.
Mr. Randell described the problems of ordering. "The rag business," as it is known, "is made up of the most disorganized group of people I've ever had the opportunity to be associated with," according to Randell. The problems he cited include not specifying a delivery date, unexplained late deliveries, a general lack of productivity, and lead times of up to six months.
Randell contrasted this situation with his experience in the flexible packaging industry, where reliability was a hallmark, and a delay of a single day warranted notification to the customer.
The most recent eight-month period is used to illustrate WRO's ordering difficulties. While the sample figures in Table 1 may seem peculiar, they reflect WRO's philosophy of offering a full range of sizes and Mr. Randell's attempts to predict Levi Strauss' delivery pattern so that the store is close to obtaining the stock it needs. For example, in the last eight months, no one bought a pair sized 27 Ã— 36. Nevertheless, six were ordered and received so that should such a customer appear, WRO would be able to satisfy his needs. For size 27 X 34, 33 were ordered, but only 21 were received, which is very close to the 18 sold in the eight months of the previous year. The 27-inch and 28-inch waist sizes shown in the exhibit are but two of the many available waist sizes, of course-waist sizes up to 60 inches are produced and sold.
Randell places an order for Levi blue jeans every month, doing his best to ensure an adequate supply for the business. Normally, WRO customers are not disappointed when requesting the Levi 501. However, in the past two months, the Wyoming Game and Fish Department has been requiring extra pairs of this jean, and WRO has not always had this exact jean in stock. Since there are at least four styles that satisfy the state requirements, the problem is usually overcome with other styles or brands.
Annual demand at WRO for the Levi 501 is 2,000 pair. The cost of placing an order is about $10, the carrying cost is 12 percent, and the cost of the Levi to WRO is $10.05 perpair.