Case Study: Southwestern University – Inventory Management Southwestern Universi
ID: 347463 • Letter: C
Question
Case Study: Southwestern University – Inventory Management
Southwestern University: F*
The recent success of Southwestern University’s football program is causing SWU’s president, Joel Wisner, more problems than he faced during the team’s losing era in the early 1990s. For one thing, increasing game day attendance is squeezing the town of Stephenville, Texas, and the campus (see Southwestern University: B, in Chapter 4). Complaints are arising over parking, seating, concession prices, and even a shortage of programs at some games (see Southwestern University: C, in Chapter 6). Dr. Wisner once again turns to his stadium manager, Hank Maddux. This time he needs a guaranteed revenue stream to help fuel the stadium expansion. One source of income could easily be the high-profit game programs.
Selling for $5 each, programs are a tricky business. Under substantial pressure from Wisner, Maddux knows he has to ensure that costs are held to a minimum and contribution to the new expansion maximized. As a result, Maddux wants the programs for each game to be purchased economically. His inquiries have yielded two options. A local Stephenville printer, Sam Taylor of Quality Printing, has offered the following discount schedule for the programs and game inserts:
Programs
Weekly Game
Detail Inserts
10,000 to 30,000
$1.80 ea.
10,000 to 30,000
$.90 ea.
30,000 to 60,000
$1.70 ea.
30,000 to 60,000
$.85 ea.
60,000 to 250,000
$1.60 ea.
60,000 to 250,000
$.80 ea.
250,000 and up
$1.40 ea.
250,000 and up
$.70 ea.
As a second option, however, First Printing, owned by Michael Shader, an S.W.U. alumnus in Ft. Worth, will do the job for 10% less as a favor to help the athletic department. This option will mean sending a truck to Ft. Worth to pick up each order. Maddux estimates that the cost of each trip to Ft. Worth will be $200.
Maddux figures that the university’s ordering/check-writing cost is about $100. His carrying cost is high because he lacks a good place to store the programs. He can’t put them in the office, or store them down in the maintenance department, where they may get dirty and damaged. This means he will need to lease space in a storage area off-campus and transport them to and from the campus. He estimates annual holding costs at 50%.
Maddux’s other major problem is he is never sure what the demand for programs will be. Sales vary from opponent to opponent, and how well the team is doing that year. However, he does know that running out is a very bad idea. This football team is not only expected to make money for SWU, but it is also entertainment. This means programs for all who want them. With the new facility, attendance could be 60,000 for each of the five home games. And two of every three people buy a program. In addition to the programs, Maddux must purchase the inserts for each game. The inserts have information about the opposing team, photos of the expected starters, and recent game statistics. The purchasing issue is the same for inserts, except inserts will be purchased separately for each game and are a total loss after the game. The carrying cost, because inserts are to be delivered just as they are needed, should be nominal; he estimates 5%. The other costs and the same discount schedule apply, but the inserts only cost half as much because they are much smaller. First Printing will give the same 10% discount on the inserts.
Discussion Questions
1. With whom should Maddux place the order for the programs and how many should he order each time?
2. With whom should Maddux place the order for the inserts and how many should he order each time?
3. What is Maddux’s total cost for programs with inserts for the season?
4. What other program management opportunities might Maddux pursue?
*This integrated case study runs throughout the text. Other issues facing Southwestern’s football expansion include (A) managing the stadium project (Chapter 3); (B) forecasting game attendance (Chapter 4); (C) quality of facilities (Chapter 6); (E) scheduling of campus security officers/staff for game days (Chapter 13).
Programs
Weekly Game
Detail Inserts
10,000 to 30,000
$1.80 ea.
10,000 to 30,000
$.90 ea.
30,000 to 60,000
$1.70 ea.
30,000 to 60,000
$.85 ea.
60,000 to 250,000
$1.60 ea.
60,000 to 250,000
$.80 ea.
250,000 and up
$1.40 ea.
250,000 and up
$.70 ea.
Explanation / Answer
Estimated demand of Programs = 60000*5*2/3 = 200,000
Estimated demand of Inserts = 60000*5 = 300,000
1. Let's analyse the total cost for all possible order policy options.
We see that the minimum cost pertains to order policy of 60000 and vendor First Printing.
Therefore, Maddux should place the order for Programs with First printing and each time order should be placed for 60,000 quantity.
2. Simiarly analysing the total cost of all order policy options, we get the following results
Going by the lowast cost, Maddux should place the order with First Printing for 60,000 quantity each time.
3. Maddux total cost for programs with inserts for the season = 310600 + 228300 = $ 538,900
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