Case 3: CASE 3: AN EDUCATED GUESS kstore, located adjacent to the main campus of
ID: 428225 • Letter: C
Question
Case 3: CASE 3: AN EDUCATED GUESS kstore, located adjacent to the main campus of the University of all textbooks on the university textbook adoption list. Sup- e materials, Boomer has ancillary lines of school Boomer a, carries plemental to textbooks and cours and office supplies. It also offers an assortment of OU comme orabilia, and knic moratives, mem kknacks bearing university logo. One of the more popular brac is a selection of T-shirts, sweatshirts, and sportswear. of bric-a is making plans for the next school year and restocking the swear. Mr. DeWitt, the store owner, follows in the foot Boomer epleted line of sport steps o never anticipates his competitors; he to duplicate the selections in his fall order. His order quantity is ba inventory expenditure al amount of his expenditures plus the value of the stock on hand equals a predecessors by using the same fundamental ordering system. He waits to see what they buy and then tries f his sed on an lowance. Mr. DeWitt releases orders for shirts until the pre- limit. The limit typically is set low enough so that the bulk etermined upper f the inventory is sold by summer vacation. At that time the store clo a month and then reopens to prepare for the coming year This year Mr. DeWitt has recruited the services of a stock clerk. Debbie Dodd, a busin of optimization techniques for all areas of his operation. She has convinced him that he could minimize costs if he would order for the sportswear department according to a periodic inventory system that she devised as a class project. The system is structured to work well in situations where there are reorders on basic items. She has coaxed Mr. DeWitt into ordering basic shirts as well as peri- odically ordering newer styles as special items. The system incorporates a category of eight special items, and each item would have a set economic order interval and maximum inventory level. However, at the order interval the inven- tory items are subject to change, so that a newer style could be substituted ess major, has been advising Mr. DeWitt on the relative benefits Debbie admits that her system does not accommodate all items. In par ticular, a specialty item that Mr. DeWitt added to the T-shirt line two years ago defies her ordering policies. Mr. DeWitt acted on the advice of a marketing student and added a T-shirt commemorating the OU-Texas football game, a game that incites one of the wildest weekends of the fall season. The T-shirts colorfully display the OU logo with lettering proclaiming the big event. Last year's shirts had a different design from the year before but featured the same message-"OU-Texas Weekend." The shirts were sold at $12.00 each and sac rifice priced at $3.00 each after the football weekend. r. DeWitt has requested that Debbie devise a method for ordering t time the order must go to the printers, then he will. H 00.Texas shirts. He has told her that if she cannot concoct an educated guess e will either order set limit of expenditures or use a system similar to the one he aes for textbooks. In the latter case, the quantity of shirts ordered would be a fixed fraction of the total student enrollment.Explanation / Answer
1. Being a fast changing item, the T shirt sale is governed by fashion, demand for specific designs and seasonality( like the game season). By ordering after seeing the current trends and fashion, he loses on the potential opportunity of being first mover in the market,as the many fashion conscious student might have bought it before it comes to Boomers. By nt ordering category wise, he is likely to run out of some popular items and amassing huge inventory of less popular unsold items. To overcome this, Debbie's plan seems OK which divides the speciality items category wise, and order periodically according to their turnover. this opimises inventory levels and prevents stock out and lost opprtunities.
2. Debbie's method is resonable as it involves periodic review of movement of goods to determine the most optimum inventory policies. The requisite is to keep an open eye on the market and monitor the trends to include more speciality items to improve sales. The initial order of basic t shirts should also involve a market research and review of past sales to come up with best policy for them. Monitoring and encashing of seasonality and sudden high and lows of the market is the key.
3.Based on past year's sales and sales trend, Debbie should determine the most appropriate quantity of t shirts, on newsvendor model, that maximises the profitability and minimises the inventory, so that maximum number of t shirts are sold at premium price and least are left to be sold at sacrifice price.
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