Analytics Exercise: Inventory Management at Big10Sweaters.com
Big10Sweaters.com is a new company started last year by two recent college graduates. The idea behind the company was simple. They will sell premium logo sweaters for Big Ten colleges with one major, unique feature. This unique feature is a special large monogram that has the customer's name, major, and year of graduation. The sweater is the perfect gift for graduating students and alumni, particularly avid football fans who want to show support during the football season. The company is off to a great start and had a successful first year while selling to only a few schools. This year they plan to expand to a few more schools and target the entire Big Ten Conference within…show more content… The order can consist of a mix of the different logos, such as 2,000 for OSU, 1,500 for UM, 750 for MSU, 500 for PU, and 250 for IU. Within each logo sub lot, sizes are allocated based on percentages and the supplier suggests 20 percent X-large, 50 percent large, 20 percent medium, and 10 percent small based on their historical data.
Once an order is received, a local subcontractor applies the monograms and ships the sweaters to the customer. They store the inventory of sweaters for the company in a small warehouse area located at the subcontractor.
This is the company's second year of operation. Last year they only sold sweaters for three of the schools, OSU, MU, and PU. They ordered the minimum 5,000 sweaters and sold all of them, but the experience was painful since they had too many MU sweaters and not enough for OSU fans. Last year they ordered 2,300 OSU, 1,800 MU, and 900 PU sweaters. Of the 5,000 sweaters, 342 had to be sold at a steep discount on eBay after the season. They were hoping not to do this again.
For the next year, you have collected some data relevant to the decision. Exhibit 11.12 shows cost information for the product when purchased from the supplier in China. Here we see that the cost for each sweater, delivered to the warehouse of our monogramming subcontractor, is $60.88. This price is valid for any quantity that we order above 5,000 sweaters. This order can be a mix of sweaters for each of