Reebok's goal should be to maximize profits, while taking into account the production costs, the revenue it can get from a sale, inventory holding costs and salvage value of the excess jerseys. This is because although Reebok may want to minimize inventory, it needs to consider the impact such an action will have on the service level and its profitability.
A low inventory may mean lower holding costs and lower risks of having excessive dressed jerseys after the end of season, which may become obsolete due to players switching teams or changes in jersey design. However, it could also mean a lower service level as it takes 4-8 weeks for jerseys to arrive at their warehouse from the CM. By that time, the demand would have yet changed again as the NFL games are played almost every week. Therefore, it would be better for Reebok to aim at maximizing profit, as that will take all the risk, service level and inventory into account.
MANAGING UNCERTAINTY IN DEMAND
Demand for the jerseys is very seasonal and is uncertain as a lot depends on the performances of the team. This is especially so for the months of Oct - Dec when the NFL regular season is in play. Here is when certain jerseys become hot-market items, resulting in shortages. In addition, the signing on of new players or changing of teams of players during the off-season also add to the difficulty in having an accurate forecast for the number of jerseys to produce.
Postponement and Risk-pooling
Given the uncertainty associated with player demand, Reebok should make use of postponement and try to push back the decision to print the players' number and name on the jersey as back as possible. This is because the longer the horizon, the worst the...