Western Ranchman Outfitters
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
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 × 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 per pair.
Evaluate Randell’s ordering policy. How does it compare with formal mathematical approaches?
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