Synopsis:George Lassiter is a project engineer for a major defense contractor and also an entrepreneur who manufactures and designs special events T-shirts. He has owned this lucrative T-shirt business for six years and designed T-shirts for “special events” such as rock concerts, major sporting events, and special fund-raising events, provided cleverly designed, well-produced, and reasonably priced products.
His product was not endorsed by event sponsors. He sold the shirts to his regular crew of vendors for $100 per dozen, and these vendors sold the public for $10 per shirt. Apart from this he was distributing his products on surrounding streets and parking lots. He wanted to sell his shirts on a rock concert that was going to be held in two months. He was sure that 20,000 tickets for the standing area around the stage would be bought by devoted fans, he was not sure of the number of people who will attend the concert, and the percentage of the attendees who will buy the shirts.
George thought in terms of three possibilities specifically 80,000, 50,000 and 20,000 grand seats which he assumed to be high, medium and low respectively. The probability of 50,000 was as likely as either of the two possibilities combined. And 80,000 and 20,000 were about equally likely, or 80,000 were more likely than 20,000.
He also thought regarding his designs and quality of the shirts, his sales could be ten percent (about 6 times out of 10), five percent, or fifteen (1 time out of 10) percent of the attendance. Based on the information given in the case, the expected number of attendees is; E(x) = 80,000*0.25 + 50,000*0.5 + 20,000*0.25 = 50,000 people Standing Area Attendance 20,000
Selling price per shirt: $100/12 = $8.33Sale Price of leftover T-shirts to discount clothing chain $1.50 Per T-shirt
George requested a cost estimate of shirts supply which is presented in the below table: Order SizeCost5,000$17,7507,500$25,25010,000$32,125
George’s PredictionsItem/OptionQtyProbabilityGrandstand Attendance-High80,0000.3Grandstand attendance-Medium50,0000.5Grandstand Attendance-Low20,0000.2Percent of Concert-goers to buy Shirt-High15%0.1Percent of Concert-goers to buy Shirt-Medium10%0.6Percent of Concert-goers to buy Shirt-Low5%0.3
Objective:1. The main objective of the case is to find out the possible financial outcome if he places order for 5000, 7500 or 10,000 T-shirts. 2. George also has to take into consideration the amount that he will pay to find out the number of people who will attend the concert. 3. To find out how many people will buy T-shirts?
4. To calculate the financial outcomes of these three scenarios. 5. To maximize the profit.
Decision Problem:George is currently facing a decision whether he should place an order for 5000, 7500 or 10000 T-shirts for the upcoming event and why?
Alternatives:The possible alternatives are 10,000, 7,500 and 5,000 shirts. The decision will affect the costs and revenues generated from the sale of the number of shirts. The revenue will be affected by the sale price and sales volume. The sales volume is in turn affected by the number of attendees at the concert. Finally, the profit is a consequence of costs and revenues.
WHEN THE ORDER IS 10,000AttendanceHigh (100000)Medium (70000)Low (40000)Percentage101551015510155Probability0.60.10.30.18.104.22.168.10.3
1000015000500070001050003500400060002000Price per unit (8.33)833008330041650583108330029155333204998016660Price per unit for excess product (1.5)007500450075097509000600012000Cost321253212532125321253212532125321253212532125Profit511755117517025306855192567801019523855-3465WHEN THE ORDER IS 7500AttendanceHigh (100000)Medium (70000)Low (40000)Percentage101551015510155Probability0.60.10.30.22.214.171.124.10.3
1000015000500070001050003500400060002000Price per unit (8.33)624756247541650583106247529155333204998016660Price per unit for excess product (1.5)00375075006000525022508250Cost252502525025250252502525025250252502525025250Profit372253722520150338103722599051332026980-340WHEN THE ORDER IS 5000AttendanceHigh (100000)Medium (70000)Low (40000)Percentage101551015510155Probability0.60.10.30.126.96.36.199.10.3
1000015000500070001050003500400060002000Price per unit (8.33)416504165041650416504165029155333204165016660Price per unit for excess product (1.5)000002250150004500Cost177501775017750177501775017750177501775017750Profit23900239002390023900239001365517070239003410
ConclusionDepending on the profit which we are taking we will add the sentence In Conclusion, with the schedule concert just days away George Lassiter had to decide on how many t-shirt he should create and sale for the event. Lassiter knew that he must maintain his reputation in creating innovative designs up to date with young concert goer’s taste. As well as pleasing his vendors with not only a quality product but delivered in a timely manner with the proper quantity to serve the concert audience.
As per the scenario; 50,000 people will attend the concert; the chance that 15% of attendees will buy a T-shirt is so low that it is unlikely to happen and therefore, we just ignore this chance. Scenario 2 is out of question because it brings the least profit among the three scenarios. We are left with scenario 1 and 3. Under these 2 scenarios, George will make the same amount of profits whether 5% or 10% of attendees buy a T-shirt from him. In fact, if the chance of them each buying a T-shirt is 15%, George will be the best off under scenario
3. However, this chance is very unlikely to happen. Additionally, the more unsold T-shirts are left after the event, the more time it will take to sell, the longer it will take to get his investment, and he will incur the costs from storing the inventory. Apart from that, it costs George more money on investment in scenario 3 to earn the same amount of money in scenario 1. In meeting these expectations Lassiter compare his alternatives and chose to, Purchase 5000 shirts to be designed, stenciled, created and sold.
Create a website for sales and overages of shirts created for future concerts, sporting events, and fund raising events. Purchase insurance for shirts that are stolen, damaged, and unsold. Sell unsold shirt on EBay and Crag’s List