Supply Contracts at SkiRetail

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CASE STUDY. This case allows students to learn about the newsvendor model and supply contracts concepts.

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Description

Supply Contracts at SkiRetail: Abstract

Skiekz is a firm based in Switzerland that designs, manufactures and distributes high-fashion ski wear to upscale retailers. John Bergard, in charge of designing sales and purchase contracts, has an upcoming meeting with SkiRetail. He, along with the head of marketing from Skiekz, is slated to meet with the team at SkiRetail to convince the retail firm to buy more of Skiekz’s jackets.

The selling season for Skiekz’s products is from November to January. The production process for the subsequent season begins with Chris Adler, the founder, finishing the initial designs by March. The manufacturing department then creates prototypes of the design and showcases them in exhibitions to high-fashion retailers in the region. After incorporating the suggestions received during the exhibitions, Adler finalizes the design and a final prototype is dispatched to retailers along with an invitation to place orders. By July, retailers provide their order quantities. Skiekz begins production by August and dispatches the orders by mid-October.

Bergard is contemplating the use of either a buy-back contract or a revenue-sharing contract in order to capture some of the unclaimed value that would be left behind otherwise. Furthermore, he considers that the global optimal profit levels may be different for the buy-back and revenue-sharing scenario, since one would involve additional revenue flow into the supply chain from third-party discount retailers while the other would not. He ponders what the optimal buy-back price should be in case of the buy-back contract and what the optimal sale price should be in the case of the revenue-sharing contract and their corresponding effects on profits.

Teaching objectives

This case allows students to learn about the newsvendor model and supply contracts concepts. Furthermore, it deals with a scenario where the product can be ordered only once for the forthcoming sales season. The second part of the case introduces the notion of global optimization of a supply chain and its benefits. The idea of supply chain contracts to achieve global optimum profit levels is explored. The reader is then familiarized with two supply chain contracts, viz. the buy-back contract and the revenue-sharing contract.

Main themes covered

The case covers a comparison of various supply contracts on global profit. It also discusses the topic of sub-optimization versus local optimization and profit sharing using the concept of supply chain surplus.

Concepts and theories related to the case

The notion of global optimization of a supply chain and its benefits is explored. The idea of supply chain contracts to achieve global optimum profit levels is explored. The reader is then familiarized with two supply chain contracts viz. the buy-back contract and the revenue-sharing contract and the associated potential benefits and risks.

Additional information

Teaching notes are available for teachers only. Contact the HEC Montréal Case Centre for more information.

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