production and operations Management
posted by Johnelle .
Selling for $5 each, programs are a tricky business. Under substantial pressure from Wisner, Maddux
knows he has to ensure that costs are held to a minimum and contribution to the new expansion
maximized. As a result, Maddux wants the programs for each game to be purchased economically. His
enquiries have yielded two options. A local Stephenville printer, Sam Taylor of Quality Printing, has offered
the following discount schedule for the programs and game inserts:
10,000 to 30,000 $1.80 ea.
30,000 to 60,000 $1.70 ea.
60,000 to 250,000 $1.60 ea.
250,000 and up $1.40 ea.
Weekly Game Detail Inserts
10,000 to 30,000 $0.90 ea.
30,000 to 60,000 $0.85 ea.
60,000 to 250,000 $0.80 ea.
250,000 and up $0.70 ea.
As a second option, however, First Printing, owned by Michael Shader, an S.W.U. alumnus in Ft. Worth,
will do the job for 10% less as a favor to help the athletic department. This option will mean sending a truck
to Ft. Worth to pick up each order. Maddux estimates that the cost of each trip to Ft. Worth will be $200.
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Maddux figures that the university’s ordering/check-writing cost is about $100. His carrying cost is high
because he lacks a good place to store the programs. He can’t put them in the office, or store them down in
the maintenance department, where they may get dirty and damaged. This means he will need to lease
space in a storage area off-campus and transport them to and from the campus. He estimates annual
holding costs at 50%.
Maddux’s other major problem is he is never sure what the demand for programs will be. Sales vary from
opponent to opponent, and how well the team is doing that year. However, he does know that running out
is a very bad idea. This football team is not only expected to make money for SWU, but it is also
entertainment. This means programs for all who want them. With the new facility, attendance could be
60,000 for each of the five home games. And two of every three people buy a program. In addition to the
programs, Maddux must purchase the inserts for each game. The inserts have information about the
opposing team, photos of the expected starters, and recent game statistics. The purchasing issue is the
same for inserts, except inserts will be purchased separately for each game and are a total loss after the
game. The carrying cost, because inserts are to be delivered just as they are needed, should be nominal;
he estimates 5%. The other costs and the same discount schedule apply, but the inserts only cost half as
much because they are much smaller. First Printing will give the same 10% discount on the inserts.
1. With whom should Maddux place the order for the programs and how many should he order each time?
Compare the actual total cost and the theoretical total cost of your decision.
2. With whom should Maddux place the order for the inserts and how many should he order each time?
3. What is Maddux’s total cost for programs with inserts for the season?
4. What other program management opportunities might Maddux pursue?