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GEORGE’S T-SHIRTS
For the past six years, George Lassiter, a project engineer for a major defense contractor, enjoyed an interesting and lucrative side business─designing, manufacturing, and hawking special event t-shirts. He had created shirts for a variety of rock concerts, major sporting events, and special fund-raising events. Although his t-shirts were not endorsed by the event sponsors and were not allowed to be sold within the arenas at which the events were held, they were cleverly designed, well produced, and reasonably priced relative to the official shirts. They were sold in the streets surrounding the arenas and in the nearby parking lots, always with the appropriate licenses from the local authorities. Lassiter had a regular crew of vendors to whom he sold the shirts on consignment for $100 per dozen. Those vendors then offered the shirts to the public at $10 apiece. A steady stream of t-shirt business came to Lassiter, and he generally worked on several designs in various stages of development. His current problem centered around the number of shirts he should have stenciled for a rock concert that was scheduled to be staged in two months. This concert was almost certain to be a huge success. Lassiter had no doubt that the 20,000 tickets for the standing area around the stage would be instantly bought by the group’s devoted fans. The major unknown was the number of grandstand seats that would be sold. It could be anywhere from a few thousand to more than double the number of standing tickets. Given the popularity of the performing group and the intensity of the advance hype, Lassiter believed that the grandstand sales were we re more likely to be at the high rather than the low end of the spectrum. He decided to think in terms of three possibilities (a high, a medium, and a low value), specifically, 80,000, 50,000, and 20,000 grandstand seats. Despite his optimism, he believed that 50,000 was as likely as either of the other two possibilities combined. The two extreme numbers were about equally likely; although maybe 80,000 was a little more likely than 20,000. A second unknown was the percentage of the attendees who would buy one of his shirts. To the credit of his designs and the quality of the shirts, the number generally (about six times out of 10) ran about 10% of the attendance, but sometimes it was in the range of 5%. On rare
This note was written as a basis for discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright © 1986 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an email to
[email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Rev. 1/93.
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occasion, sales would be in the vicinity of 15% (maybe 1 time out of 10, if Lassiter’s memory served him right). Several weeks earlier, Lassiter had requested a cost estimate for this concert’s design from the silk screener/shirt supply house with which he had been working for several years. He used this particular firm almost exclusively, because he had found it to be reliable in both quality and schedule and to have reasonable prices. The estimate had arrived yesterday. It was presented in the usual batches of 2,500 shirts with the usual volume discounts: Order Size
10,000 7,500 5,000
Cost
$32,125 $25,250 $17,750
The quantity ordered had to be one of the quoted multiples of 2,500 shirts. On the basis of his volume estimates, Lassiter was prepared to place an order for 5,000 shirts. With his sales generally running about 10% of attendance, he did not believe that he could justify an order for 7,500 shirts. Such an order would require that the concert’s attendance be 75,000, and while he was optimistic about the popularity of the event, he was not quite that optimistic. Also, in the past, he had taken the conservative route and it had served him well. He had never had an appreciable number of shirts left over, but those that were left were sold to a discount clothing chain for $1.50 per shirt.
