SUPPLY CHAIN

MANAGEMENT

WILLS LIFESTYLE
CASE

Submitted By:
GROUP 2 (SCM 2)

Abhinav Mishra (1611004)

Anshul Agarwal (1611006)
Purvi Jain (1611044)
Palak Joshi (1611106)
Nishant Gupta (1611412)
CASE OVERVIEW
The case revolved around ITC Limited history, expansion and sustenance. ITC had a diversified
portfolio including cigarettes, hotels, packaging, apparels, etc. and to exploit the liberalisation of the
Indian economy in 1990s, it further invested in its manufacturing activities. With the changing Indian
demographics and socio-cultural environment, ITC introduced the Lifestyle Retail Business Division
(LRBD) to leverage the growing westernization of Indian consumers.
ITC further expanded their apparel portfolio by introducing several brands such as Wills Classic, Wills
Clublife and Will Sport to capture different customer segments. However, by 2003, they faced multiple
supply chain challenges such as build-up of unsold inventory (60% of annual sales turnover) and lost
sales due to lack of popular SKUs. To tackle this, ITC restructured their supply chain to better meet the
customer demands, reduce lost sales and obsolete inventory.
This report incorporates inputs from pre- and post- 2003 scenarios and shows their implications on the
optimal order quantity given the demand patterns for the 10 styles.

KEY ASSUMPTIONS
1. We have applied the Newsvendor model to calculate the optimal order quantity. Further, we
have used related concepts, including expected lost sales and expected left over inventory for
other calculations
2. The lot size is taken to be continuous and not in pre-specified batches, after fulfilling the
minimum requirement. For example, a minimum lot size of 2,000 implies that all orders more
than 2,000 can be fulfilled.
3. For all analysis, the margin associated with the internal production is taken to be 30% (of
respective cost) per style and the average cost of overstocking is taken to be 10% (of
respective cost).

QUESTIONS & ANSWERS

Consider the case when LRBD sources from a third party (as was the case prior to 2003). The third
party has a unit cost which is Rs. 50 per style lower than the cost implied in Exhibit 7. The retailer has
to place a single order (before the selling season, obviously) and a minimum lot size of 2000 units per
style.

1. What would be the order size for each of the style? Assume Wills Lifestyle will place orders for
all style (it cannot be zero for some style).

To find the optimal order size for each of the style, the Newsvendor model is applied.

Formulae:
Co=10% of material cost
Cu=Contribution

P(D<Q)=CuCo+Cu

Q1*= +z(P)*
Q*=Max(Q1*,2000)

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Calculations:

Styles O/S U/S Prob(D<Q) Q*

1 Minimum lot Q*

Sun Orange 102.69 373.08 78% 5328.88 2000.00 5329.0

SS Linen 95.00 350.00 79% 5359.04 2000.00 5360.0

Sunray Stripe 148.85 511.54 77% 2041.43 2000.00 2042.0

Regent Bias 148.85 511.54 77% 1525.00 2000.00 2000.0

Italian Dobby 110.38 396.15 78% 4309.85 2000.00 4310.0

V Seamed 148.85 511.54 77% 2330.99 2000.00 2331.0

Delicate Dobby 118.08 419.23 78% 2854.79 2000.00 2855.0

C Stretch 125.77 442.31 78% 1787.41 2000.00 2000.0

Tue Purples 148.85 511.54 77% 2132.32 2000.00 2133.0

Pristine CD 110.38 396.15 78% 5339.45 2000.00 5340.0

2. What happens if the supplier only offers a total capacity of 25,000 units but there is no minimum
lot size per style?

Given no minimum lot size, the capacity allocation was done using the Solver in Excel.

Optimization conditions:

SUM(Order quantity) <= 25,000

Z = MAX(Expected profit)

Formulae:
L(z)=NORMDIST(z,0,1,0)-z*(1-NORMDIST(z))

Answer:

Styles Order Quantity Expected Profit L(z) ELS ELI

3743.0 9,83,240.63 0.38 805 868
Tue Purples
3525.0 8,35,451.92 0.40 921 895
Sunray Stripe
1610.0 5,64,913.63 0.31 239 392
V Seamed
1186.0 4,02,872.23 0.31 188 309
Regent Bias

C Stretch 3515.0 11,47,924.04 0.37 409 483

Delicate Dobby 1825.0 6,29,063.45 0.31 280 461

2385.0 8,31,191.50 0.35 245 314

Italian Dobby
1571.0 6,05,431.78 0.34 114 157
Pristine CD
1717.0 6,28,791.92 0.31 230 378
Sun Orange
3927.0 11,20,854.91 0.37 726 858
SS Linen

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2. Now consider the process post-2003. LRBD divides the sales period per season (for example,
summer selling season) into six sub-periods and arranges for multiple replenishments after bringing
in an initial order quantity. Assume that each sub-period average about one-sixth of the seasons
demand.

a. What initial order quantity (for each style should LRBD place (and in successive order
periods)? The minimum lot size is 800 units per style.

For this question, the mean demand for each style is divided by 6 and the standard deviation by
square root of 6, as we assume demand is equally split across the 6 seasons.

For the first period, the calculation for the optimal ordering quantity, Q*, is taken as the maximum of
the calculated amount (using the Newsvendor model) and the minimum lot size (800 units).

For the subsequent periods, the left over inventory is compared with the optimal order quantity
(derived using newsvendor model). In cases where the optimal quantity is higher than leftover
inventory, we will place an order for min 800 units. For cases where leftover inventory is higher than
optimal quantity, we will not order anything in this season and carryover the excess to the next
season.

Formulae:
Co=10% of material cost
Cu=Contribuion

P(D<Q)=Cu/(Co+Cu)

Q1*= +z(P)*
Q*=Max(Q1*,800)
z=Q*-
Expected Lost Sales (ELS)= *L(z)

Expected Sales (ES)= -ELS

Expected Leftover Inventory (ELI)=Q*-ES

Calculations:

Styles O/S U/S Prob(D<Q) Q* Minimum lot Q1*

1191.0
Sun Orange 107.69 323.08 75% 1,190.76 800.00
1219.0
SS Linen 100.00 300.00 75% 1,218.55 800.00
800.0
Sunray Stripe 153.85 461.54 75% 456.24 800.00
800.0
Regent Bias 153.85 461.54 75% 345.47 800.00
881.0
Italian Dobby 115.38 346.15 75% 880.53 800.00

V Seamed 153.85 461.54 75% 524.85 800.00 800.0

Delicate Dobby 123.08 369.23 75% 577.93 800.00 800.0

800.0
C Stretch 130.77 392.31 75% 347.74 800.00
800.0
Tue Purples 153.85 461.54 75% 467.19 800.00
1179.0
Pristine CD 115.38 346.15 75% 1,178.26 800.00

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 Styles Q1 Q2 Q3 Q4 Q5 Q6
1191.0 800.0 800.0 800.0 800.0 800.0
Sun Orange
1219.0 800.0 800.0 800.0 800.0 800.0
SS Linen
800.0 0.0 800.0 0.0 800.0 0.0
Sunray Stripe
800.0 0.0 800.0 0.0 800.0 0.0
Regent Bias
881.0 800.0 800.0 800.0 800.0 800.0
Italian Dobby
800.0 0.0 800.0 0.0 800.0 0.0
V Seamed
800.0 800.0 800.0 800.0 800.0 800.0
Delicate Dobby
800.0 0.0 800.0 0.0 800.0 0.0
C Stretch
800.0 0.0 800.0 0.0 800.0 0.0
Tue Purples
1179.0 800.0 800.0 800.0 800.0 800.0
Pristine CD

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