Case Study: Southwestern University
Southwestern University: F The recent success of Southwestern University’s football program is causing SWU’s president, Joel Wisner, more problems than he faced during the team’s losing era in the early 1990s. For one thing, increasing game-day attendance is squeezing the town of Stephenville, Texas and the campus. Complaints are arising over parking, seating, concession prices, and even a shortage of programs at some games. Dr. Wisner, once again, turns to his stadium manager, Hank Maddux. This time, he needs a guaranteed revenue stream to help fuel the stadium expansion. One source of income could easily be the high-profit game programs. Selling for $6 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 inquiries 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: Programs Weekly Game Detail Inserts 10,000 to 30,000 $2.00 each 10,000 to 30,000 $1.00 30,000 to 60,000 $1.90 each 30,000 to 60,000 $0.95 60,000 to 250,000 $1.80 each 60,000 to 250,000 $0.90 250,000 and up $1.50 each 250,000 and up $0.85 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 $250. 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.
Givens: Annual demand is 300,000 (60,000 per game times 5 games) Set-up cost for programs is $1,000.00 Holding cost is 40%
- With whom should Maddux place the order for the programs and how many should he order each time?
- With whom should Maddux place the order for the inserts and how many should he order each time?
- What is Maddux’s total cost for programs with inserts for the season?
- What other program management opportunities might Maddux pursue?