Nintendo Case Study

George Lassister is a creative person who designs T-shirts for special occasions and then supplies them at a price of $100 per dozen to his regular vendors who then sell these shirts to customers attending the big events at a price of 120$ per dozen. Hence, George makes a profit of $1.67 per shirt.

Recently, George received an order to design and manufacture T-shirts for a rock concert that will take place 2 months from now. However, George is uncertain about two factors. First, he doesn't know the number of people who will attend the concert. Second, he doesn't know what percentage of people attending the concert will purchase his T-shirts. So George has to make some assumptions and take some decisions under uncertainty. What George knows is that all the 20,000 tickets for the standing area will surely be sold . however, the number of grand stand tickets purchased by people may vary from 20,000 to 80,000. Considering the fact that the concert is rumoured to be grand success, George posits that number of people in grand stand will be either more than or equal to the number of attendees in the standing area and thus estimates that a figure of 50,000 is more probable than the others. Furthermore, after analyzing the past records of his business, George assumes that about 10% of the crowd attending the concert will choose to buy his shirts.

George outsources the job of manufacturing the shirts to his reliable vendors. Vendors need the consignments to be a multiple of 2500. Batches of 5,000, 7,500 and 10,000 shirts will cost George $17,750, $25,250 and $32,125 respectively. If George orders more T-shirts than what he can sell, the surplus shirts will have to be sold at a price of mere $1.50 per unit ($6.83 less than the usual selling price) . Considering his past success with a defensive approach, George decides to play it safe and gives an order of 5,000 shirts. Hence, assuming the fact that George sells all his T-shirts and there are no other hidden costs...