Uniform Stock Before the April Rush
Sunita runs a school-uniform and stationery shop near Nagaon. Assam schools reopen in April and her peak lasts six weeks. Last year she ran out of white shirts in sizes 28–32 in week three and estimates she lost ₹48,000 of sales; she also still holds 120 house-colour shirts that the school no longer accepts because it changed its shade. This year she forecasts average sales of 60 shirts a day across all sizes during the peak. Her supplier's lead time is 10 days, and she wants safety stock equal to 7 days of sales. The supplier accepts orders in multiples of 200 per size and gives 5% off orders above 1,000 pieces. She has 350 shirts on hand and 100 already on order. Working capital allows one order of about 1,200 pieces now and one top-up later. GST on garments priced under ₹1,000 is 5%.
1. Calculate the reorder point and the current stock position. Should Sunita order now, and what order size would you recommend? Show your reasoning.
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Reorder point = daily sales × (lead time + safety days) = 60 × (10 + 7) = 1,020 shirts.
Stock position = on hand + on order = 350 + 100 = 450 shirts.
The position is 1,020 − 450 = 570 shirts below the reorder point, so an order is required now. An order of 600 pieces (three sizes × 200) lifts the position to 1,050, barely above the reorder point, which leaves no protection against a forecast error in a six-week season.
An order of 1,200 pieces lifts the position to 1,650, about 27 days of cover at 60 a day, and earns the 5% discount. The discount itself is not the reason to order 1,200: the reason is that last year's stock-out cost ₹48,000 of sales, while unsold shirts tie up cash. The decision test is whether the extra 600 pieces can be sold within the season. If last year's size-wise sales show sizes 28–32 were 60% of demand, allocate about 720 of the 1,200 to those sizes and reduce the slow sizes, rather than ordering 200 of each.
2. How would you plan the size mix and the later top-up so that last year's stock-out is not repeated without creating a new dead-stock problem?
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Use last year's size-wise sell-through, not an equal split. Order the core white shirts deep in the sizes that actually sold; keep fashion or shade-dependent items shallow, because the school can change its shade again. Confirm the school's current shade and any logo specification in writing before the order is placed.
Plan the top-up for around week three, sized from week 1–2 actual sales and not from the original forecast. For the top-up, use a faster mode or a local wholesaler even at a slightly higher cost, because a late delivery of the right size is worth more than a cheap delivery of the wrong one. Keep safety stock only in the top three sizes; carrying buffer stock in every size is how dead stock is created.
Negotiate an exchange clause for unsold standard sizes with the supplier. A 5% discount on a large order is worth little if it converts into 200 unsellable pieces. Recalculate the reorder point weekly using the actual daily rate, since 60 a day is an average and the final two weeks of the season usually slow down.
3. What would you do with the 120 unsold house-colour shirts? Give two realistic options and the financial reasoning behind your choice.
Read the worked answer
The shirts are already sunk cost; the decision is about recovering cash and freeing shelf space, not about recovering the original purchase price.
Option 1: bundle them. Offer a house-colour shirt free or at a heavy add-on price with a full-price white-shirt and trouser set. This converts dead stock into a reason to buy the core uniform and avoids advertising a discount on the whole category. The real cost is the landed cost of the shirt, not its MRP, so compare it with the gross margin on the bundle it helps sell.
Option 2: wholesale clearance. Sell the lot to a wholesaler or to another school's uniform supplier at a deep discount, even at ₹150–200 a piece. This recovers cash immediately and removes the display and storage burden.
Do not hold them in the hope that the school reverses its shade decision. Carry the loss in the accounts, and if any are donated, treat it as a community gesture rather than assuming a tax benefit. The lesson to record is that shade-dependent stock should be bought shallow and confirmed in writing.