SECTION II | GROUP 8Manish Kurrey 15PGP086 Saurabh Kumar 15PGP046 Aniruddh Wagh 15PGP157 Prabhat Mahato 15PGP152 Abhishek Srivastava 15PGP004 Abhishek Nag 15PGP144

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1. USING THE SAMPLE DATA GIVEN IN EXHIBIT 10, MAKE A RECOMMENDATION FOR HOW MANY UNITS OF EACH STYLE WALLY OBERMEYER SHOULD ORDER DURING THE INITIAL PHASE OF PRODUCTION. ASSUME THAT ALL TEN STYLES IN THE SAMPLE PROBLEM ARE MADE IN HONG KONG, AND THAT OBERMEYER'S INITIAL PRODUCTION COMMITMENT MUST BE AT LEAST 10,000 UNITS. (IGNORE PRICE DIFFERENCES AMONG STYLES IN YOUR INITIAL ANALYSIS)

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LESS SD LESS UNCERTAINTY HIGHER SERVICE LEVEL HIGHER INVENTORY

    Individual Forecast Average Forecast SD 2xSD

CV = SD/Mea

nStyle Price Laura Caroly

n Greg Wendy Tom Wally        

Gail 110 900 1000 900 1300 800 1200 1017 194 388 0.1908Isis 99 800 700 1000 1600 950 1200 1042 323 646 0.3101

Entice 80 1200 1600 1500 1550 950 1350 1358 248 496 0.1826Assaul

t 90 2500 1900 2700 2450 2800 2800 2525 340 680 0.1347Teri 123 800 900 1000 1100 950 1850 1100 381 762 0.3464

Electra 173 2500 1900 1900 2800 1800 2000 2150 404 808 0.1879Stepha

nie 133 600 900 1000 1100 950 2125 1113 524 1048 0.4710Seduc

ed 73 4600 4300 3900 4000 4300 3000 4017 556 1112 0.1384Anita 93 4400 3300 3500 1500 4200 2875 3296 1047 2094 0.3177

Daphne 148 1700 3500 2600 2600 2300 1600 2383 697 1394 0.2924

Total   20000 20000

20000

20000

20000

20000 20000    

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LESS SD LESS UNCERTAINTY HIGHER SERVICE LEVEL HIGHER INVENTORY

Assault 0.1347Seduced 0.1384Entice 0.1826Electra 0.1879

Gail 0.1908Daphne 0.2924

Isis 0.3101Anita 0.3177Teri 0.3464

Stephanie 0.4710

Total 2.5720

Significant rise in coefficient of variance. Thus this part is selected as cutoff value of 0.24. In case the value is close to any of the above then situational considerations shall be made for allocating resources.

Using 95.0% (Z= 1.645) of service level for these values. To be sourced from China

Using 68 % (0.420) of service level for these values. To be sourced from Hong Kong

This will ensure minimum lead time for the products and buy some time for initial understanding of the trend. Everything else depends on external factors like regulations, major or minor operational issues and seasonal factors which might hamper transportation of Parkas.

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Style CV Z Score Value Service Level Avg forecast 1st Batch

2nd Batch

Assault 0.1347

1.64 95.00%

2525 1570 955Seduced 0.1384 4017 2498 1519Entice 0.1826 1358 845 514Electra 0.1879 2150 1337 813

Gail 0.1908 1017 632 384Daphne 0.2924

0.420 68%

2383 901 1482Isis 0.3101 1042 394 648

Anita 0.3177 3296 1246 2050Teri 0.3464 1100 416 684

Stephanie 0.4710 1113 421 692

Total 2.5720     20000 10260.11

9739.887

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2. WHAT OPERATIONAL CHANGES WOULD YOU RECOMMEND TO WALLY TO IMPROVE PERFORMANCE?Company operations:• Majorly Innovative Products (catering to style and design)• Speed & Flexibility• 95% New products yearly• Two years planning and production activity before the actual

sale• High market mediation & significant lead timesCompany Leadership:• Son Wally joined as vice president and focused on analysis

based on data whereas Klaus focused on intuitive style based on extensive industry experience

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2. WHAT OPERATIONAL CHANGES WOULD YOU RECOMMEND TO WALLY TO IMPROVE PERFORMANCE?

Key Challenges:• Ski Clothes is fashionable product

and its life cycle is short• Long time of planning and

production activities• Uncertain forecasting due to

customer demand• Fashion takers : Very low to no

R&D in terms of style.Very low differentiation in terms of style but many variations in terms of colors etc.

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Demand Uncertainty

Low High

Supply Uncertainty

Low Efficient Responsive

High Risk Hedging Agile

Objective – To change the current SC to an agile supply chainReduction of SKUs:

• Zippers variety to be reduced as it is a functional product. Designers should be questioned if new variant is introduced.• Stream line the production.

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• Reducing number of styles handled and to predict customer demand for individual style.• To create promotion strategy to persuade retailers to order.• Production System• Increasing production efficiency of China to be close to Hong Kong.• To reduce lead time of production especially the preparation of raw

materials.• Change to circular layout.

• Lead time reduction• Fabric dyer lead time of several months.• Dyer has long lead time on greige goods and needed to keep their

capacity utilized year round but can change colors overnight as Obermeyer can predict total annual sales and sales of basic colors, but can’t predict fashion colors.Fabric

ProducerFabric Dyer

Cut/Sew Factory

Denver Warehouse Retailer

undyed greige goods Sport

Obermeyer

Asia

Consumer

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• Solution:• Offer dyer one year commitment on greige goods and capacity• Dye basic colors early in year and fashion colors late in season on few

days notice.• Supply Chain System• Increase bargaining power with suppliers by ordering via big supplier

that can commit on timeline• Collect stock raw materials which is base on Ski cloth production e.g

Standard Zippers could be procured earlier to maintain inventory• Increase distribution channel to a country that have different period

of product usage• Increase services as per service level requirements• Establish Distribution Center in Seattle to reduce lead time and cost

from inland transportation from Seattle to Denver.• Establish Distribution Center in Seattle without through Denver

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• Information System• Collect the data backward and analyze the demand of the show in

Vegas and compare with actual purchase.• Establish a network or associate with a partner firm in South Asian

countries to ensure proper operations in case of doubt.• Speedup data & information analysis and utilize historical data

/Committee forecasting / Research and Trend & Market Movement• Consider identifying major trends influenced for South East Asia and

Europe. They can introduce innovative products like those in America.

• Spin Off Products:• During ideal time spin off products like gloves can be launched t

increase revenue.

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3. HOW SHOULD OBERMEYER MANAGEMENT THINK (BOTH SHORT-TERM AND LONG-TERM) ABOUT SOURCING IN HONK KONG VERSUS CHINA?

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TOPIC HONG KONG

CHINA

Hourly wage HK$30

[ HK$7.8 = US$1 ]

RMB 0.91

[RMB 5.57 = US$1 ]Hourly wage Comparison(In US $)

30/7.8= US$ 3.84

~ 27 times more than the Chinese rate

0.91/5.57 = US$ 0.14

Working hours 8 hours/day, 6 days/week

Total : 48 hrs/week

9 hours/day, 6.5 days/week

Total = 58.5 hrs/weekWeekly (output/worker)

19 parkas 12 parkas

Labor cost / Garment

HK$ 75.6= 75.6/7.8 = US$ 3.69

~ 5.5 times more than the Chinese rate

RMB 4.45

= 4.45/5.57 = US$ 0.78

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TOPIC HONG KONG

CHINA

Line configuration

10-12 people/line

12 x 3.84 = US$ 46

~ 8.2 times more than the Chinese rate

40 people/line

40 X 0.14 = US$ 5.6

Training Cross-trained Trained for single operation only

Min order quantity

600 units in same style 1200 units in same style

Repair rate 1-2% ~10%

Challenges 1. Wage Rate (very high)2. Workforce

[ Low unemployment (~2%) ,Younger workers prefer office jobs ]

Workforce

[ Less quality and cleanliness conscious,Training requirement ]

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Hong Kong ChinaBenefits

• Faster production• More flexible• High quality

• Less repair rate (1-2%)• Better for higher risk designs

Concerns• Smaller lot sizes

• Higher labor cost

• Lower labor cost• Larger lot sizes• Better for lower risk designs

Benefits

• Quality : High repair rate / Reliability issue• Slower production rate & Less flexible

Concerns

PRODUCTION FACILITY @ HK VS. CHINA

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• Smaller minimum quantities in Hong Kong yield higher returns even though the unit cost is higher

• In China, minimum order quantity is higher, extra need to paid even if small quantity is required.

• Extra products less likely to be sold.

• China should be targeted only if the quantity is higher.

• It may consume the import quota if produced more and then imported more.

SOURCING DILEMMA

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RECOMMENDATION

HONG KONG• They should look for short term sourcing

from Hong Kong

CHINA

• China should be focused for the long term sourcing as per the above calculations and hence devote more time on developing the cost propositions

• Short term practice to be done only if quantity to be produced is higher

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THANK YOU