Sport Obermeyer Caseanswers

SPORT OBERMEYER CASE

507121109- Gül İMAMOĞLU 507121122-Sevcan YILDIRIM

Sport Obermeyer A high end fashion skiwear designer and merchandising company.

• Commitment for producing line of fashion skiwear for 1993-94 Based on experience, intuition and sheer speculation No feedback from retailers Inaccurate forecasts of retailer demand

“FASHİON GAMBLE”

THE CHALLENGES Long lead times:

It’s November ’92 and the company is starting to make firm commitments for it’s ‘93 – 94 season.

Little or no feedback from market First real signal at Vegas trade show in March

Inaccurate forecasts

Deep discounts Lost sales

PRODUCTS

• Parkas, Vests, Sweater, ski suits, shells, ski pants, turtlenecks and accessories

• Parkas : Most critical design

• Products were offered in five different genders

• Company segmented each gender market according to price, type of skier and fashion forwardness

• US Skiwear estimated sales in 1992: US$ 32.8 million

• Obermeyer’s Share: 45% of children skiwear mkt.

11% of adult skiwear mkt.

• Offering an excellent price/ value relationship to target group

THE PROCESS Design (February ’92) Prototypes (July ’92) Final Designs (September ’92) Sample Production, Fabric & Component orders

(50%) Cut & Sew begins (February, ’93) Las Vegas show (March, ’93 80% of orders) SO places final orders with OL OL places orders for components Alpine & Subcons Cut & Sew Transport to Seattle (June – July) Retailers want full delivery prior to start of season

(early September ‘93) Replenishment orders from Retailers

THE SUPPLY CHAİN

Textile and accesories suppliers

Apperal manufacturers Obersport Sport

Obermeyer Retailers

• Obermeyer sourced most of its products through Obersport

• Obermeyer also give contract to fabric supplier for specified amount

of fabric each month

• Lead time taken into account for all materials

• Most tasks performed only after production quantity planned by

Obermeyer

SPORT OBERMEYER’S TIME LINE AND “SPECULATIVE” VERSUS “REACTIVE” PRODUCTION

Feb … Oct Nov … Mar April … Aug Sept Oct Nov Dec Jan Feb Mar Apr1992 … 1992 1992 … 1993 1993 … 1993 1993 1993 1993 1993 1994 1994 1994 1994

Line. of 1993-94 Line

8 months

Productionof 1993-94 Line (peak selling in Dec & Jan)

"Reactive"Production

5 months9 months 5 months

"NOW" Initial

Forecast

In Feb 1994, start design of 1995-96 line.

Selling of

In Feb 1993, start design of 1994-95 line.

Las Vegas Revised Forecast 27 Months

1993-94 LineDesign of1993-94

"Speculative"

PARKAS

•Obermeyer produce 200,000 parkas every year •Capacity: 30000 unit per month •Earn 24% of wholesale price on each •Unsold in season sold at a loss of 8% •Profit of US$ 27 and loss of US$9 on each parkas •Buying committee forecasts for 10 style of Parkas

İSSUES FACED BY WALLY • How to make best forecast

• How to allocate production between factories at Hong

Kong and China

• Last year 1/3rd Parkas was made in China.

• Company plan to produce 50% parkas in China as

labor cost in China is low require larger minimum order

some concern of quality and reliability is there

Topic Hong Kong China

Hourly wage HK$30 RMB 0.91

Exchange rate HK&7.8 RMB (Renminbi) 5.7 = US$1

Working hours 8 hours/day, 6 days/week

9 hours/day, 6.5 days/week

Total = 48 hours/week

Total = 58.5 hours/week

Maximum overtime allowed = 200 hours/years

During peak production periods, workers work 13 hours/day, 6.5 days/week

Weekly (non-peak output/worker)

19 parkas 12 parkas

COMPARISON OF OPERATIONS IN HONG KONG AND CHINA

Topic Hong Kong China

Actual labour content per parka (incl repair work)

-2.35 hours -3.6 hours

Paid labour time per parka (incl repair work)

-2.53 hours/parka -4.88 hours/parka

Labour cost /garment

HK&75.6 RMB 4.45

Line configuration 10-12 people/line 40 people/line

Training Cross-trained Trained for single opn. only

Min order quantity 600 units in same style

1200 units in same style

Repair rate 1-2% -10%

Challenges Wage rate, Workforce Low unemployment Younger worker prefer office job

Workforce Less quality and cleanliness conscious Training requirements

COMPARISON OF OPERATIONS IN HONG KONG AND CHINA

Obermeyer Landed Cost: Cost FOB Obersport $42.64

Agent’s fee (to Obersport, 7%) $2.98

Freight (Ocean Carrier) $1.40

Duty, insurance and miscellaneous $4.90

Total landed cost $51.92

Cost FOB Obersport:

Material $30.00

Labour $0.78 Transportation within China and China overhead

$2.00

China quota, obersport profit and overhead

$9.90

Total $42.68

ESTIMATED COST INFORMATION FOR ROCOCO PARKA (IF ASSEMBLED IN CHINA)

PARKAS

• There was risk of managing production and inventory in longer term

• The larger minimum order size of China limits the capacity of company’s ability to increase the range of products

• China trade relationship with USA - Risky

• Wally ask comitee members that what demand will be for each products and take their forecast

• Wally studied on the committee forecasts

• Estimated the early production of each style

• Demand and forecasts for last year analysed

• Forecast distribution for each style as a normal random variable

With mean equal to average of committee forecasts

Standard deviation twice of committee forecasts

COMMITTEE FORECAST- 10 STYLES OF WOMEN’S PARKA – Individual Forecast Style Price Laura Carolyn Greg Wendy Tom Wally

Gail $110 900 1,000 900 1,300 800 1,200

Isis $99 800 700 1,000 1,600 950 1,200

Entice $80 1,200 1,600 1,500 1,550 950 1,350

Assault $90 2,500 1,900 2,700 2,450 2,800 2,800

Teri $123 800 900 1,000 1,100 950 1,850

Electra $173 2,500 1,900 1,900 2,800 1,800 2,000

Stephani

e

$133 600 900 1,000 1,100 950 2,125

Seduced $73 4,600 4,300 3,900 4,000 4,300 3,000

Anita $93 4,400 3,300 3,500 1,500 4,200 2,875

Daphne $148 1,700 3,500 2,600 2,600 2,300 1,600

Totals 20,000 20,000 20,000 20,000 20,000 20,000

COMMITTEE FORECAST- 10 STYLES OF WOMEN’S PARKA – Individual Forecast Style Average Forecast Standard deviation 2 x Standard

Deviation

Gail 1,017 194 388

Isis 1,042 323 646

Entice 1,358 248 496

Assault 2,525 340 680

Teri 1,100 381 762

Electra 2,150 404 807

Stephanie 1,113 524 1,048

Seduced 4,017 556 1,113

Anita 3,296 1,047 2,094

Daphne 2,383 697 1,349

Totals 20,000

SOLUTIONS OF PROBLEMS

Finding first order quantities Recommends to the Wally Sourcing Honkong-China

WITH THE RESTRICTION

An item must be either in the first order or second one.

To choose which products be assigned which order we need mismatch cost

To calculate Mismatch cost we must calculate Batch Size Expected lost sales Expected left over inventory For every individual products

FOR GAIL İf we take Cu Co like Roccoco parka’s cause of the

resembling each other

Cu=27 Co=9 F(Q)= 0,75 z=0,68

Q1= 1017+0,68*388=1280,84

Exp. Lost Sales= 388*57,35

Exp. Sales= 1017-55,35=959,65

Exp. Leftover İnv. =1280,84- 959,65

Mismatch Cost=C0* Exp. Leftover İnv. +Cu* Exp. Lost Sales

=4439,16

Mismatch Cost/ Batch Size=3,469

•

İf we calculate this for all products and sort in ascending order we can see that

Assault Q=2987,4 Seduced Q=4773,84 Daphne Q=3330,92 Should be in first order with this quantities First order =11092,16 And the rest must be in second order.

DETERMINING SPECULAIVE PRODUCTION QUANTITIES

z=2

Mean Standard First Period of Deviation Production Quantity

STYLE Demand of Demand Max (0, µ-zσ) Gail 1017 388 241 Isis 1042 646 0

Entice 1358 496 336 Teri 2525 680 1165

Assault 1100 762 0 Electra 2150 807 536

Stephanie 1113 1048 0 Seduced 4017 1113 1791

Anita 3296 2094 0 Daphne 2383 1394 0

Sum 20001 4099 Too little

DETERMINING SPECULATIVE PRODUCTION QUANTITIES

z=1,



Entice 1358 496 862 Teri 2525 680 1845

Assault 1100 762 338 Electra 2150 807 1343


Anita 3296 2094 1075 Daphne 2383 1394 989

Sum 20001 10573 Too much!

z=1,0608



Entice 1358 496 832 Teri 2525 680 1804

Assault 1100 762 292 Electra 2150 807 1294


Anita 3296 2094 1975 Daphne 2383 1394 904

Sum 20001 10000 Just right!

RECOMMENDATıONS

1) Instead of using just a simple average of the individual forecasts made by Laura, Carolyn, Greg, Wendy, Tom & Wally use a weighted average, with the weights reflecting past accuracy.

Choose suppliers of raw materials more on the basis of dependability than cost .

Expedite orders through information sharing with suppliers. Expedite shipments using faster (but more expensive) shippers. Establish some local (but more expensive) production capacity for

“last minute” production. From the items with long lead times, increase the amount of

“safety stock”

2) Decrease lead times for both raw materials and finished goods, thereby allowing more time to utilize existing capacity.

3) Increase production capacity by:

Using more subcontractors,

Using more overtime in China,

Exploring an alliance with a swimwear manufacturer who can “supply” excess capacity when Sport Obermeyer needs it and “consume” capacity when Sport Obermeyer has excess capacity.

4) Decrease minimum order quantities, thereby improving the ability to “fine tune” during Speculative Production

Sport Obermeyer can decrease the minimum order quantities by providing incentives to its suppliers to have more flexible production lines.

This increased flexibility can come from:

Improved process design (e.g., a cellular production system).

Improved equipment (e.g., more flexible cutting machines).

SOURCING

Products with exhaustive property and needed skill in manufacturing (like Biege parkas) should be produced in Hong Kong

Products which are fashinoble and relatively easy produce can be manufactured in China

High demand products suitable for China facilities

because of high order quantity restrictions

Also should be noted that products from China will

be ordered in early dates risk for this products will be increased. So that this products should have lower mismacth/quantity ratio

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Sport Obermeyer Caseanswers