Sport Obermeyer Caseanswers 1363q

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 from retailers  Inaccurate forecasts of retailer demand

“FASHİON GAMBLE”

THE 

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 from market 



CHALLENGES

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 ries 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 for all materials • Most tasks performed only after production quantity planned by Obermeyer

SPORT OBERMEYER’S TIME LINE AND

“SPECULATIVE” VERSUS “REACTIVE” PRODUCTION

"NOW" Initial Forecast

9 months Feb … Oct 1992 … 1992 Design of 1993-94 Line.

Las Vegas Revised Forecast

5 months Nov … Mar 1992 … 1993

5 months April … Aug 1993 … 1993

"Speculative" Production

"Reactive" Production

of 1993-94 Line

of 1993-94 Line

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

27 Months

Sept 1993

Oct 1993

Nov 1993

8 months Dec Jan 1993 1994 Selling of

Feb 1994

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

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

Mar 1994

Apr 1994

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

COMPARISON OF OPERATIONS IN HONG KONG AND CHINA 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

19 parkas

12 parkas

Weekly (nonpeak output/worker)

COMPARISON OF OPERATIONS IN HONG KONG AND CHINA Topic

Hong Kong

China

Actual labour content per parka (incl repair work) Paid labour time per parka (incl repair work) Labour cost /garment Line configuration

-2.35 hours

-3.6 hours

-2.53 hours/parka

-4.88 hours/parka

HK&75.6

RMB 4.45

10-12 people/line

40 people/line

Training

Cross-trained

Min order quantity Repair rate

600 units in same style 1-2%

Trained for single opn. only 1200 units in same style -10%

Challenges

Wage

Workforce

rate, Workforce Low unemployment Younger worker prefer office job

Less

quality and cleanliness conscious Training requirements

ESTIMATED COST INFORMATION FOR ROCOCO PARKA (IF ASSEMBLED IN 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

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 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

$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

20,000

20,000

20,000

20,000

20,000

20,000

e

Totals

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



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

Co=9

F(Q)= 0,75

z=0,68

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

STYLE Gail Isis Entice Teri Assault Electra Stephanie Seduced Anita Daphne Sum

Mean of Demand 1017 1042 1358 2525 1100 2150 1113 4017 3296 2383 20001

Standard Deviation of Demand 388 646 496 680 762 807 1048 1113 2094 1394

First Period Production Quantity Max (0, µ-zσ) 241 0 336 1165 0 536 0 1791 0 0 4099 Too little

DETERMINING SPECULATIVE PRODUCTION QUANTITIES z=1,

STYLE Gail Isis Entice Teri Assault Electra Stephanie Seduced Anita Daphne Sum

Mean of Demand 1017 1042 1358 2525 1100 2150 1113 4017 3296 2383 20001

Standard Deviation of Demand 388 646 496 680 762 807 1048 1113 2094 1394

First Period Production Quantity Max (0, µ-zσ) 629 396 862 1845 338 1343 65 2904 1075 989 10573 Too much!

z=1,0608

STYLE Gail Isis Entice Teri Assault Electra Stephanie Seduced Anita Daphne Sum

Mean of Demand 1017 1042 1358 2525 1100 2150 1113 4017 3296 2383 20001

Standard Deviation of Demand 388 646 496 680 762 807 1048 1113 2094 1394

First Period Production Quantity Max (0, µ-zσ) 605 357 832 1804 292 1294 1 2836 1975 904 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.

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

    

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”

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