SPORT OBERMEYER: Case Report

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Group-7

M002-14 ABHIJIT KUMARM035-14 LUKALAPU RAJA SEKHARM057-14 SHIVEN CHAUDHARYM061-14 SNEHIL AGRAWALM069-14 ABHISHEK JAYANTM075-14 ANKITAM091-14 CHETAN C.INGALESHWARM120-14 SAYAN KAR

Answer 1:

Individual Forecasts

Style Laura Carolyn Greg Wendy Tom WallyAverage Forecast SD 2*SD CoVar

Gail 900 1000 900 1300 800 1200 1016.67 194.08 388.16 0.19Isis 800 700 1000 1600 950 1200 1041.67 323.14 646.27 0.31Entice 1200 1600 1500 1550 950 1350 1358.33 247.82 495.65 0.18Assault 2500 1900 2700 2450 2800 2800 2525.00 340.22 680.44 0.13Teri 800 900 1000 1100 950 1850 1100.00 380.79 761.58 0.35Electra 2500 1900 1900 2800 1800 2000 2150.00 403.73 807.47 0.19Stephanie 600 900 1000 1100 950 2125 1112.50 523.87 1047.74 0.47Seduced 4600 4300 3900 4000 4300 3000 4016.67 556.48 1112.95 0.14Anita 4400 3300 3500 1500 4200 2875 3295.83 1046.95 2093.90 0.32Daphne 1700 3500 2600 2600 2300 1600 2383.33 696.90 1393.80 0.29Totals 20000 20000 20000 20000 20000 20000 20000

The table given in the book did not consist of the column indicating the Coefficient of Variation. While Standard Deviation gives the absolute value of variation from mean Coefficient of Variation shows it relative to the mean and hence is more representative of the true picture.

Assumptions to be made:

a) All production activities are being carried out in Hong Kong. Thus the minimum order quantity for any style must be 60 units/month.

b) Initial production commitment must be at least 10,000 units.c) Order is being placed in November. Therefore number of months till the Las Vegas show (to be

held in March) is equal to 4. Thus, minimum order quantity/item for this period should be 240.

Basis for deciding on style will be Coefficient of Variation and not Standard Deviation.

Orders to be placed:

Style CoVar Average Forecast % to be ordered Order QuantityAssault 0.13 2525 85% 2146

Seduced 0.14 4017 84% 3374Entice 0.18 1358 80% 1086

Gail 0.19 1017 79% 803Electra 0.19 2150 79% 1699Daphne 0.29 2383 20% 240

Isis 0.31 1042 46% 240Anita 0.32 3296 15% 240Teri 0.35 1100 44% 240

Stephanie 0.47 1113 43% 240Now, Total Order Quantity= 10,308 units

Explanation:

Obermeyer must order the maximum amount of those styles with the minimum value for CoVar. The reason is that the variation of their forecasted demand is lesser than the others. Now, the value for % to be ordered has been derived as:

% to be ordered= (1-CoVar-0.02)*100%

0.02 in the above formula corresponds to 2%. This 2% has been kept as a precaution against actual demand falling way below the forecasted demand.

For Isis this safety margin has been increased to 5% as the CoVar for Isis and other brands is way beyond the ones with the minimum CoVar (Styles with figures from 0.13 till 0.19). The figure for Anita has been derived by adhering to the minimum order quantity per style of 240. The idea is to delay ordering as much as possible as the March show in Las Vegas provided information which led to greater accuracy in forecasting. Hence the Total Quantity being ordered is 10,308 units.

Answer 2:As per the average forecast for each line a risk assessment was conducted for all lines In order to determine what items should be produced. The Coefficient of Variation (COV) is determined in order to analyse the risk associated with each product line. The key of the allocation is to make sure that the production of first order is not wasted, i.e. do not produced too many units of unsalable styles in the first order.

To determine the associated risk for each product line a benchmark of 0.2 COV was used and quantify risk with the assumption that styles with a COV below 0.2 is considered a low risk item while any item with a COV higher than 0.2 is considered a high risk item.

Basic criterions to select what to produce in the first order are:

Cheaper ones (less waste) Less demand uncertainty ones (lower forecast standard deviation) Higher volume ones (less likely to over produce)

If we assume that all women’s parkas are sold for the same price, we can define a risk factor as the average demand minus first production divided by standard deviation. To determine how many of each style to order in the first round, preference was given to the lower risk items. 80% of the lower risk items should be ordered initially because it is more certain that the amounts forecasted will be accurate. For items with a COV above 0.2 only 20% of the average forecast will be ordered so that Sport Obermeyer can wait until after the Las Vegas show to verify with 80% certainty the success of each style.

As the minimum production requirements for an order is only 600 units versus the 1,200 units required in China, it is recommended that any high risk item be produced in Hong Kong because they are more flexible, produce higher quality items. Also, with higher variability and higher risk it is safe to order from locations with low minimum order quantity requirement.

To keep from overproducing, if an item requires less than 1,200 units due to production requirements, it should be required that it be produced in Hong Kong. It must also be noted that the maximum production for Sport Obermeyer is 20,000 units (on a 10% scale) and therefore this should be met but not exceeded within both orders combined.

Answer 3:Style CoVar Average Forecast % to be ordered Order Quantity

Assault 0.13 2525 85% 2146Seduced 0.14 4017 84% 3374

Entice 0.18 1358 80% 1086Gail 0.19 1017 79% 803

Electra 0.19 2150 79% 1699Daphne 0.29 2383 20% 480

Isis 0.31 1042 46% 480Anita 0.32 3296 15% 480Teri 0.35 1100 44% 480

Stephanie 0.47 1113 43% 480Now, Total Order Quantity= 11,508 units

Explanation:

As explained above, the maximum order size is decided on the basis of the minimum value of CoVar.

Keeping the logic consistent with the one used for Hong Kong, for the low risk items – Assault, Seduced, Entice, Gail and Electra – the maximum possible order has been placed taking into account the same proportion for safety stock as well.

For the high risk items – Daphne, Isis, Anita, Teri, Stephanie – the order quantity has been kept at the minimum possible amount. Also, the order quantity for each style safely crosses the figure of 240 (minimum quantity to be ordered for 4 months production in Hong Kong). Since the minimum order quantity is double that of Hong Kong, the amount for each of these items becomes 480.

When compared with the production in Hong Kong, the difference is of 1200 units. This is primarily due to the minimum order quantity. This would affect Sport Obermeyer in an adverse way because these high risk items are known to have the most fluctuations in the demand and forecast cannot be done accurately for them. Therefore ordering larger quantities of these items is more risky for Sport Obermeyer.

Answer 4: Following are the operations changes recommended to Wally to improve performance.

Improve the demand forecasts made by buying committee. Should use a weighted average method instead of just using a simple average.

Obtaining market feedback earlier than Las Vegas which can help converting some Speculative production to Reactive production. For maximising the value of this feedback Sport Obermeyer’s should include both small and large retailers & Urban and Resort retailers

Predicting customer demand for individual styles and also if possible reducing number of styles being handled.

Production system

Increasing quality of production in china Reducing lead time of production specifically for preparation of raw materials. Decreasing lead time for finished goods, which in turn will help to cater to existing

capacity

Company should emphasise more on dependability than on cost.

Choose raw material suppliers on the basis of ease of availability rather than cost factor Process fast and efficiently orders through information sharing with suppliers Building a local production unit for any last minute orders.

Supply chain

Increasing bargaining power with suppliers by ordering from big supplier who can commit to be on time

Establish distribution centre in Seattle to reduce lead time and cost through inland transportation from Seattle to Denver

Increasing service level requirements

Information Systems

Collect old data and analyse demand of show in Vegas and compare with actual purchase

Using historical data to capture the market trend and market movement

Answer 5:

Comparison of manufacturing in China Vs. Manufacturing in Hong Kong

Hong Kong ChinaCost of production very high Cheaper to produce, extremely low wage rates,

higher overtime hours, lower labor cost per garment of .78 US $ compared to 9.69 US $ in Hong Kong

Smaller volumes required, 600 Units in same style, More flexible

Larger volumes required, 1200 Units in same styleLess flexible

Staff is more cross trained, Faster production Staff is less cross trained , Slower productionStaff is more efficient, 10 people in each parka line

Staff is more inefficient, 40 people in each parka line, leading to greater imbalance in these lines

Each employee produces, twice as much as Chinese workers

Quality concerns

Challenges1. Wage rate2. Work force

a. Low unemploymentb. Younger workers prefer

office jobs

Challenges1. Workforce

a. Less quality and cleanliness conscious

b. Training requirements

Smaller lead times for raw material Higher lead times for raw material

Important Landmarks

US Market

Shipment Location

Suppliers

Production center

Distribution Center

Problems of manufacturing in China

Quality and reliability of products produced in China

Larger minimum order and quota restriction on products

Skill level of Hong Kong is much better than China

Raw materials procured from suppliers from different countries increases lead time

So the policy should be to produce in Hong Kong in short term and try to overcome limitations of China by making below sequential improvements and in long term production should be done in China.

1. Increase efficiency of staff by training them at Hong Kong and giving them cross trainings2. Giving workers cross operation roles, thereby reducing size of parka line and reducing

imbalance in the lines3. Quality can be improved by improving the process (KPI’s, eliminating waste from system)

Short TermHong Kong

Overcome limitations of

manufacturing in China

Long TermChina