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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,
Mean Standard First Period of Deviation Production Quantity
STYLE Demand of Demand Max (0, µ-zσ) Gail 1017 388 629 Isis 1042 646 396
Entice 1358 496 862 Teri 2525 680 1845
Assault 1100 762 338 Electra 2150 807 1343
Stephanie 1113 1048 65 Seduced 4017 1113 2904
Anita 3296 2094 1075 Daphne 2383 1394 989
Sum 20001 10573 Too much!
z=1,0608
Mean Standard First Period of Deviation Production Quantity
STYLE Demand of Demand Max (0, µ-zσ) Gail 1017 388 605 Isis 1042 646 357
Entice 1358 496 832 Teri 2525 680 1804
Assault 1100 762 292 Electra 2150 807 1294
Stephanie 1113 1048 1 Seduced 4017 1113 2836
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