SPORT OBERMEYER CASE

507121109- Gl MAMOLU

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

FASHON GAMBLE
THE CHALLENGES
Long lead times:
Its November 92 and the company is starting to make
firm commitments for its 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
Obermeyers 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 CHAN

Textile and
Apperal Sport
accesories Obersport Retailers
manufacturers Obermeyer
suppliers

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 OBERMEYERS TIME LINE
AND
SPECULATIVE VERSUS REACTIVE PRODUCTION

"NOW" Las Vegas

Initial Revised
Forecast Forecast 27 Months

9 months 5 months 5 months 8 months

Feb Oct Nov Mar April Aug Sept Oct Nov Dec Jan Feb Mar Apr
1992 1992 1992 1993 1993 1993 1993 1993 1993 1993 1994 1994 1994 1994
Design of "Speculative" "Reactive" Selling of
1993-94 Production Production 1993-94 Line
Line. of 1993-94 Line of 1993-94 Line (peak selling in Dec & Jan)

In Feb 1993, In Feb 1994,

start design start design of
of 1994-95 1995-96 line.
line.
 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
SSUES 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 9 hours/day, 6.5
days/week days/week
Total = 48 Total = 58.5
hours/week hours/week
Maximum overtime During peak
allowed = 200 production periods,
hours/years workers work 13
hours/day, 6.5
days/week
Weekly (non- 19 parkas 12 parkas
peak
output/worker)
 COMPARISON OF OPERATIONS IN
HONG KONG AND CHINA
Topic Hong Kong China
Actual labour -2.35 hours -3.6 hours
content per parka
(incl repair work)
Paid labour time -2.53 hours/parka -4.88 hours/parka
per parka (incl
repair work)
Labour cost HK&75.6 RMB 4.45
/garment
Line configuration 10-12 people/line 40 people/line
Training Cross-trained Trained for single opn.
only
Min order quantity 600 units in same 1200 units in same
style style
Repair rate 1-2% -10%

Challenges Wage rate, Workforce

Workforce Less quality and
Low unemployment cleanliness conscious
Younger worker Training
prefer office job requirements
 ESTIMATED COST INFORMATION FOR
ROCOCO PARKA (IF ASSEMBLED IN CHINA)

Obermeyer Landed Cost:

Cost FOB Obersport $42.64

Agents 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 $2.00
China overhead
China quota, obersport profit and $9.90
overhead
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

companys 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 WOMENS
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

e

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 WOMENS
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
f we take Cu Co like Roccoco parkas 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 nv. =1280,84- 959,65

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

=4439,16

Mismatch Cost/ Batch Size=3,469

 f 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, -z)
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, -z)
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, -z)
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!
RECOMMENDATONS

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