Ken Lester R.

Bermudez
IE 191
2006-03149

Case Study: “Sport Obermeyer”

Sport Obermeyer is a skiwear manufacturer that relies heavily on forecast for the
production decision the management needs to make for the year. The production quantities
would determine the relative position of the company in the competition regarding the skiwear
clothing line. Forecasting is the main tool that can be used by the company to predict sales.
However, hard data cannot be available until the fashion show in Las Vegas. The previous
year’s data is not yet available. Wally does not want to procrastinate and wait for the data to
come into his hand. Procrastination would lead to possible delays in manufacturing and delivery
to retailers.

On the previous years, the decision can be best done by the consensus of the “Buying
committee.” Wally ordered every member of the committee to provide a demand forecast for
each of Obermeyer product. Although, this action of Wally seems to have been a quantitative
approach to solving the problem, the results of the forecasts of the members are not in
coordination with each other. There are large discrepancies with the numbers. The new
predicament of Wally is how to use this information. Moreover, even though Wally manages to
solve this first issue, the allocation of production on factories in China and Hong Kong is the
next problem he needs to face. Quality and reliability issues arise when considering China
factories but the fact that they have the lowest labor cost is very engaging.

Throughout the history of Obermeyer, intuitive managerial decisions seem to surround

the company. Klaus, Wally’s father, founder of Obermeyer finds managing the company with
pure intuitive approach. This maybe a good method since Klaus has a relatively wider
experience in the industry than his son. Hence, intuitive approach in managing the company
may have really worked for him. To his son, data is beneficial as well as much more accurate.
Nevertheless, at this point in the year, it is scarce.

Unlike some decisions in other industries, production quantity for Sport Obermeyer
cannot be changed immediately. There are so many factors to consider. First is the designing
phase of the products. Designs must be finished long before the production plan is finalized. Bill
of materials would be deduced from the product design. Then, it will affect the outsourcing of
raw materials and the production. Hence, designs should be completed before the planning.
Another crucial characteristic of designs is that, it is the basis of the salability of the product.
Poor designs will lead to low demand and good designs will provide high sales. The problem in
the fashion industry is the determination and/or prediction of the response of the market to the
designs. Without the forecast, there is no complete Bill of Materials.

Obersport Ltd. is a joint venture of Klaus Obermeyer and Raymond Tse. This venture is
made in order to manage the fabric and component sourcing of Obermeyer. After the design
process, sample production is done. Obersport would begin production of sample garments.
The sample garments would be shown to retailers and the weeklong Las Vegas show. As
determined earlier, this show will dictate the demand for the year’s skiwear. The problem is the
fashion show is way beyond the production schedule. Obersport would need the production
plan even before the fashion show in Vegas. This way, long delivery lead times would be
considered in the actual delivery of products.

Most of the orders of the retailers shall be realized during the Las Vegas show. With this
information in hand, forecasting would achieve greater accuracy. In forecasting, few data would
not directly point out to the true behavior of the demand for the skiwear. Hence, after the
fashion show, the second order quantity of Obermeyer would be realized and this time, the
quantity is much more accurate. Furthermore, the replenishment orders of some retailers would
be incorporated to the second half of the order. With this, the first half of the order quantity for
the year can be supported by the second order, but the problem would be if the first order was
too much even if the second order would be added, surplus should be realized. The surplus
would be sold on very low prices; sometimes the price cut is even lower than the actual
manufacturing cost. The company would be an expense with poor managerial skills.

Being on time is also a major concern. There are very long lead times in the shipment of
the manufactured skiwear. Some restrictions in the import quantity should be noted. This would
complicate the production plan to a higher level. If the import quantity from China is restricted
by the government, the quantity of the produced skiwear must be managed carefully to
strategically comply with these restrictions.

Wally should be able to consider all of these factors in the production plan he should
carry out. The order quantity cannot be accurately determined for the first half of ordering to
Obersport. However, the most appropriate quantity can be best measured from the previous
year’s data. Since, last year’s data is not yet available, the data two years ago can be a good
estimate for similar products in the clothing line. The least possible quantity must be planned;
but not too small because it would affect the import quantity restrictions. The quantity must be
able to satisfy almost half of the demand. Moreover, by the second order, since more accurate
forecast is available, the first order quantity must be complemented by the second one.

As for the source of the first order, China is a good place to order the first half of the
production. The import restrictions for the first half can be easily satisfied. In addition, China
has a longer lead-time than that of Hong Kong. There are also no restrictions for the import
quantity in Hong Kong. Therefore, the second half of the order can be best placed to Hong
Kong. This way, the replenishment orders and other orders can be satisfied by Hong Kong
without being constrained by the import quantity and delivery lead-time.

The presented production decision can be changed, if the company would be able to do
the following recommendations. (1) create more innovative ways to introduce the new designs
to the market, like fashion shows in other areas which behaves the same way as Las Vegas or
showcasing the designs in the web; and, (2) predict demands to accurately make arrangements
in the production and to utilize the favorable characteristics of the production plant in Hong
Kong. The recommendations presented cannot include all possible actions the company can
take. But with the case study read and the information presented, these are the two most
logical actions.