Sport Obermeyer Case Study

Sport Obermeyer Case Study Problems identified : Before releasing the 1993-1994 line, Sport Obermeyer used a committee that consisted of six key managers for forecasting to make the production commitments based on their decisions. However, Wally Obermeyer, the VP of the Sport Obermeyer, changed the system this year. He asked the same six managers to forecast demand on their own for each of the Obermeyer products and used their individual forecasts as a basis of generating final commitments for suppliers. Both the previous and the current forecasting methods used by Sport Obermeyer are generated without external feedback or contribution. The result of this internal analysis is inaccurate and inefficient forecasting results. Question 1 : How many units should be made? We assume that all 10 styles in the sample problem are made in Hong Kong, no style has a minimum order quantity,all styles have the same unit cost of production, andtotal Speculative Production must be at least 10,000 units. We should determine how many units of each style Sport Obermeyer should produce during its initial phase of production (November through March) and during its second phase of production (March through October). Put the data on an excel file. DETERMINING SPECULATIVE PRODUCTION QUANTITIES Question 2 : A measure of risk associated with ordering policy In order to determine what items should be produced where, a risk assessment was conducted for all lines per the average forecast for each line. The Coefficient of Variation (COV) was determined in order to a nalyze the risk associated with each line.A benchmark of 0.2 COV was used to determine the associated risk. Any item 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. When sourcing from China, four styles need to be ordered in excess of the average forecast in order to reach minimum production amounts. 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.It is recommended that any high risk item be produced in Hong Kong because they are more flexible, produce higher quality items, and the minimum production requirements for an order is only 600 units versus the 1,200 units required in China. Likewise, if an item requires less than 1,200 units, it should be required that it be produced in Hong Kong due to production requirements and to keep from overproducing. 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 Question 3: Difference between production commitments assumed ass 10 styles are made in China and in Hong Kong At the China plant, there is a minimum of 1,200 units required per line produced. For this reason, the initial quantity for the Entice, Gail, Daphne, Isis, Anita, Teri, and Stephanie lines would need to be increased to meet this requirement for the first order. The quantity ordered per line for the first order would be as follows: Assault (2,020), Seduced (3,213), Entice (1,200), Electra (1,720), Gail (1,200), Daphne (1,200), Isis (1,200), Anita (1,200), Teri (1,200), and Stephanie (1,200). The second order quantity per item would be as follows: Assault (505), Seduced (804), Entice (158), Electra (430), Gail (0), Daphne (1,183), Isis (0), Anita (2,096), Teri (0), and Stephanie (0).This brings the total units produced in orders one and two over the maximumof 20,000 units to 20,529 total produced units. Meanwhile, at the Hong Kong plant, there is a minimum of 600 units required per line produced. For this reason, the initial quantity for the Daphne, Isis, Teri, and Stephanie lines would need to be increased to meet this requirement for the first order. The quantity ordered per line for the first order would be as follows: Assault (2,020), Seduced (3,213), Entice (1,087), Electra (1,720), Gail (813), Daphne (600), Isis (600), Anita (659), Teri (600), and Stephanie (600). The second order quantity per item would be as follows: Assault (505), Seduced (803), Entice (272), Electra (430), Gail (203), Daphne (1,783), Isis (442), Anita (2,637), Teri (500), and Stephanie (513). This brings the total units produced in orders one and two to the maximum of 20,000 units. Question 4: Recommendations on operational changes Improve the demand forecasts made internally by the Buying Committee in November just before Speculative Production. Instead of using 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. - Obtain market feedback earlier than Las Vegas, thereby converting some Speculative Production to Reactive Production. Sport Obermeyer can invite selected retailers to come in January to Aspen for an all-expenses-paid “Early Order Weekend”, where there is time for a”sneak preview” of the new line, some recreational skiing and socializing, and then the early placement of orders at a discount. To maximize the value of the market feedback, Sport Obermeyer’s “guest list” should include both large and small retailers and both urban and resort retailers. Decrease lead times for both raw materials and finished goods, thereby allowing more time to utilize existing capacity by: o Choose suppliers of raw materials more on the basis of Dependability than Cost. o Expedite orders through information sharing with suppliers. o Expedite shipments using faster (but more expensive) shippers. o Establish some local (but more expensive) production capacity for “last minute” production. o From the items with long lead times, increase the amount of “safety stock” inventory for those items that are inexpensive and/or shared by many parkas. Simplify the parkas’ designs so that they can share as many components as possible. Increase production capacity by: o Using more subcontractors, o Using more overtime in China, and/or o 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. Question 5 : Short-term and long-term recommendation about sourcing in HK versus China .It is also recommended that short term and long term operational changes are implemented in order to make production more fluid and productive.These changes include:  Short-Term: The maximum production of 20,000 set by Wally should be increased. For example, because there is a maximum of 21,000 available units for the production period (30,000 production capacity x 7 months), extra quantity of Gail could be produced without having to cut into production of other styles. This would be preferable because sourcing Gail from China would require 813 more units to be produced than what is forecasted to be sold. However the cost savings of producing them in China outweigh the cost of selling the extra at an 8% loss. For our recommendations, Gail was produced in Hong Kong in order to adhere to Wally’s 20,000 maximum production guidelines. In reality, the company produces about 200,000 parkas yearly and has production capacity of 210,000 parkas; therefore, it is more cost efficient to overproduce from China in cases such as Gail .  Long-Term: Workers of the China plant should be trained to make products faster and of higher quality in order to shorten the lead time of products and increase production level.