This document contains information about Sport Obermeyer's case analysis. It discusses:
1. Production units for different styles in Hong Kong and the ordering policy based on risk levels.
2. The risks associated with Sport Obermeyer's ordering policy including stockouts, markdowns, old designs, inventory costs, and inability to profit from hits.
3. The differences between production commitments in China and Hong Kong in terms of ramp up speed, worker training, minimum order quantities, and output per worker.
This document contains information about Sport Obermeyer's case analysis. It discusses:
1. Production units for different styles in Hong Kong and the ordering policy based on risk levels.
2. The risks associated with Sport Obermeyer's ordering policy including stockouts, markdowns, old designs, inventory costs, and inability to profit from hits.
3. The differences between production commitments in China and Hong Kong in terms of ramp up speed, worker training, minimum order quantities, and output per worker.
This document contains information about Sport Obermeyer's case analysis. It discusses:
1. Production units for different styles in Hong Kong and the ordering policy based on risk levels.
2. The risks associated with Sport Obermeyer's ordering policy including stockouts, markdowns, old designs, inventory costs, and inability to profit from hits.
3. The differences between production commitments in China and Hong Kong in terms of ramp up speed, worker training, minimum order quantities, and output per worker.
This document contains information about Sport Obermeyer's case analysis. It discusses:
1. Production units for different styles in Hong Kong and the ordering policy based on risk levels.
2. The risks associated with Sport Obermeyer's ordering policy including stockouts, markdowns, old designs, inventory costs, and inability to profit from hits.
3. The differences between production commitments in China and Hong Kong in terms of ramp up speed, worker training, minimum order quantities, and output per worker.
Student Name ABHISHEK GUPTA SHAHZEB FEROZ CHETAN SEHGAL ABHISHEK SAHU AZFER SAJJAD KAUSTAV PAL ABHISHEK PRAVEEN BALIBOYANA SRIHARSHA
A1) Production Units for different Style (Hong Kong):
Taking the benchmark of 0.2 for the coefficient of Variance. In the cases where the COV is below 0.2 is considered to be a low risk item. For low risk items 80 % of the order can be given in the 1st phase itself while for high risk items only 20% of the order should be made rest 80% can be order after the Vegas show when there is high certainty. Now when the order quantity falls below 600 it has be scaled up to 600 since that is the minimum order size for Hong Kong.
A2) Risk Measures associated with Ordering Policy:
In case of the ordering policy of Sports Obeymeyer there is an associated risk attached to it which has its root from the following reasons:
Stock outs (-24 % whole sale price) wherein the demand is more than the stock and hence lost sales takes place Market downs( -8% of wholesale price)- wherein the demand is less than the stock and hence overstocking loss takes place Old designs- since these are fashion based product once the design is old no sales takes place and hence the risk of old stock exists High inventory holding cost if higher inventory exist to cater the demand there always exist an inventory holding cost risk associated with it Unable to fully profit from hit products there are times wherein due to stock out of a hit product one cannot fully profit from the hit products
All these risk occur because of the uncertainty in the forecast of demand
Standa rd deviati
Sde viat Demand Average
We can assess the forecast certainty as follows:
1. Based on historical data such as past forecast error and variability of demand 2. The coefficient of variation which is standard deviation / mean is a good estimator of forecast reliability
Form the table we can see that Stephanic has higher risk whereas Assault has the lower risk so according to this we can go in for planning the production. A3) Difference between production commitments in China & Hong Kong: The comparison of operations in China and Hong Kong brings out the following points: i) ii) iii) iv)
The plants in China are not as fast as Hong Kong in ramping up the production. The Chinese workers were not trained to do a broader range of tasks as compared to workers in Hong Kong. The minimum production quantity in China was twice as compared to Hong Kong for a particular unit (1200 units in China vs 600 units in Hong Kong) The output/worker was higher in Hong Kong compared to China.
As a result of this the production commitments required to be made to China would
definitely consist of twice the number of units. For these reasons it is better to produce only those SKUs in China for which the forecasts are more accurate so that the economies of scope can be realized by ordering larger quantities. Taking the benchmark of 0.4 for the coefficient of Variance. In the cases where the COV is below 0.2 is considered to be a low risk item. For low risk items 80 % of the order can be given in the 1st phase itself while for high risk items only 20% of the order should be made rest 80% can be order after the Vegas show when there is high certainty. Now when the order quantity falls below 1200 it has be scaled up to 1200 since that is the minimum order size for Hong Kong.
A4) Operational changes to improve performance:
Some of the operational issues which Sport Obermayer faces at the moment are:
Difficulty in forecasting demand due to variability in fashion preferences and also
because of a wide product line with a large number of SKUs Sourcing, i.e. allocation of production between the Hong Kong and China plants. While the China plant is more suited to large scale production orders, it is inefficient in terms of handling a wide variety of products Large lead times for manufacturing by sub contractors. Given the variability in forecasts with lack of sales data, early production orders to sub contractors because of the large lead times is a source of major risk as it can lead to over or under stocking of different product varieties. Logistics is another challenge for Sport Obermayer as the company has to provide matching products well ahead of the season which not only put pressure on the production process but also on the logistics process as well.
In lieu of these operational challenges, the following changes are proposed to improve the operational performance of Sport Obermayer
The company should consider reducing the variety in its product line especially in the Adult Segment. The product-process matrix for the adult segment is inefficient. Columbia Sportswear with a high volume -low cost approach has proven to be a lot more successful as compared to Sport Obermayer. Reducing the product line in the adult segment would significantly ease the forecasting process.
The company should allocate the high volume-low cost product lines to the China plant which due to easier forecasting can be done considerably early and allocate the production of the other varied products primarily to the Hong Kong plant which is more skilled and more efficient in term of speed of production. Thus the production order to the Hong Kong plant can be delayed (the Hong Kong plant operates almost twice as efficient as the China plant) and the order can be based on the updated forecast which incorporates additional sales data.
In terms of managing the lead times of the suppliers, the company should in the long run consider vertical integration especially into finished shell and lining fabric which has very long lead times. The company should ideally attempt to open a plant in China where the labour costs are low and these operations do not require considerable skill levels. This can significantly reduce the lead times as the company can now control the process. Decreased lead times imply additional time availability for delayed production based on a more well informed forecasting process.
A5) Sourcing Policy
Short-term Operational Changes 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 (3,000 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 Wallys 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 Operational Changes Train Chinese employees to increase production in China as labour is cheaper in China and they so accept large orders.
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