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    Sport Obermeyer Case Study: Problems Identified

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    The document discusses Sport Obermeyer's forecasting methods and production planning. It identifies that the previous committee forecasting method was replaced by individual manager forecasts, but both lack external input. It then poses a series of questions about determining production quantities and assessing risk levels of different styles. Recommendations are provided about improving forecasts, obtaining earlier market feedback, decreasing lead times, simplifying designs, and increasing production capacity and flexibility. Short and long-term sourcing recommendations between Hong Kong and China production are also provided.

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    Sport Obermeyer Case Study: Problems Identified

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    youxin.cui
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    The document discusses Sport Obermeyer's forecasting methods and production planning. It identifies that the previous committee forecasting method was replaced by individual manager forecasts, but both lack external input. It then poses a series of questions about determining production quantities and assessing risk levels of different styles. Recommendations are provided about improving forecasts, obtaining earlier market feedback, decreasing lead times, simplifying designs, and increasing production capacity and flexibility. Short and long-term sourcing recommendations between Hong Kong and China production are also provided.

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    The document discusses Sport Obermeyer's forecasting methods and production planning. It identifies that the previous committee forecasting method was replaced by individual manager forecasts, but both lack external input. It then poses a series of questions about determining production quantities and assessing risk levels of different styles. Recommendations are provided about improving forecasts, obtaining earlier market feedback, decreasing lead times, simplifying designs, and increasing production capacity and flexibility. Short and long-term sourcing recommendations between Hong Kong and China production are also provided.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    40 views4 pages

    Sport Obermeyer Case Study: Problems Identified

    Uploaded by

    youxin.cui
    The document discusses Sport Obermeyer's forecasting methods and production planning. It identifies that the previous committee forecasting method was replaced by individual manager forecasts, but both lack external input. It then poses a series of questions about determining production quantities and assessing risk levels of different styles. Recommendations are provided about improving forecasts, obtaining earlier market feedback, decreasing lead times, simplifying designs, and increasing production capacity and flexibility. Short and long-term sourcing recommendations between Hong Kong and China production are also provided.

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    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, and total 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


    k = 1.0608 <---Find value of k that makes last column sum to about 10,000

    STANDARD FIRST-PERIOD
    MEAN OF DEVIATION PRODUCTION QUANTITY


    DEMAND OF DEMAND

    STYLE
     Max (0,   k )
    Gail 1017 388 605
    Isis 1042 646 357
    Entice 1358 496 832
    Assault 2525 680 1804
    Teri 1100 762 292
    Electra 2150 807 1294
    Stephanie 1113 1048 1
    Seduced 4017 1113 2836
    Anita 3296 2094 1075
    Daphne 2383 1394 904
    Sum---> 20,001 10,000 <---Sum

    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 analyze 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 maximum of 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.

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