Sports Obermeyer

Supply Chain Management Group 1

Group 1
ANKIT K TIWARI
SUYASH BAJPAI
MANISH TIWARI
SASWATA BANERJEE
VEDANT BANG
ASHISH R MISHRA

Case Introduction:

Prominent competitor in US skiwear market.

1992: 45% share in Children skiwear and 11% share in adult skiwear
market.
1992: estimated sales $32.8 Million.
Product Line: Parkas, vests, ski suits, shells, ski pants, sweaters,
turtle necks, and accessories.
Mens, Womens, Boys, Girls and Preschoolers
Excellent Price/Value relationship.
Value is defined as both functionality and style.
Target Market: Middle to High End of skiwear market.

Order Cycle
Supply Chain

Question 1: Using the sample data given in Exhibit 10 of the case, make a
recommendation of how many units of each style Obermeyer should order
during the initial phase of production. Assume that all 10 styles in the
sample problem are made in Hong Kong, and that Obermeyers initial
production commitment must be at least 10,000 units.
Answer:
As per the forecasts given by the employees, we have constructed a table shown
below. This includes the average of the forecast and the standard deviation of it.
As in the case it is given that standard deviation of demand for a style was approx.
twice the standard deviation of the Buying Committees forecast for that style. We
have subtracted this from the average forecast for all the styles to come up to order
figure close to 10,000 which is 10,572.
Because Wally reported that the Buying Committees forecasts were usually off by a
factor of 2 times the standard deviation, so using 2 times the SD of each
employees estimates in our model to reflect the additional uncertainty.
Although Obermeyer is able to liquidate unsold inventory at the end of the year,
they do so at a loss. The overstocking cost Co was given as 8% of the wholesale
price. The understocking cost Cu is their gross margin which is 24% of the
wholesale price.
So looking for the point where, given our sales forecast, the next marginal unit
ordered will no longer make us money, but instead cost us money to liquidate. To
set the probability of running out to the understocking cost per item over the sum of
the understocking and overstocking costs per item.

P[d q]

Cu
Cu Co

It is given that Profit on each item sold is 24% and loss on each item unsold is 8%.
Going with these figures we find that probability of meeting the demand (P (d<q)) is
75% for all the styles.

Q2. Wat operational changes would you recommend to Wally to

improve performance?
Answer: In order to improve performance, Sport Obermeyer should work
upon two major operational objectives
1. Improve forecasting: Sport Obermeyer could either estimate better or reduce
lead times.
Allow consumers to pre-order online and extrapolate demand from
there (a) Since the designs are finalized in September of the previous year,
allowing customers to pre-order could give a much better detailed
forecast to the proportion of designs that need to be ordered.
(b) Customers can get a jump on next years designs while they are
in the shopping season during September-October.
Ask for more real-time sales data from retailers for knowing last-years
data and to reorder earlier (a) Install a computer program that could track the sales of the
previous year instantly to get a better feel for how the market is
operating.
(b) Speed up data/information analysis and utilize historical data /
Committee forecasting / Research and Trend & Market Movement.
2. Cut Costs and Lead Times: This could be exercised in two stages short-term
and long-term.
Increase the maximum production (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.
Train the workers of the China plant to make products faster and of
higher quality in order to shorten the lead time of products, especially
the preparation of raw materials. Efforts should be aimed at increasing
the production quality of China to be closed to Hong Kong (Long-Term)
Reduce the lead time by following practices
(a) Use common fabrics in multiple items -

Ordering fabric in bulk and storing it can cut down on lead

times.
Greige fabric is 30% of the total material cost, so reducing
the different types you have to buy, would cut costs
drastically.
Dye basic colors early in year and fashion colors late in
season on few days notice.
(b) Ship directly from China to retailers without the Denver warehouse could save the overhead of running a US warehouse and enable
orders to ship directly to retailer, or, establish DC in Seattle to
reduce lead time and cost from inland transportation from Seattle
to Denver.
(c) Suggest to Alpine that they open plants in China - bring in
managers from Hong Kong to oversee and develop skilled Chinese
labor.

Q3. How should Obermeyer management think (both short-term and

long-term) about sourcing in Honk Kong versus China? What kind of
sourcing policy do you recommend?
Answer:
Particular
Hourly wage
Hourly wage
Comparison
(In US $)
Working hours

Weekly
(output/worker)
Labor cost / Garment

Line configuration

Training

Hong Kong
HK $30
30/7.8 = US $3.84
~25 times more
than the Chinese
rate
8 hours/day, 6
days/week
Total : 48 hrs/week
19 parkas

China
RMB 0.91
0.91/5.7 = US $0.15

HK$ 75.6
= 75.6/7.8 = US$ 3.69
~ 5 times more than
the Chinese rate
10-12 people/line
12 x 3.84 = US$ 46
~ 7.5 times more
than the Chinese
rate
Cross-trained

RMB 4.45
= 4.45/5.7 = US$ 0.78

9 hours/day, 6.5
days/week
Total : 58.5 hrs/week
12 parkas

40 people/line
40 X 0.15 = US$ 6

Trained for single

Min order quantity

Repair rate
Challenges

600 units in same

style
1-2%
1. Wage Rate (very
high)
2. Workforce
(Low unemployment
(~2%),
younger workers
prefer office jobs)

operation only
1200 units in same
style
~10%
Workforce
(Less quality and
cleanliness conscious,
training requirement)

For China
Benefits: Lower labor cost, larger lot sizes, better for lower risk designs
Concerns: Quality, High repair rate (10%), Reliability issue, slower
production rate, less flexible
For Hong Kong
Benefits: Faster production, more flexible, High Quality, Less repair rate (12%), Better for higher risk designs
Concerns: Smaller lot sizes, higher labor cost
Based on the above facts some points can be noted:

Smaller minimum quantities (600) in Hong Kong yield higher returns, even
though the unit cost is higher
In China, minimum order quantity is higher (1200), extra money need to
be paid even if small quantity is required.
Extra Products less likely to be sold.
China should be targeted only if the quantity is higher.
It may consume the import quota if produced more and then imported
more.

So for short term sourcing Honk Kong should be preferred and for
long term sourcing - China