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Sport Obermeyer

Purpose of the Case


The purpose of this article is to determine the number of units of each style Sport Obermeyer should produce during its initial phase of production i.e before the prior to the Las Vegas show in March 2014 (November through March) and during its second phase of production i.e after the Las Vegas Show (March through October). Factors that need to be considered in this decision are the risk associated with each style, from where each product will be sourced (Hong Kong or China), and the costs associated with the sourcing decision. The changes that could be made to operate efficiently and, at a late stage, Operational changes are also recommended in order to improve performance in the short and long-term.

a) Whole sale Selling Price of Parka (p) Cost of Producing each Parka (c ) Salvage Value (s) Expected Profit from each parka sold Loss CSL Since demand is normally distributed,

112.5 85.5 76.5 27 9 0.75

Using Goal Seek we obtain this value, by keeping total order quantity = 10000

a) Initial Phase of Production - all units are made in Hong Kong 1.0608 Average Std 2*Std Order Integer Order Coefficient of Style Price Forecast Dev Dev Quantities Quantities Variation Gail 110 1017 194 388 605.4096 605 0.190757129 Isis 99 1042 323 646 356.7232 600 0.309980806 Entice 80 1358 248 496 831.8432 831 0.182621502 Assault 90 2525 340 680 1803.656 1803 0.134653465 Teri 123 1100 381 762 291.6704 600 0.346363636 Electra 173 2150 404 808 1292.8736 1292 0.187906977 Stephanie 133 1113 524 1048 1.2816 600 0.470799641 Seduced 73 4017 556 1112 2837.3904 2837 0.13841175 Anita 93 3296 1047 2094 1074.6848 1074 0.317657767 Daphne 148 2383 697 1394 904.2448 904 0.29248846 Total 1122 20001 10000 11146

MOQ for Hong kong is 600 units. Therefore we take maximum of Order quantity and MOQ

Question 4) RECOMMENDATIONS FOR OPERATIONAL CHANGES

1. Decrease lead times for both raw materials and finished goods, thereby allowing more time to utilize existing capacity. Since the business strategy should emphasize Dependability more than Cost, lead-times can be reduced using some or all of the following methods: Choose suppliers of raw materials more on the basis of Dependability than Cost. Speed up orders through information sharing with suppliers as well as transparency of information within the supply chain Speed up shipments using faster (but more expensive) shippers. Establish some local (but more expensive) production capacity for last minute production. Other ways to reduce lead times include: From the items with long lead times, increase the amount of safety stock inventory for those items that are inexpensive (e.g., buttons) and/or shared by many parkas (e.g., black fabric). Simplify the parkas designs so that they can share as many components as possible. For example, are 100,000 varieties of zippers really necessary? 2. Obtain market feedback earlier than March i.e Las Vegas event, thereby converting some Speculative Production to Reactive Production. One way of doing this is by not waiting upto march, Sport Obermeyer can invite selected retailers to come in January to Aspen for an Early Order Weekend, where they can have a look at the new line, and an order can be placed early, probably qualifying for a discount placement of orders at a discount. Aslo by meeting early , the end time production and spending more on transportation at the last minute could be avoided. To achieve a lot out of the early meeting, it should include both small as well as big retailers to gain a lot of exposure. 3. Improve the demand forecasts made internally by the Buying Committee in November (1992) just before Speculative Production. Instead of using just a simple average of the individual forecasts made by Laura, Carolyn, Greg, Wendy, Tom and Wally use a weighted average, with

the weights reflecting past accuracy. Speedup data/information analysis and utilize historical data / Committee forecasting / Research and Trend & Market Movement 4. Increase production capacity by using more subcontractors, using more overtime in China.

5. Decrease minimum order quantities, thereby improving the ability to fine tune during Reactive Production. Minimum order quantities occur because there are long set-up times when switching from the production of one style of parka to another, thereby making it uneconomical to have short runs. 6) We could also consider the fact of reducing number of styles handled and to predict customer demand for individual style. 7) Also on a secondary basis, the company could create promotion strategy to persuade retailers to order. 8) Increase bargaining power with suppliers by ordering via big supplier that can commit on timeline

Question 5)

Sourcing in Hong Kong versus Sourcing in China


A) i)Long-term Changes They could train Chinese employees and make them as efficient and the ones in Hong Kong to increase production in China, Also since the labor cost in China is lower , they could make a lot of savings if China could produce more efficiently. ii) Short-term 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 (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. (However, when we mention that 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.

B) It is recommended that higher risk items be produced at the Hong Kong plant because these items will be produced more quickly and be of higher quality. It is also beneficial because a

majority of the higher risk lines require smaller Minimum Order Quantities which Hong Kong is better able to produce because of their smaller unit requirements versus China (600 versus 1,200 units minimum respectively). This means that the high risk items should be produced at Hong Kong including: Daphne, Isis, Anita, Teri, and Stephanie (having higher values of COVs). The Gail line must also be produced at the Hong Kong plant because the total units forecasted is less than the required minimum production at the China plant. Production of styles such as Gail can be over produced. It has a lower COV and is less risky so production in China seems to make more sense at first assessment. However, because the minimum amount of 1,200 required for production in China exceeds the average forecast for Gail, or 1,017, it must be sourced in Hong Kong in order to not go over 20,000 items as specified by Wally. Therefore, all five high risk items and one low risk item should be produced at the Hong Kong plant. The remaining low risk items should be produced at the China plant including: Assault, Seduced, Entice, and Electra. (For high risk items we have assumed a COV of 2 or 2.5 and above.)