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Group 17

Question 1
Using the sample data given in Table 2-20, make a recommend for how many units of each
style Wally should make during the initial phase of production. Assume that all of 10 styles
in the sample problem are made in Hong Kong and that Wallys initial production
commitment must be at least 10,000 units. Ignore price differences among styles in your
initial analysis?
Because it said ignore price differences among styles, so we use the $112.5 as the wholesale selling price
for all, just like in the textbook. (The expected profit is $27, the expected loss is $9) So we can know:
C = 27 C = 9
Critical Ratio a =

STYLE
Gail
Isis
Entice
Assault
Teri
Electra
Stephanie
Seduced
Anita
Daphne

Wholesale Selling Price


$112.50
$112.50
$112.50
$112.50
$112.50
$112.50
$112.50
$112.50
$112.50
$112.50

C
+

= 0,75

Average Forecast
1,017
1,042
1,358
2,525
1,100
2,150
1,113
4,017
3,296
2,383
Total Quantity

2 * Stardard Deviation
388
646
496
680
762
807
1,048
1,113
2,094
1,394

Q
1,279
1,478
1,693
2,984
1,614
2,694
1,820
4,768
4,708
3,323

Q/2
639
739
846
1,492
807
1,347
910
2,384
2,354
1,662
13,180

Q=NORMINV(critical ratio, mean (average forecast), std.dev(2 times here))

From the case we know that the initial demand is half of the total production.
So this is the recommendation we can give. (Each number is greater than the
Hong Kongs minimum production quantity 600 units.)

The total quantity of ordering here is more than Wallys initial production
commitment 10,000 units. So the recommendation fulfils the requirement.

Group 17

Question 2
Can you come up a measure of risk associated with your ordering policy? This measure
should be quantifiable.
Coefficient of Variation = Standard Deviation / Average Forecast

STYLE
Gail
Isis
Entice
Assault
Teri
Electra
Stephanie
Seduced
Anita
Daphne

Coefficient of Variation
0.19
0.31
0.18
0.13
0.35
0.19
0.47
0.14
0.32
0.29

Question 3
Repeat your methodology and assume now that all 10 styles are made in China. What is the
difference (If any) between the two initial production commitments?
We use the same calculation and take the results from question 1, but because the minimum ordering

Q/2
639
739
846
1,492
807
1,347
910
2,384
2,354
1,662
13,180

Quantity of Ordering in Mainland China


1,200
1,200
1,200
1,492
1,200
1,347
1,200
2,384
2,354
1,662
15,239

Group 17

quantity in mainland China is 1200 units, instead of Hong Kongs 600 units, so we keep those orderings of
styles which are over 1200 units, and those less than 1200, we change them into 1200 units. Therefore we
have the following table:

Question 4
What operational changes would you recommend to Wally to improve performance?
Possible recommendation of operational changes for Wally could be:
1. Try to reduce the minimum ordering quantity
Negotiate with suppliers regarding the minimum ordering quantity, share the information and reduce
the Bullwhip Effect.
2. Reduce the number of styles for production
There are too many styles and SKU, which have increased the complexity and risk, as well as inventory.
3. Postponement
In this case, Each greige fabric would later be dyed and/or printed as necessary , which means that
it takes long time for production process. So Wally should consider postpone the differentiation, so as
to lower the risk.
4. Reduced the Lead-time
For example the nonstandard zippers sourced from Japan, the lead-time is more than 90 days, which is
too long. Wally needs to find a solution to reduce it. (Solution could be share more profit with the
zipper suppliers to increase the production efficiency.)

Question 5
How should Wally think (both short term and long term) about sourcing in Hong Kong
versus China? What kind of sourcing policy do you recommend?
Comparison
Advantage

Disadvantage

Hong Kong
Better quality;
More efficient;
Smaller minimum order;
Higher labor cost;

Mainland China
Lower labor cost;
Lower efficiency;
Larger minimum
order

We recommend sourcing in Hong Kong for short-term and sourcing in Mainland China for long-term.