SPORT OBERMEYER, LTD

Contents
PROBLEM STATEMENT .............................................................................................................. 2
OPERATING STRUCTURE DESIGN: ......................................................................................... 3
THE SUPPLY CHAIN ..................................................................................................................... 5
ORDER CYCLE ............................................................................................................................... 5
ORDER PLANNING CYCLE ......................................................................................................... 6
P-P MATRIX..................................................................................................................................... 6
READ-REACT CAPABILITY: ...................................................................................................... 7
Production Planning (The Critical Fractile Method): ................................................................... 7
Initial Phase of Production. .............................................................................................................. 7
SHORT TERM Vs LONG TERM SOURCING ............................................................................ 8
RECOMMENDATIONS .................................................................................................................. 9
PROBLEM STATEMENT
Sport Obermeyer products have short product lifecycle and more product varieties. Such
decisions are classified as innovative. Sport Obermeyer is facing two major challenges as
discussed below

1) INACCURATE FORECAST:
One of the problems faced by Obermeyer is inaccurate forecasting. They are unable to
accurately predict market response to its product lines in order to meet demand most efficient
ly.
It needs to find a way to improve forecasting the demand in order to avoid stock-outs and at
the same time, avoid excess merchandise in its warehouse for those products that retailers
did not purchase. Considerable income is lost each year to lost sales and deep discounts
because of the company's inability to predict best-sellers products.

2) PRODUCTION PLANNING PROBLEM

In this case, we found that one of the biggest challenges which company faces was to decide
where to produce their products and in what quantity. This task becomes more challenging
due to little or no sales forecast. The risk associated with this involves:
Over production which leads to selling of products at a discount that is even below the
manufacturing cost.
Stock Outs: high sale items stock out which result in the decline in customer trust in
company. Problem becomes critical due to difference in aspects of their production facilities.
That is to say that the China and Hong Kong facilities provide parkas with many limiting
factors.

Competitive Priorities
Competitive priorities of the company are Flexibility and Delivery.
Companies strategy is heavily dependent on logistic services. Timely delivery of orders to
retailers is prime focus of the company. Secondly, company also aims to provide maximum
product exposure to end customers by delivering the orders before start of the season.
Company would have experienced reduced sales if products were not delivered on time.
Moreover, the company would ensure that the retailer gets replenished with the requisite
product, be it by air mail or UPS packages
The second priority is flexibility. The company provided high number of variety and there
were approximately 700 SKU’s. The products were segmented into five categories based on
age and gender. Lastly, the adjustment made by the company after Las Vegas event shows
that flexibility was top priority.
Both Flexibility and Delivery are justified as competitive priorities. As this is extremely
competitive market, early delivery to retailers and availability are extremely essential.
Similarly, flexibility provides the company an edge over other as customers have more
options within the same brand. This strategy has helped the company to gain significant
market share.

Q D

OPERATING STRUCTURE DESIGN:

Operating System Design

Structural
Capacity Sports Obermeyer produced about 200,000 parkas each year. Maximum
available capacity to the company for cutting and sewing was 30,000
units a month, including the production capacity at all factories
available to make Obermeyer products. It also produced high number
of SKU i.e. approximately 700.
Scope Sports Obermeyer outsourced their products through Obersport, to
assist in the production of Sport Obermeyer products in the Far East,
outsourced to independent subcontractors.

Moreover, it purchased the outer shell fabric from vendors in the United
States, Japan, Korea, Germany, Austria, Taiwan, and Switzerland. The
lining fabric was purchased primarily from Korea and Taiwan and
outsourced other components such as insulation materials, D-rings,
buckles, snaps, buttons, zippers, pull-strings with attached castings, and
labels/tags from Germany, Japan.
Technology The production process was highly labour intensive, hence relied
heavily on the level of productivity of the workers (i.e. not automated).
Infrastructural
Workforce Allocation of operations to workers differed from one factory to
another, depending on the workers’ level of skill and degree of cross-
training. Workers in Honk Kong were about 50% faster than their
Chinese counterpart, were highly skilled and were typically trained in a
broader range of tasks. Moreover, workers were paid on a piece rate
basis in both Countries, consistent with the competitive wage rates in
these countries.
Organisation Klaus Obermeyer was actively involved in the company’s management
but believed in achieving harmony, as in putting his trust in the
management team, be cooperative rather than have a top down approach
and make decisions based around judgments and intuitions.
Furthermore, he relied on Raymond to make the production and
investment decisions.

Wally, vice president had different management approach and relied

more heavily on formal data gathering and analytical techniques to
make decisions.
Quality Obersport was responsible for monitoring production and quality at all
subcontractor facilities. Workers from Obersport, randomly inspected
selected pieces from each subcontractor’s production before the units
were shipped to the US.
Planning Production was based around forecasted demand levels of different
product varieties however, manufacturing starts well in advance of the
selling season, based on scant available information. Henceforth,
‘Buying committee’, comprised of 6 key managers, make production
commitments based on the group’s consensus, using blending analysis,
experience, intuition and sheer speculation.

Planning starts 2 years before the actual sale of products to the

consumers.
Product and Obermeyer products were offered in five different ‘genders’: men’s,
Process Design women’s, boys’, girls’ and pre-schoolers’. Each gender was further
segmented according to price, type of skier and how fashion forward
the market was and within each ‘gender’, numerous styles were offered,
each in several colours and a range of sizes.
 Longer production lines in China than Hong Kong, with a minimum
order quantity of 1200 (China) and 600 for Hong Kong.

THE SUPPLY CHAIN

Textiles & Produce, dye and print shell and lining fabrics, supply
accessories insulation, zippers, thread, logo patches and snaps.

suppliers
Apparel Subcontractors receive production orders and materials from
Manufacturers Obersport. Cut, sew and final assembly.

Responsible for material and production sourcing in the Far

Obersport East. It also acts as a distribution centre for materials and
finished goods.

Sport Product design, production planning and sales.

Obermeyer
Purchase from Sport Obermeyer and sell products to
Retailers consumers.

ORDER CYCLE
The Design Process

Sample Production

Raw material sourcing

& production

Retail ordering process

ORDER PLANNING CYCLE

P-P MATRIX
Variety Sport Obermeyer

Production Facility
in China

Volume

There is definite mismatch between production facility in China and requirements of Sports
Obermeyer. Production facility in China is unable to incorporate high flexibility, in fact the
process in China is designed to cater for high volume than variety. Although China has lower
labor cost and large batch size, however, it is less flexible, and labor is not trained very well.
In contrast, production facility in Hong Kong is faster and more flexible, however, batch size
is smaller and labor cost is high.
READ-REACT CAPABILITY:
Sport Obermeyer uses Read-react capability. It uses early demand signals to forecast demand
and replenish merchandise in the middle of the selling season. In this case, Las Vegas is the
separating point. Till Las Vegas event, Company is in speculation mode. Once event finishes,
Company generates second order. In order to improve the system, company can reduce lead
times in various activities, for instance, by giving more orders to Hong Kong facility and by
reducing time required to obtain zippers. This way company can increase the read time and
generate better forecast for react period.

Production Planning (The Critical Fractile Method):

We use the critical fractile method to calculate the probability of Sport Obermeyer meeting
the customer demand. As per the following calculations, for Rocco Parkas, there is a 25%
chance that the company would not be able to meet the demand. In contrast, there is a 75%
probability of meeting overall demand.

Cost 85.5
Sales Price 112.5
Overage Cost (Co) 9
Underage Cost (Cu) 27
Cu/(Co+Cu) 0.75

Initial Phase of Production.

Using the sample data given in exhibit 10, we can calculate period production quantity using
formula (mean-K*S.D). Since we know that the production order has a limit of 10000,
therefore, we have to find the value of k which satisfied this number.
Coefficient of Variation (CV) divides the standard deviations by the respective averages.
Style Average Forecast (Mean) St.deviation 2xSt.deviation Mean-k*S.D (K=1.06) Mean-k*S.D (K=2) Coefficient of variation
Gail 1017 194 388 606 241 0.19
Isis 1042 323 646 357 0 0.31
Entice 1358 248 496 832 366 0.18
Assault 2525 340 680 1,804 1165 0.13
Teri 1100 381 762 292 0 0.35
Electra 2150 404 807 1,295 536 0.19
Stephanie 1113 524 1048 2 0 0.47
Seduced 4017 556 1113 2,837 1791 0.14
Anita 3296 1047 2094 1,076 0 0.32
Daphne 2383 697 1394 905 0 0.29
Total 20001 10,007 4099

Since using K=1.06 gives an estimation of final quantity of 10,007 which is close to our
requirements of at least 10,000 we will use this data for placing the production orders.

There are two constraints which should be considered before allocating the style to certain
production facility. Firstly, production facility in China need a minimum batch size of 1200
units, whereas, Production facility in Hongkong requires 600. Secondly, high risk items
should not be assigned to China as the production facility doesn’t have highly trained
workers, it takes more time and offers less flexibility. Therefore, coefficient of variation,
which depicts riskiness, is important indicator for decision making. In this case, all items that
have batch size of more than 1200 and riskiness (CoV) of less than 0.20 should be assigned ti
production facility in China.
Style Average Forecast (Mean) Production in 1st half Production in 2nd Half Coefficient of variation Production facility
Assault 2525 1804 721 0.13 China
Seduced 4017 2837 1180 0.14 China
Entice 1358 832 526 0.18 China
Electra 2150 1295 855 0.19 China
Gail 1017 606 411 0.19 HK
Daphne 2383 905 1478 0.29 HK
Isis 1042 357 685 0.31 HK
Anita 3296 1076 2220 0.32 HK
Teri 1100 292 808 0.35 HK
Stephanie 1113 2 1111 0.47 HK
Total 20001 10007 9994

SHORT TERM Vs LONG TERM SOURCING

The labor cost in China is far cheaper then cost in Hong Kong. However, labor in China is
not as well trained as in Hong Kong. Table below shows a brief comparison between both
production facilities.
Currently, labor in China is not very efficient. Therefore, training of the labor should be
utmost priority. This will increase the overall productivity. Considering all these facts, it is
suggested that sourcing in Hong Kong should be used for short-term and sourcing in
Mainland China for long-term.

RECOMMENDATIONS
Try to reduce the minimum ordering quantity
Negotiate with suppliers regarding the minimum ordering quantity, share the information and
reduce the Bullwhip Effect by reducing lead times for various processes.
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. By decreasing the number of SKU’s, company can massively improve
forecasting. Moreover, this will also help in reducing the waste and reducing the price of the
product as waste is directly proportional to flexibility.
Reduced the Lead-time
For example, the nonstandard zippers sourced from Japan, the lead-time is more than 90
days, which is too long. Company needs to find a solution to reduce it. (Solution could be
sharing more profit with the zipper suppliers to increase the production efficiency.)
Moreover, there is too much variety available in zippers and lead time can be reduced by
using a smaller number of standardized zippers.
Delayed differentiation
Company can reduce lead time by partially implementing delayed differentiations. This will
help in. Inventories for undifferentiated items will be stored and differentiated products can
be manufactured once forecast is optimized.
Improved Forecasting

As Exhibit 5 from the case study suggests, Demand Forecasts Improves with Increasing
Information, Obermeyer usually receives 80% of the annual order volume the week after Las
Vegas show, long after its products entered production. If only Obermeyer gets the response
sooner, it can alter its forecast to match the demand for the upcoming season. Obermeyer can
arrange an early meeting with some of its largest retailer customers to give them a sneak
preview of the new annual line and to cash early orders. The data collected and gathered from
early orders and from the results of the existing buying-committee can together then be used
to improve demand forecasts just before the Trade show. To maximize the value of the
market feedback, Obermeyer could also include small retailers from both urban and resort
retailers.

Optimize Read-React Capability

By reducing lead times, Sport Obermeyer can increase the bracket of read time. Greater will
be the read time greater will be the accuracy of forecast. If Sport Obermeyer can take the read
time till start or September, then it can react once sales start in September by offering
replenish merchandise in October. This will immensely improve the accuracy of forecasting
and company can improve its profit.