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Solution to Sport Obermeyer Case Study: Introduction

Introduction to Sport Obermeyer, Ltd.


The case regarding Sport Obermeyer, Ltd. presents a somewhat successful ski apparel company that is addressing logistics-related decisions that face many businesses today. Sport Obermeyer, founded in 1947 by Klaus Obermeyer, has continued to lead the ski apparel industry since that time through continuous product innovation and fashion-forward styles. Recently, the company has faced increased competition from other winter apparel makers, namely Columbia Sportswear. Exhibit 1 presents a SWOT analysis of Sport Obermeyer, and identifies core competencies and limitations of the firm. The companys Buying Committee bases quantity ordering decisions on average sales forecasts generated by a number of internal parties. Techniques like this, as well as using a large amount of greige material to delay product differentiation, have helped Sport Obermeyer manage its vast lead times. The nature of the apparel industry necessitates that high quality clothing makers and sellers deal with long lead times; in Sport Obermeyers case this is roughly two years. Routine outcomes of having such a long lead time, however, include stockouts of popular items during peak selling periods, and leftover stock of unpopular items which ultimately are sold at below-cost rates. Where the firm could find opportunities is in stimulating demand through an aggressive marketing campaign. While such a campaign would exacerbate the firms stockouts of popular items, it would aid in selling overstocked items at still-profitable prices. Another serious consideration for Sport Obermeyer is expanding abroad. Today the company sells products in the United States, Great Britain, and Canada. This limited geographic diversity is surprising, considering the large quantity of winter goods that Sport Obermeyer sells. Limitations to the firm include competition that is emerging from abroad and in Sport Obermeyers home markets. Low-cost manufacturing in China and elsewhere has both helped and hindered the company as its competitors have sourced from the same places. Additionally, regulatory statutes limit the quantity of parkas and other ski apparel that companies may import into the United States. This has forced Sport Obermeyer in recent years to use expensive air transportation to move goods out of Chinese and Hong Kong factories and into the US before these quota levels have been reached.

Solution to Sport Obermeyer Case Study: SWOT Analysis


Strengths: History of product innovation. Buying committee forecasts balance expectations. Experienced leadership and focused management team. Deliver products to retailers early in the selling season. Variety of SKUs, with color/size product diversity. Use of greige fabric delays product differentiation. Weaknesses: Excessively long lead times, though this is the nature of the industry. Minimum order quantity at Chinese manufacturers.

Leftover unpopular merchandise at end of selling period. Stockouts on most popular items during peak selling. Opportunities: Aggressive marketing campaign. Expanding sales to European/South American markets. Sponsorship of major winter sports events. Threats: Competition from value-oriented sellers like Columbia. Regulatory limits of goods that can be imported into US.

Solution to Sport Obermeyer Case Study: Suggestions for Operational Change


Of the two decisions presented above, Wally has already adequately handled the first one. By taking each Buying Committee members forecast into account to create an average demand forecast, Wally has come to a good starting line for initial product orders. When actual retailer orders begin to come in, Wally can fine-tune the sales projections and submit updated orders to the factories in Hong Kong and China. The second decision, where to source products from, involves a more complicated analysis to answer. The following are a series of four suggestions aimed at changing the operational activities Sport Obermeyer presently engages in. Implementing these four changes will make near-term and long-term sourcing decisions much more straightforward.

Solution to Sport Obermeyer Case Study: Recommendation 1: Consolidate Supply Chains and Implement Design-for-Supply
Recommendation 1: Consolidate Supply Chains and Implement Design-for-Supply First, Sport Obermeyer needs to consolidate its supply chains and implement design-for-supply principles. Presently, the company has more than 700 SKUs in womens parkas alone. Given the variety of products the company makes and the range of genders it sells to, a simple extrapolation in Exhibit 2 reveals that Sport Obermeyer is operating a complex supply chain with many thousands of SKUs. Analysis of the case data indicates that components for Obermeyers parkas are sourced from 10 different countries. Each component, whether it is greige shell fabric, zippers, or thread, has a unique source with unique lead times, costs, and minimum orders. The company should first make an earnest effort to cut down the number of suppliers it uses, as doing so would give the company more time to complete the manufacturing process. Additionally, the total cost of materials for parkas in particular could potentially fall greatly, offering the company significant cost savings. Next, Obermeyer should implement design-for-supply principles, namely commonality and standardization. By using greige material, the company already does a solid job at postponement, delaying the step in the supply chain at which product differentiation occurs. Regardless, Obermeyer

continues to use too many varieties of YKK zippers, buttons, logo patches, and imported snaps from Germany. Limiting the variety of these items by using the same zippers and snaps on multiple products, for example, would create less of a logistical hassle in terms of obtaining those items. It would also cut down costs due to resulting economies of scale, and make the supply chain more adaptive overall. In the long-term, business strategy meets strategic supply chain planning as more consumers buy and become familiar with the Sport Obermeyer brand, and the company itself achieves enhanced profitability.

Solution to Sport Obermeyer Case Study: Recommendation 2: Manufacture Fewer Sample Products
Recommendation 2: Manufacture Fewer Sample Products Second, the company should manufacture fewer sample products. Currently, Sport Obermeyer incurs great expense in producing samples of each of its products once their design and prototyping has been finalized. Historically, these samples have been taken to trade conferences and retail stores where Sport Obermeyer salespeople display them to prospective wholesale buyers with the goal of obtaining an order for goods. The issue here is that the company spends too much time and money getting sets of samples put together. Alternatively, the company should produce one sample item from a given product line, and simply use pictures and specifications of the other products for selling purposes. Sport Obermeyer has been in the business of selling ski apparel for more than seven decades, which lends to the companys credibility and the notion that the company shouldnt have to show every single product to every wholesale customer before a sale can be made. Producing fewer samples should save Obermeyer roughly 30 to 45 days in its sample-making process, which means that full-scale production can begin two months earlier in December, before the Chinese New Year.

Solution to Sport Obermeyer Case Study: Recommendation 3: Implement Electronic Data Interchange
Recommendation 3: Implement Electronic Data Interchange The third recommendation to Wally is to implement electronic data interchange (EDI) with retailers. Every time an end-consumer buys a Sport Obermeyer product at a retail store, Obermeyer would receive an electronic update in its tracking software. During the peak retail selling period of December through January, retailers submit replenishment orders to Sport Obermeyer. If EDI were to be implemented with the companys largest wholesale customers, Sport Obermeyer would have real-time sales data beginning in September. The company would gain the ability to spot trends early in the winter selling season, which would allow it to prepare better for restocking retailers. One of the companys main losses of revenue occurs every season when its most popular products sell out, and Sport Obermeyer is simply out of the product and cannot replenish retailers. If the company is able to spot a hot seller in October,

then it could order more production of that item from Hong Kong right away. With a general stock of greige fabric, buttons, zippers, and other common components, one of Sport Obermeyers Hong Kong factories could likely quickly put together a production run of a popular item. The minimum order quantity of 600 units would not be an issue either, since at least that many units would be needed if the company was truly selling the product that fast. If products are then shipped during the first week of January, they will be transported by air from Hong Kong to Denver before the Chinese New Year, and they will fit within the US governments quota standards, which reset on December 31st. Disseminated by truck, retailers will receive replenishment of the hottest selling products shortly after they order them, and while the peak selling period is still going on. The costs of air transportation are more than offset by the large profit margin Obermeyer can realize.

Solution to Sport Obermeyer Case Study: Recommendation 4: International Expansion


Recommendation 4: International Expansion The fourth recommendation is for Sport Obermeyer to expand internationally. The company needs to leverage its existing breadth of SKUs to offer premium ski apparel products to markets in South America, Australia, and eventually Europe. Raymond Tses new manufacturing plant in China will provide Obermeyer with plenty of capacity to expand sales onto other continents. Further, the quotas limiting imports to the US will not apply, as the products will be sold in other countries. Sport Obermeyers current lead time is roughly 2 years. While lengthy, the supply chain by which products get to market in this case generally works. Taking the previous three recommendations into consideration, a slow, calculated expansion into foreign markets becomes very achievable. As Sport Obermeyer already barters with parties in South America, the company has some business contacts there, and should attempt to expand into Chilean and Argentinean markets first. Recall that Obermeyers two biggest problems at the end of each North American ski season are: 1) stockouts of popular items; and 2) overstock of unpopular items which are sold or bartered for substantially less value than their cost to produce. The beauty of expansion into markets below the equator is that as the North American ski season is ending, the South American ski season is just beginning. Implementing EDI solves the first problem by allowing the company to spot trends early on and fill demand gaps during the peak selling period. Expanding internationally solves the second problem by allowing Sport Obermeyer to ship overstocked products from North America to South America just in time for the start of the South American ski season. The products can be sold as new to retailers at the full wholesale price, and Obermeyer avoids losing money on barter transactions as it is doing now. Each of these four recommendations for Wally are designed to improve near-term supply chain efficiency, while enhancing profitability in the long-term as the supply chain develops into a more agile and responsive unit.

Solution to Sport Obermeyer Case Study: Sourcing Products in Hong Kong vs. China
Sourcing Products in Hong Kong vs. China

The decision regarding which products to source in Hong Kong and which to source in China is multifaceted. The cost of materials is roughly the same regardless of production location, however labor costs are significantly higher in Hong Kong at roughly $3.84 USD per hour, versus $0.16 USD per hour in China. That being said, products in Hong Kong are manufactured at twice the speed, and minimum order quantities are half that of Chinese factories, causing the lead time for products from China to be several weeks longer. Another major factor affecting production location decisions is Raymond Tses million-dollar factory coming on-line in China this year. Refer to Exhibit 3 for an analysis of how Tses new plant will affect Sport Obermeyers total production capacity for parkas in China. Last year the company sourced roughly 72,000 parkas from Chinese factories. Tses new factory will have the capacity to produce 90,000 more parkas per year for Obermeyer. This represents an enormous opportunity for Obermeyer to cut down labor costs by moving more production to China from Hong Kong. Currently Sport Obermeyer has two production phases; the first order is placed after demand estimates are finalized within the company and the second order is placed after retailers orders are obtained at the Las Vegas Show in March of the selling year. If the company heeds recommendation 3 above, a third production phase will be introduced in the Fall of the selling year, with the third order being placed with overseas manufacturers once initial demand trends are identified using EDI. Recommendation 4, international expansion, requires Obermeyer to order more production than ever before, which is readily handled by the excess capacity that Tses factory is able to provide starting this year.