PRODUCTION FOR INITIAL PHASE HONG KONG & CHINA

Production decision
based on individual
forecasts of Buying
Committee members
Minimum order
quantity different for
Hong Kong (600 units)
and China (1200 units)
Risk Factor (Covariance)
used to differentiate
production schedule of
products
Initial Production
Commitment must be at
least 10000 units
No price difference
between styles
PRODUCTION FOR INITIAL PHASE HONG KONG & CHINA
Sample data
Recommended
Quantity
Adjusted
Quantity
Cost of overestimation and profit foregone due to underestimation was used to
calculate the required service level (no stock-outs) and recommended quantity

The recommended quantity was split into reactive and non-reactive production to find
out adjusted quantity
Minimum order
quantity different for
Hong Kong (600 units)
and China (1200 units)
Adjusted quantity revised as per minimum order
requirements for Hong Kong and China

Initial production quantity is greater in case in China
RISK MEASUREMENT
Demand forecasting uncertainty results in stock-out and markdown costs
Higher the standard deviation of forecasted data, higher would be risk of monetary losses due to costs
of stockouts and markdowns
Each member of buying committee provides individual forecast for each product
Covariance: A Measure of Risk: Lower the covariance of forecasted demand, lower will be the
forecasting error and the product will be safer to produce in the initial period (even without the
availability of additional sales data)
Hence, nonreactive capacity should be filled with the styles which are expected to have more accurate
demand forecast
1
Postpone differentiating raw material & factory production capacity to as close to the buying
season as possible
Book total capacity without specifying exact styles unless clear market signals are obtained
2
Reduction in variety of Zippers used (due to long lead times & risk of blocking an entire range
in case of non-availability)
Use of standard colors such as black which worked well as a fashionable contrast
3
Encourage designers to use same kind of raw materials, in a pre-defined range of shades,
owing to higher consumer sensitivity to appearance, fabric, style rather than shade variations
4
Computerized tracking of extremely popular styles that were out of stock, invaluable aid in
improving future forecasts & better cost estimates for insufficient inventory
RECOMMENDED CHANGES FOR IMPROVED PERFORMANCE
>Faster Production

>Higher Labor Cost
>Smaller Lot Sizes
>Greater Flexibility
>Labor Productivity
>Reliable Quality
HONG KONG
>Lower Labor Cost
> Standard Lot Sizes

>Concerns over
quality & reliability
>Slower production
> Less Flexibility
CHINA
Recommended for production: Short Term in Hong Kong; Long Term in China
SOURCING POLICY HONG KONG v/s CHINA