SPORT OBERMEYER

CASE ANALYSIS | SUPPLY CHAIN MANAGEMENT

GROUP B
NOVEMBER 5, 2014

2014, Professor Dr. Kai Hoberg

Course: Supply Chain Management

COMPARISON OF PRODUCTION FACILITIES

CHINA

HONG KONG

Advantages:

Advantages:

Low labor costs (0,16$/hour vs 3,84$/hour)

Longer working days (48,5h/week)
More workers available than in Hong Kong

Disadvantages:
Uncertain quality and reliability of operations
Larger minimum order quantities compared
to HK
Higher repair rate
Less quality and cleanliness conscious
Higher costs of training requirements
Uncertain trade relations with the USA

2014, Professor Dr. Kai Hoberg

Work 50% faster than counterparts in China

Workers are trained in broader ranges of
tasks
Require less workers to produce a parka for
example
Shorter production line in HK
Smaller minimum order quantities (600 v/s
1200)
HK may ramp up production faster
Higher output in parkas production (19 v/s
12)
Low repair rate

Disadvantages:
Higher labour costs compared to China
Maximum working overtime
Less workers available

Course: Supply Chain Management

PRODUCTION PLANNING
HEURISTIC FOR INITIAL ORDER
Inferences from Case Facts
Forecast accuracy is higher for the styles where the Buying Committee had higher
agreement;
Demand from previous years indicate that the standard deviation of the demand for a
style is approximately twice the standard deviation of the Buying Committees forecast for
sales
Cost of underproduction is a lost opportunity of 24% of revenues; cost of overproduction
is a loss of 8% on revenues. The former is thus preferred
Constraints
A minimum order of 60 units per style is required at the Hong Kong production facility;
Total order should be greater than 10.000 units;
Concept Applied
A lower Coefficient of Variation (= Standard deviation / mean) implies higher agreement;
The 10 styles are divided into 3 categories based on the Coefficient of variation:
C.V. < 0.1 Lower variation expected, we can thus produce the mean;
0.1 < C.V. < 0.2 Variation expected, take lower risk, produce ( - );
C.V. > 0.2 High variations expected, thus to avoid risk produce ( - 2*);
As suggested by Exhibit 5, once the actual sales figures arrive, the forecasts are refined
Result - Total order for initial phase of production = 15.596 units

2014, Professor Dr. Kai Hoberg

Course: Supply Chain Management

ITEM WISE INITIAL ORDER

Individal Forecast
Style

Laura

Caroly
Greg Wendy
n

Gustavo
Jamie
Hola
Benita
Epsilon
Anja
Franzl
Daphne
Cara
Ignacio
Total

3183
838
2836
2004
1009
1585
4245
2224
861
1215
20000

3196
920
2491
2400
974
1870
2990
2094
1735
1330
20000

3581
891
3286
1715
848
1711
3616
2115
987
1250
20000

3748
964
2914
1980
1015
1467
3436
3497
585
394
20000

Tom

Wally

Mean
()

3324
1037
2566
2002
1211
1864
4592
1435
1360
609
20000

3182
940
2764
2214
934
2108
3484
2234
929
1211
20000

3369
932
2810
2053
999
1768
3727
2267
1076
1002
20000

Coefficient
Standard
of
Deviation Variation Category
()
(C.V. = /
)
240.9
0.071
I
67.5
0.072
283.4
0.101
232.8
0.113
120.8
0.121
II
229.2
0.130
585.8
0.157
672.5
0.297
407.9
0.379
III
395.5
0.395

Final
Production
= - K*

0
0
1
1
1
1
1
2
2
2

3369
932
2526
1820
878
1538
3141
922
260
210
15596

the multiple standard deviation (k=0,1,2) is a measure of how risk averse Obermeyer Sport is.
We assume that Wally is very conservative while placing these order
Ratio: 0-0,1 we will produce the mean, lowest risk
Ratio: 0,1-0,2 mean standard deviation (k=1)
Ratio: 0,2-1 mean 2* standard deviation (k=2), the highest risk
Conclusion: tried to minimize the risk of the forecast to avoid overproduction

2014, Professor Dr. Kai Hoberg

Course: Supply Chain Management

OPERATIONAL CHANGES

1/2

1. Reduce number of styles

Incorporate the pre-schooler category into the boys and girls category
Reduce types of style from 4 to 2

2. Optimize number of vendors

Because of reduced number of styles we can reduce the number of different fabrics
Only buy from vendors with the best price for the basic style and for the best price for
the luxurious style
Ordering in larger quantities will lead to a lower price
Due to these changes we hope to raise profit margin

3. Lead time reduction

Solution will reduce lead-time of the different suppliers (e.g. ABC Inventory)
Due to standardization of our products, we can reduce cost of different add-ons
(zippers, buttons, etc.) of the sky garments
In order to reduce lead-time, Obermeyer should reduce the zippers styles as far as
they can without
compromising on the quality and the uniqueness of Sport
Obermeyers fashion clothing
2014, Professor Dr. Kai Hoberg

Course: Supply Chain Management

OPERATIONAL CHANGES

2/2

4. Cut and sew

Produce the basic styles in China
Require lower quality and a higher number of production
Minimum order quantity is higher than in HK
Accept risk of higher repairing rate
Produce the luxury style in Hong Kong
workers are highly skilled
faster production
Minimum order quantity is lower
repair rate is low
Considerations
Proposals are based on cost optimization
Tried to improve the readiness of the product in order to commercialise the new
product just after the Las Vegas Show in September 1992
Would liked to adjust the trend and the product of the same year
If we want to bring the product onto the market until October 1992 we have to
reduce the chain from 21 months to 9 month
Very high risk - Trend can be completely different from the Obermeyer style, this
would lead to a extreme sales drop

2014, Professor Dr. Kai Hoberg

Course: Supply Chain Management

ABC CATEGORIZATION OF INVENTORY

1/2

Concept

Category A is the most critical and must always be in just enough

quantities
The quantities are reviewed and ordered more frequently
Try to receive order as and when needed and monitor inventory very
closely
Category B is relatively less critical and must be monitored less
frequently
Category C should not consume much of the inventory management
time
Order infrequently in large quantities and keep high safety stock.

2014, Professor Dr. Kai Hoberg

Course: Supply Chain Management

ABC CATEGORIZATION OF INVENTORY

2/2

Results

2
3

Greige Shell fabric production

Greige Shell fabric finishing
Insulation
Finished Lining Fabric

% of total
value
30%
13%
16%
13%

Zippers

12%

S. No.
1

5
6
7

Item

Logo Patches, Drawcords, Hang,Tags

etc.
Snaps (undyed)
Dyeing of snaps
Threads

2014, Professor Dr. Kai Hoberg

Lead time

ABC
Category

45-90 days
45-60 days
14-21 days
45-60 days
60 days from
HK/
91 days from
Japan

10%

15-30 days

3%
1%
2%

30-60 days
15-30 days
30 days

Course: Supply Chain Management

THANK YOU

2014, Professor Dr. Kai Hoberg

Course: Supply Chain Management