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Sports Obermeyer Case: Secb - Group8 - Caseso

Short-term: Source from Hong Kong due to smaller minimum orders, more flexible production, higher quality and reliability. Long-term: Consider sourcing more from China due to significantly lower costs but focus on improving quality, reducing lead times, training workforce and developing strong supplier relationships. Maintain sourcing from Hong Kong for specialty items. In the short-term, Obermeyer should source from Hong Kong due to the advantages of smaller minimum orders, more flexible production, higher quality and reliability. However, in the long-term China presents an opportunity for significant

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36 views11 pages

Sports Obermeyer Case: Secb - Group8 - Caseso

Short-term: Source from Hong Kong due to smaller minimum orders, more flexible production, higher quality and reliability. Long-term: Consider sourcing more from China due to significantly lower costs but focus on improving quality, reducing lead times, training workforce and developing strong supplier relationships. Maintain sourcing from Hong Kong for specialty items. In the short-term, Obermeyer should source from Hong Kong due to the advantages of smaller minimum orders, more flexible production, higher quality and reliability. However, in the long-term China presents an opportunity for significant

Uploaded by

RahulTiwari
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© © All Rights Reserved
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SPORTS OBERMEYER

CASE
SecB_Group8_CaseSO
Made by
Shubham Shakar
Rahul Kr Tiwari
Nikhil Jaiswal
Prithvi V
Saurav Prasad Malik
Question 1

Using the sample data given in Exhibit 10, make a recommendation for how
many units of each style Wally Obermeyer should order during the initial
phase of production. Assume that all ten styles in the sample problem are
made in Hong Kong, and that Obermeyer's initial production commitment
must be at least 10,000 units. (Ignore price differences among styles in your
initial analysis)
Co Var
0.19
0.31
0.18
0.13
0.35
0.19
0.47
0.14
0.32
0.29

The table given in the book did not consist of the column indicating the Coefficient of Variation. While
Standard Deviation gives the absolute value of variation from mean Coefficient of Variation shows it
relative to the mean and hence is more representative of the true picture.
Assumptions to be made:
a) All production activities are being carried out in Hong Kong. Thus the minimum order quantity
for any style must be 60 units/month.
b) Initial production commitment must be at least 10,000 units.
c) Order is being placed in November. Therefore number of months till the Las Vegas show (to be
held in March) is equal to 4. Thus, minimum order quantity/item for this period should be 240.
Basis for deciding on style will be Coefficient of Variation and not Standard Deviation.
Orders to be placed:

Now, Total Order Quantity= 10,308 units


EXPLANATION

Obermeyer must order the maximum amount of those styles with the minimum value for CoVar.
The reason is that the variation of their forecasted demand is lesser than the others. Now, the
value for % to be ordered has been derived as:

% to be ordered= (1-CoVar-0.02)*100%

0.02 in the above formula corresponds to 2%. This 2% has been kept as a precaution against
actual demand falling way below the forecasted demand. For Isis this safety margin has been
increased to 5% as the CoVar for Isis and other brands is way beyond the ones with the minimum
CoVar (Styles with figures from 0.13 till 0.19). The figure for Anita has been derived by adhering
to the minimum order quantity per style of 240. The idea is to delay ordering as much as possible
as the March show in Las Vegas provided information which led to greater accuracy in
forecasting.

Hence the Total Quantity being ordered is 10,308 units.


Question 2
What Operational changes would you recommend to Wally to improve
performance?

 Improve the demand forecasts made by buying committee. Should use a weighted average
method instead of just using a simple average.
 Obtaining market feedback earlier than Las Vegas which can help converting some
Speculative production to Reactive production. For maximizing the value of this feedback
Sport Obermeyer’s should include both small and large retailers & Urban and Resort retailers
 Predicting customer demand for individual styles and if possible reducing number of styles
being handled.
 Production system
 Increasing quality of production in china
 Reducing lead time of production specifically for preparation of raw materials.
 Decreasing lead time for finished goods, which in turn will help to cater to existing
capacity

 More emphasis on dependability than on cost


 Choose raw material suppliers based on ease of availability rather than cost factor
 Process fast and efficiently orders through information sharing with suppliers
 Building a local production unit for any last-minute orders.
 Supply chain
 Increasing bargaining power with suppliers by ordering from big supplier who can
commit to be on time
 Establish distribution center in Seattle to reduce lead time and cost through inland
transportation from Seattle to Denver
 Increasing service level requirements

 Information Systems
 Collect old data and analyze demand of show in Vegas and compare with actual purchase
 Using historical data to capture the market trend and market movement
Question 3

How should Obermeyer management think (both short-term and long-term)


about sourcing in Hong Kong versus China?
Firstly, let us compare the features of manufacturing in both China and Hong Kong

HONG KONG CHINA


Cost of production very high Cheaper to produce, extremely low wage rates, higher
overtime hours, lower labor cost per garment of .78
USD compared to 9.69 USD in Hong Kong

• Smaller volumes required, 600 Units in same style • Larger volumes required, 1200 Units in same style
• More flexible • Less flexible

Staff is more cross trained, Faster production Staff is less cross trained , Slower production

Staff is more efficient, 12 people in each parka line Staff is more inefficient, 40 people in each parka line,
leading to greater imbalance in these line

Each employee produces, twice as much as Chinese Quality concerns


workers
Smaller lead times for raw material Higher lead times for raw material
Challenges Challenges
1. Wage rate 1. Workforce
2. Work force a. Less quality and cleanliness
a. Low unemployment conscious
b. Younger workers prefer b. Training requirements
office jobs
 Problems of manufacturing in China

 Quality and reliability of products produced in China


 Larger minimum order and quota restriction on products
 Skill level of Hong Kong is much better than China
 Raw materials procured from suppliers from different countries increases lead
time

RECOMMENDATION
 SHORT TERM
 Hong Kong will be the ideal location for production in short term
 LONG TERM
 China should be focused for the long-term sourcing as per the above calculations
and hence devote more time on developing the cost propositions
 Short term practice to be done only if quantity to be produced is higher
 Increasing efficiency of workers by cross training at Hong Kong location, giving
cross operational roles to reduce line size and introducing incentives (KPIs) to
improve process and quality

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