Klaus Obermeyer founded Obermeyer in 1947, when he was among the first ski instructors on Aspen Mountain.

"SKIING IS A CELEBRATION OF LIFE"

Company Background

Obermeyer ProductsGender : men’s, woman‘s, boys’, girls’, preschoolers’Broad line of fashion ski Style/colour combination & sizes

Jackets Shells Vests

Sweaters

Manufacturing Structure:

Facilities Map

The Supply Chain Process

Textile and Accessories Suppliers

Apparel Manufacturers

Sport Obermeyer

Retailers

Obersport

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

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

Responsible for material and production sourcing in the Far East. It also acts as a distribution centre for materials and finished goods.

Product design, production planning and sales.

Purchase from Sport Obermeyer and sell products to consumers.

Planning and Production’s Cycle’93-’94

The Design ProcessFeb’92 : Design processMar’92 : Las Vegas show

(Sample Production, Raw material sourcing and production)

May’92 : Finalized design conceptJul’92 : Prototype productionSep’92 : Finalized designFeb’93 : Raw Material sourcing &

Production

Retailer Ordering Process

Las Vegas trade show, Mar’93 : 1st order representing 80% of its annual volume.

April-May : 2nd and final production order

‘92 ‘93 ‘93 ‘94

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Design Process

Sep

FebMarch

May

July

Design Process

1992

Outdoorswear showMunich

Las Vegas Show

Design concepts

Prototype

FinalizedDesign

Nov

FirstOrder

SuppliersComponent Variety Country of origin

Procurement lead time

% of total material cost

Shell Fabric 10 Japan, USA, Switzerland, Germany, Austria, Korea, Taiwan

45-90 days 30

Finishing of Shell Fabric

8-12 color-prints per fabric

Finishing takes place in country of origin (see above)

Dyeing or Printing: 45-60 days

13

Finished Lining Fabric

6 Nylon: Korea, Taiwan Fleece: Korea, Taiwan, USA

45-60 days 13

Insulation 3-4 different weights

Hong Kong, Korea, Taiwan, China

2-3 weeks 16

Zippers 400 Hong Kong, Japan 60-90 days 12

Thread 80 colors Hong Kong 30 days 2

Logo Patches, Drawcords, Hang Tags, etc.

various Mostly from Hong Kong 1 5-30 days 10

Snaps (undyed) 10 Germany, Italy, Hong Kong 1-2 months 3

Dyeing of Snaps 50 colors Hong Kong 1 5-30 days 1

ManufacturersTotal Capacity: 30,000 Units/Month Annual Demand: 200,000 Units

Topic Hong Kong China

Hourly Wage US $ 3.85 US $ 0.16

Working Hours => Total = 48 hours/week => Total = 58.5 hours/week

Maximum overtime allowed = 200 hours/year

During peak production periods, workers work 1 3 hours per day

Weekly (Nonpeak) Output per Worker

1 9 parkas 1 2 parkas

Paid labor time per parka (including repair work)

2.53 hours/parka 4.88 hours/parka

Line Configuration 10-12 people/line 40 people/line

Training Cross-trained Trained for single operation only

Minimum Order Quantity 600 units in same style 1 ,200 units in same style

Repair Rate 1-2% 10%

Labor Cost/Garment US $ 9.7 US $ 0.78

Total Cost US $ 110 US $ 94

Challenges Wage Rate Lack of training

Factories in Hong

Kong

Seattle warehous

e

800 Ski RetailersProduct

SketchesForecast Committe

e

Forecasts

Order 20% in Apr-Jun

93

Order 80% in Mar 93

Retailers order in

Apr-Jun 93

Denver warehous

e

6 weeks

ORDERING & SHIPMENT Process:

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How demand forecasts improving with increasing information

Profit (+24 % of whole sale price)

Left unsold: loss( -8% of wholesale price)

Observe 80% : Final forecast @ 500 units

Observe 20% : Final forecast @ 575 units

Production Planning Example

Rococo ParkaWholesale price $112.50Average profit 24%*112.50 = $27Average loss 8%*112.50 = $9

Issues

How to measure demand uncertainty from disparate forecasts

How to allocate production between the factories in Hong Kong and China

How much of each product to make in each factory

Describe the Challenge

Long lead times:It’s November ’92 and the company is starting

to make firm commitments for it’s ‘93 – 94 season.

Little or no feedback from marketFirst real signal at Vegas trade show in March

Inaccurate forecastsRetailers had not purchased>>>>Deep

discountsRan out of its most popular items >>>>Lost

sales

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The Supply Chain

Textile and Accessories

Supplies

Apparel Manufactures

Obersport SportObermeryer

Retailers

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Table

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Question

Question 1.

Using the sample data given in Table 2-20 , make a recommend for how many units of each style Wally should make during the initial phase of production. Assume that all of 10 styles in the sample problem are made in Hong Kong and that Wally’s initial production commitment must be at least 10,000 units. Ignore price differences among styles in your initial analysis?

Question 3.

Repeat your methodology and assume now that all 10 styles are made in China. What is the difference (If any) between the two initial production commitments?

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Wally’s Forecast Model

Mean=Average of Buying Committee Forecast

Mean

Standard Deviation = 2xSTD of the Buying Committee Forecasted

SAMPLE BUYING COMMITTEE FORECASTS, 10 STYLES OF WOMEN'S PARKAS

Style Price Average Forecast

Standard Deviation 2 x SD

Gail $110 1,017 194 388

Isis $99 1,042 323 646

Entice $80 1,358 248 496

Assault $90 2,525 340 680

Teri $123 1,100 381 762

Electra $173 2,150 404 807

Stephanie $133 1,113 524 1,048

Seduced $73 4,017 556 1,113

Anita $93 3,296 1,047 2,094

Daphne $148 2,383 697 1,394

Total   20,000    

Minimum Production Quantity For A Style:

Hong Kong = 600 UnitsChina = 1,200 Units** Technically, Wally found that SD of demand was approximately twice SD of the Buying Committee’s forecasts.

Calculate a “Safety Factor” for each style.

Safety Factor (SF)= Max (-2m,m-,0)

Rank styles by the safety factor, in descending order

Calculate the “Order quantity”. Starting with the top style.

Order Quantity = Max (600, -600 – [Min. SF x ])** Min. SF among all styles

Reference: http://courses.washington.edu/smartman/Ass3.htm

Hong Kong

Style  Price

 

 SD

 2 xSD

Hong Kong

u - 2m /SD

m - u /SD

SafetyFactor u - 600  

Total 1st

PeriodOrder

Seduced $73 4,017 556 1,113 2.53 -3.07 2.53 3,417 3060.8 3,060

Assault $90 2,525 340 680 1.95 -2.83 1.95 1,925 1707.2 1,707

Electra $173 2,150 404 807 1.18 -1.92 1.18 1,550 1291.6 1,291

Anita $93 3,296 1,047 2,094 1.00 -1.29 1.00 2,696 2025.9 2,025

Daphne $148 2,383 697 1,394 0.85 -1.28 0.85 1,783 1336.9 1,337

Entice $80 1,358 248 496 0.32 -1.53 0.32 758 599.39 600

Gail $110 1,017 194 388 -0.47 -1.07 0.00 417 292.78 600

Isis $99 1,042 323 646 -0.24 -0.68 0.00 442 235.19 600

Teri $123 1,100 381 762 -0.13 -0.66 0.00 500 256.29 600

Stephanie $133 1,113 524 1,048 -0.08 -0.49 0.00 513 177.72 600

Total                   12,420

China

Style Price SD 2 xSD

China

- 2m/ SD

m - /SD

SafetyFactor

-1,200

 

Total 1st

PeriodOrder

Seduced $73 4,017 556 1,113 1.45 -2.53 1.45 2,817 2,728 2,728

Gail $110 1,017 194 388 -3.56 0.47 0.47 -183 -214 1,200

Anita $93 3,296 1,047 2,094 0.43 -1.00 0.43 2,096 1,928 1,928

Isis $99 1,042 323 646 -2.10 0.24 0.24 -158 -210 1,200

Assault $90 2,525 340 680 0.18 -1.95 0.18 1,325 1,271 1,271

Teri $123 1,100 381 762 -1.71 0.13 0.13 -100 -161 1,200

Stephanie $133 1,113 524 1,048 -1.23 0.08 0.08 -87 -171 1,200

Electra $173 2,150 404 807 -0.31 -1.18 0 950 885 1,200

Daphne $148 2,383 697 1,394 -0.01 -0.85 0 1,183 1,071 1,200

Entice $80 1,358 248 496 -2.10 -0.32 0 158 118 1,200

Total                   14,327

Style Price Produce Hong China Hong Kong China Hong Kong China Hong Kong China=avg-2std Kong Excess Order Excess Order Extra Cost Extra Cost Op. Time (wk) Op. Time (wk)

Gail 110 629 629 1,200 0 571 0 62,810 2.76 2.50Isis 99 395 600 1,200 205 805 20,295 79,695 2.63 2.50Entice 80 863 863 1,200 0 337 0 26,960 3.78 2.50Assault 90 1,845 1,845 1,845 0 0 0 0 8.09 3.84Teri 123 338 600 1,200 262 862 32,226 106,026 2.63 2.50Electra 173 1,343 1,343 1,343 0 0 0 0 5.89 2.80Stephanie 133 65 600 1,200 535 1,135 71,155 150,955 2.63 2.50Seduced 73 2,904 2,904 2,904 0 0 0 0 12.74 6.05Anita 93 1,202 1,202 1,202 0 0 0 0 5.27 2.50Daphne 148 990 990 1,200 0 210 0 31,080 4.34 2.50Total 10,572 11,573 14,493 1,002 3,920 123,676 457,526 50.76 30.19

1. & 3. Difference between the two initial production commitments

Answer

Question 2.

Can you come up a measure of risk associated with an your ordering policy? This measure should be quantifiable.Standard DeviationCoefficient of Variation : SD

Average

Style Individual Forecasts Average Standard 2xSTD CoefficientLaura Carolyn Greg Wendy Tom Wally forecast deviation of variation

Gail 900 1,000 900 1,300 800 1,200 1,017 194 388 0.382Isis 800 700 1,000 1,600 950 1,200 1,042 323 646 0.620Entice 1,200 1,600 1,500 1,550 950 1,350 1,358 248 496 0.365Assault 2,500 1,900 2,700 2,450 2,800 2,800 2,525 340 680 0.269Teri 800 900 1,000 1,100 950 1,850 1,100 381 762 0.692Electra 2,500 1,900 1,900 2,800 1,800 2,000 2,150 404 807 0.376Stephanie 600 900 1,000 1,100 950 2,125 1,113 524 1,048 0.942Seduced 4,600 4,300 3,900 4,000 4,300 3,000 4,017 556 1,113 0.277Anita 4,400 3,300 3,500 1,500 4,200 2,875 3,296 1,047 2,094 0.635Daphne 1,700 3,500 2,600 2,600 2,300 1,600 2,383 697 1,394 0.585Total 20,000 20,000 20,000 20,000 20,000 20,000 20,000

Coefficient of variation = Standard deviation

Average forecast

Answer

Answer

Question 4.

What operational changes would you recommend to Wally to improve performance?

Obermeyer’s ProblemSkiwear products have short life cycleLong lead timeVolatile demandDemand uncertainty

Operation Changes

Reducing number of stylesIncreasing production quality and efficiency in

China to be close to Hong Kong --- Improve Worker Skill

Reduce Manufacturing Lead TimeSmaller minimum order requirementsImproved Market InformationStock raw materials which is base on Ski cloth

production

Operation Changes

Establish DC in Seattle to reduce lead time and cost from inland transportation from Seattle to Denver

Invite the twenty-five largest retail customers to sneak preview in February the year before. Their early purchase orders were used to improve initial forecasts.

Reduce variability and cut the potential for component shortages holding up production. For example, increase the use of black zippers as a color contrast.

Standardize colors and materials so that a typical season there are two or three shades for each design cycle instead of five or six.

Operation Changes

Question 5

How should Wally think (both short term and long term) about sourcing in Hong Kong versus China?

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Answer

Hong KongAdvantages

High qualityMore efficiencySmaller minimum

order quantity

DisadvantagesHigh labor costLow unemployment

ChinaAdvantages

Low labor cost

Disadvantages Low efficiency Larger minimum

order quantity

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Answer

Sourcing in Hong KongDifficult to expand because of low employment and

younger workers prefer office jobsSourcing in China

Larger minimum order sizes could limit the company’s ability to increase the range of products and to manage inventory risk

How to improve quality and efficiency

Recommended sourcing policy: MixingChina: big-lot size, less complex styleHong Kong: small lot size, more complex style

Question 5

What kind of sourcing policy do you recommend?

Hong KongComplicated Style Product which require

worker’s skillChina

Basic Style Product – Mass Product

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