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Sports Obermeyer Ltd.

Case Report
Submitted to: Dr. Rameez Khalid

For the Course of Technology and Operations Management
Summer Session 2014

INSTITUTEOFBUSINESSADMINISTRATION,KARACHI

August12,2014
Authoredby:
AHSANJALAL(07863)
NAJIULLAHHABIB(06659)
YASEENJANALLAWALA(07850)
ZEESHANJAWED(05042)
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Abstract




The case report assignment provided in this course is
meant for students to apply their theoretical knowledge of
technology and operations management so that they can
learn real world operation challenges.



Our group decided to take Sports Obermeyer case due to
following reasons:
All members love sports so utmost the Sports
Obermeyer case grasped the attention
It gave us variety of challenges
This case covers overall topics which covered in the
academic course
It gives an opportunity to think as marketer, planner,
financer and at best an operations manager









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Contents

Abstract.........................................................................................................................................................1
CompanyIntroduction..................................................................................................................................3
PROBLEMSTATEMENTWITHSOLUTION......................................................................................................3
PRODUCTIONPLANNINGPROBLEM.........................................................................................................3
INACCURATEFORECAST:...........................................................................................................................5
LONGMANUFACTURELEADTIME:...........................................................................................................6
ApplicationinPakistanIndustry...................................................................................................................8
Annexure.......................................................................................................................................................9

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Company Introduction
Sport Obermeyer's origins traced back to 1947, when Klaus Obermeyer commenced instructing
at the Aspen Ski School. During harsh winter Klaus found his students cold and miserable due to
the impractical clothing. Klaus began to find durable, high-performance ski clothing and
equipment for his students. In the early 1980s, he popularized the "ski brake," a simple device
replacing cumbersome "run-away straps"; the brake kept skis that had fallen off skiers from
plunging down the slopes. Over the years, Sport Obermeyer developed into a preeminent
competitor in the U.S. skiwear market: estimated sales in 1992 were $32.8 million. The company
held a commanding 45% share of the children's skiwear market and 11% share of the adult
skiwear market.
Product line: Obermeyer offered a broad line of fashion ski apparel, including parkas, vests, ski
suits, shells, ski pants, sweaters, turtlenecks, and accessories. Parkas were considered the most
critical design component of a collection; the other garments were fashioned to match the parkas'
style and color.
Obermeyer products were offered in five different "genders": men's, women's, boys', girls', and
preschoolers'. The company segmented each "gender" market according to price, type of skier,
and how "fashion-forward" the market was.
PROBLEM STATEMENT WITH SOLUTION
PRODUCTION PLANNING PROBLEM
In this case, we found that one of the biggest challenges which company faces was to decide
where to produce their products and in which quantity. This task becomes more challenging due
to little or no sales forecast. The risk associated with this involves:
1. Over production which leads to selling of products at a discount that is even below the
manufacturing cost
2. Stock Outs: high sale items stock out which result in the decline in customer trust in
company
The problems become critical due to difference in aspects of their production facilities. That is to
say that the China and Hong Kong facilities provide parkas with many limiting factors. Even if
production is decided the quantity for each production facility will remain a problem which can
lead to over production or stock out.
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ANALYSIS OF PRODUCTION PLANNING


The analysis of problem contains a comparison of production facilities. First thing to consider in
solution for production planning challenges is to compare production facilities. From Table 1 we
see that China production facility outruns Hong Kong due low labor cost and transportation
cost
1
. But we still cannot say that China is superior to Hong Kong due to uncertainty of sales
2
.
On basis of COV<=.2 it is safe product. The result showed gave us Isis, Teri, Stephanie, Anita
and Dephne as Risky products. Assuming 24% profit/piece while 8% loss/piece as given in
exhibit, We calculated unit profit or loss on each product in table 3. In order to meet Wally
commitment of 10000 units without proper forecast, we used normal distribution formula:
3

Since minimum order has been calculated, in first phase we decided to order all products from
China than all order from Hong Kong. But by analysis, it was observed that all product from
China will increase excess quantity which can be troublesome. While all product from Hong
Kong will increase labor cost decreasing profit margins [Table 5, 6]. Therefore we placed risky
item low quantity orders in Hong Kong to decrease excess quantities. While large orders from
China as shown in table resulting in reduction of risk and labor cost.
Style Minorder China HongKong
Excess
Qty
Excess
QtyRisk$
Gail 605 0 605 0 0
Isis 357 0 600 243 1,925
Entice 832 0 832 0 0
Assault 1,804 1,804 0 0 0
Teri 292 0 600 308 3,031
Electra 1,294 1,294 0 0 0
Stephanie 2 0 600 598 6,363
Seduced 2,836 2,836 0 0 0
Anita 1,075 1,075 0 0
Daphne 903 0 903 0 0
Total 10,000 5,934 5,215 1,149 11,318

RECOMMENDATION
Due to expected forecast error, there is a risk of over/out stocks, but to meet minimum number of
forecasted quantity we have to imply all options. After Las Vegas show, Quantities greater than
1200 units should be produced in China facility as it clearly has an edge over Hong Kong due to
labor and transportation cost. But in order to defy out stocking, we can order a lot from Hong

1
PleaserefertoTable1inAnnexure.
2
Inordertoassesstheriskassociatedwitheachproductline,adimensionlessnumberisusedcalledcoefficientof
variance.PleaserefertoTable2inAnnexure.
3
NormalDistribution: x= - z
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Kong to release the pressure as lead time is lower at Hong Kong. In certain cases, Air transport
can be utilized for faster delivery.
INACCURATE FORECAST:
One of the problems faced by Obermeyer is inaccurate forecasting. They are unable to accurately
predict market response to its product lines in order to meet demand most efficiently. Since
Greater product variety and more intense competition have made accurate predictions
increasingly difficult. It needs to find a way to improve forecasting the demand in order to
avoid stock-outs and at the same time, avoid excess merchandise in its warehouse for those
products that retailers did not purchased. Considerable income is lost each year to Lost sales and
Deep discounts because of the company's inability to predict best-sellers products.
RECOMMENDATION
As Exhibit 5 from the case study
4
suggests, Demand Forecasts Improves with Increasing
Information, Obermeyer usually receives 80% of the annual order volume the week after Las
Vegas show, long after its products entered production. If only Obermeyer gets the response
sooner, it can alter its forecast to match the demand for the upcoming season. Obermeyer can
arrange an early meeting with some of its largest retailer customers to give them a sneak preview
of the new annual line and to cash early orders. The data collected and gathered from early
orders and from the results of the existing buying-committee can together then be used to
improve demand forecasts just before the Trade show. To maximize the value of the market
feedback, Obermeyer could also include small retailers from both urban and resort retailers.
To deal with stock-outs, now that Obermeyer will be in a position to forecast more accurately the
predictable items or best-sellers, it can devote most of its production to these items, thus
limiting the production of unpredictable items and hence not resulting in excess merchandise of
the items not bought by the retailers. To incorporate Lost Sales due to stock-outs, Obermeyer can
ask its retailers to improve customer interaction by fulfilling customer requests for an
unavailable item at a later time through mail, if possible. The lost sales data can further benefit
Obermeyer in determining the true demand of its retailer which will allow Obermeyer to do a
better job of estimating lost sales and forecasting demand.

4
PleaseseeExhibit5attachedforreference
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Early communication with its retailers can help Obermeyer pass the crucial information to its
suppliers, allowing the information (material management) they need as soon as possible,
production to begin earlier and the bullwhip effect to be greatly reduced. Further more, instead of
using just a simple average of the individual forecasts made by the buying-committee, using a
weighted average; with the weights reflecting past accuracy (calculated using MAPE or Mean
Absolute Percent Error) to enhance the accuracy of demand forecasts.
LONG MANUFACTURE LEAD TIME:
Nearly two years of planning and production activity takes place prior to the actual sale of
products to consumers. To make matters worse strict quota restrictions by the U.S government in
certain product categories, results in individual companies rushing to get their products into the
country before other firms had "used up" the available quota. To overcome the highly volatile
demand, the Obermeyer has to bears huge transporation costs (air-shipping) to ensure timely
delivery to retailers.
RECOMMENDATION
Decrease lead times for both raw materials and finished goods, thereby allowing more time to
utilize existing capacity. Since the business strategy should emphasize dependability more than
cost, lead times can be reduced using some or all the following methods.
Chose suppliers of raw materials more on the basis of dependability rather than just cost
Speed up orders through information sharing with suppliers
Speed up shipments using faster (but more expensive) shippers. Establish some local (but
more expensive) production capacity for last minute production.
Other ways to reduce lead time includes:
For the items with long lead times increase the amount of safety stock inventory for those
items that are inexpensive and/or shared by many parkas (e.g. black fabric, lining and
insulation fabrics).
Simplify the Parkas design so that they can share as many components as possible.
Increase production capacity by using more sub-contractors who can deliver at a faster
rate to fill in gaps and employing more overtime in China.
Exploring an alliance with swimwear manufacturers who can supply excess capacity
when Obermeyer needs it and consume capacity when Obermeyer has excess capacity
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Decrease minimum order quantities, thereby improving the ability to fine tune during
reactive production.
Minimum order quantities occur because there are long setup times when switching from
the production of one style of parka to another, thereby making it uneconomical to have
short runs. Obermeyer can decrease the minimum order quantities by providing
incentives to its suppliers to have more flexible production lines.
Increased flexibility can come from improved process design e.g. cellular production.
Buy new technologically advanced equipment e.g. a flexible cutting machine and by
completely automating the sewing operations.
If implemented, these changes would drastically impact the supply chain, avoid income lost each
year, improve the overall quality and cost of the Obermeyer product line and help the companys
ability to predict future best-sellers.
FUTURE OF OBERMEYER
Obermeyer incorporated the following changes in order to shorten lead times and cope up with
Demand Uncertainty;
Operational Changes
Introduced computerized systems to reduce the time for order processing and computing
raw material requirements
Pre-positioned anticipated raw materials in a warehouse in the Far East. With material in
hand Sport Obermeyer could begin manufacturing as soon as it received orders
Began using air freight as delivery due dates approached
Production Planning Changes
Kept raw materials and production capacity undifferentiated as long as possible
Booked production capacity well in advance without specifying exact styles until later
(assumed risk of supplying raw materials to factories)
Merged design and production departments to broaden strategy
Encouraged designers to use same types of raw materials
Recorded orders for out of stock products
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The Company Sports Obermeyer will be able to continue its operations and business as soon as it
increases its efficiency in its supply chain and planning process. It also will have to establish a
distribution channel to reduce lead times and cost of inland transportation from Seattle to
Denver. Some of its changes at the operational level include collecting and analyzing its past
data and being vigilant of any situation as observed in case where stock outs are occurring. In all,
the forecast needs to be as correct as possible.
In long term future the Company will be better off developing its production base in China as
that is where all the production of the majority of the worlds goods are coming from. The
company in future will focus on sustainable building and use environmental friendly materials.
The company can use solar panels at its factories to and use mountain supply water in the
summer. The solar panel array will be energy saving and exhaust reducing strategies.
Furthermore all factory lighting can be phased in to fluorescent lamps, furthering energy
efficiency. Sports Obermeyer should continually look for better ways to improve efficiencies and
to make sure to produce goods in environmentally friendly way. The company in future can
move from solvent based dyes to water based dye alternatives.
5

Application in Pakistan Industry
Levis Pakistan has 240 SKUs.
6
This was calculated when we researched about the new factory
which started its operation almost 10 years back. Levis is a clothing brand with a product mix of
240 SKUs (3 colors x 20 styles x 4 sizes). Levis produces several variants, including 2-4 colors,
of 4 different sizes, that make them hard to forecast the demand of each SKU. Levis has
developed an alliance with its upstream and downstream because they are already holding keen
interest in the development of their suppliers. Also Levis is selling its clothing line through its
own franchises and retail shops, including the factory outlets. After the first few years they
developed several issues with stocks left in there stores so they developed its factory outlets to
sell at a discount in order to gain minimum profits from left over merchandise. It also
streamlined its supply chain by introducing a customer feedback asking its customers which style
they prefer so Levis will make exactly what their customers want.

5
See more at: http://www.obermeyer.com/stepping-lightly/production-and-manufacturing.html#sthash.6sns00J E.dpuf
6
http://levi.com.pk/pk/#
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Annexure
Table 1
Score WtScore Score WtScore
ExchangeRate 0.1 10 1 8 0.8 ExchangerateofHKDis37%higherthanRMB
LaborCost 0.35 10 1 6 0.6 LaborcostofChinais90%lowerthanHongKong
Productivity 0.25 8 0.8 10 1 Productivityofchinais40%lowerthanthatofHK
Repairs 0.05 8 0.8 10 1 repairsofHKproductismorethan50%lower
minOrderQty 0.1 5 0.5 5 0.5 MinQtylimitsrestriction
Transportation 0.15 8 0.8 6 0.6 TransportaionCostfromchinais14%lower
Total 1 49 4.9 45 4.5
CHINA HONGKONG
DecVar Factor JustificationofValue

Table 2
Style Price AvgFC 2*StdDev COV Risk/Safe
Gail 110 1017 388 0.38 Safe
Isis 99 1042 646 0.62 Risk
Entice 80 1358 496 0.37 Safe
Assault 90 2525 680 0.27 Safe
Teri 123 1100 762 0.69 Risk
Electra 173 2150 807 0.38 Safe
Stephanie 133 1113 1048 0.94 Risk
Seduced 73 4017 1113 0.28 Safe
Anita 93 3296 2094 0.64 Risk
Daphne 148 2382 697 0.29 Safe
Total 20000

Table 3
Style Price Profit Loss Diff
Gail 110 26.4 8.8 17.6
Isis 99 23.76 7.92 15.84
Entice 80 19.2 6.4 12.8
Assault 90 21.6 7.2 14.4
Teri 123 29.52 9.84 19.68
Electra 173 41.52 13.84 27.68
Stephanie 133 31.92 10.64 21.28
Seduced 73 17.52 5.84 11.68
Anita 93 22.32 7.44 14.88
Daphne 148 35.52 11.84 23.68
Total 269.28 89.76



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Table 4


Table 5
Style Price Minorder China Excessqty
Riskon
Excess
Qty$
Labor
CostUSD
Gail 110 605 1200 595 5,232 937
Isis 99 357 1200 843 6,678 937
Entice 80 832 1200 368 2,356 937
Assault 90 1,804 1804 0 2 1,408
Teri 123 292 1200 908 8,937 937
Electra 173 1,294 1294 0 0 1,010
Stephanie 133 1 1200 1,199 12,753 937
Seduced 73 2,836 2836 0 0 2,214
Anita 93 1,075 1200 125 930 937
Daphne 148 903 1200 297 3,511 937
Total 10,000 14,334 4,334 40,399 11,191

Table 6
Style Price Minorder
Hong
Kong
Excessqty
Riskon
Excess
Qty$
Laborcost
USD
Gail 110 605 605 0 0 5,864
Isis 99 357 600 243 1,925 5,815
Entice 80 832 832 0 0 8,064
Assault 90 1,804 1804 0 0 17,485
Teri 123 292 600 308 3,031 5,815
Electra 173 1,294 1294 0 0 12,542
Stephanie 133 1 600 599 6,373 5,815
Seduced 73 2,836 2836 0 0 27,487
Anita 93 1,075 1075 0 0 10,419
Daphne 148 903 903 0 0 8,752
Total 9,999 11,149 1,150 11,329 108,060

K= 1.06
Style Price AvgFC StdDev Minorder
Gail 110 1,017 388 605
Isis 99 1,042 646 357
Entice 80 1,358 496 832
Assault 90 2,525 680 1,804
Teri 123 1,100 762 292
Electra 173 2,150 807 1,294
Stephanie 133 1,113 1,048 1
Seduced 73 4,017 1,113 2,836
Anita 93 3,296 2,094 1,075
Daphne 148 2,382 1,394 903
Total 20,000 10,000
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Exhibit 5