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Case Analysis

Sport Obermeyer

Group 10
Reg No.
M005-14
M122-14
M024-14
M007-14
M084-14
M032-14
M006-14
M085-14

Student Name
ABHISHEK GUPTA
SHAHZEB FEROZ
CHETAN SEHGAL
ABHISHEK SAHU
AZFER SAJJAD
KAUSTAV PAL
ABHISHEK PRAVEEN
BALIBOYANA SRIHARSHA

A1) Production Units for different Style (Hong Kong):


Taking the benchmark of 0.2 for the coefficient of Variance. In the cases where the COV is
below 0.2 is considered to be a low risk item.
For low risk items 80 % of the order can be given in the 1st phase itself while for high risk items
only 20% of the order should be made rest 80% can be order after the Vegas show when there
is high certainty.
Now when the order quantity falls below 600 it has be scaled up to 600 since that is the
minimum order size for Hong Kong.

A2) Risk Measures associated with Ordering Policy:


In case of the ordering policy of Sports Obeymeyer there is an associated risk attached to it
which has its root from the following reasons:

Stock outs (-24 % whole sale price) wherein the demand is more than the stock and
hence lost sales takes place
Market downs( -8% of wholesale price)- wherein the demand is less than the stock and
hence overstocking loss takes place
Old designs- since these are fashion based product once the design is old no sales takes
place and hence the risk of old stock exists
High inventory holding cost if higher inventory exist to cater the demand there always
exist an inventory holding cost risk associated with it
Unable to fully profit from hit products there are times wherein due to stock out of a
hit product one cannot fully profit from the hit products

All these risk occur because of the uncertainty in the forecast of demand

Standa
rd
deviati

Sde
viat
Demand
Average

We can assess the forecast certainty as follows:


1. Based on historical data such as past forecast error and variability of demand
2. The coefficient of variation which is standard deviation / mean is a good estimator of forecast
reliability

Form the table we can see that Stephanic has higher risk whereas Assault has the lower risk so
according to this we can go in for planning the production.
A3) Difference between production commitments in China & Hong Kong:
The comparison of operations in China and Hong Kong brings out the following points:
i)
ii)
iii)
iv)

The plants in China are not as fast as Hong Kong in ramping up the production.
The Chinese workers were not trained to do a broader range of tasks as compared
to workers in Hong Kong.
The minimum production quantity in China was twice as compared to Hong Kong
for a particular unit (1200 units in China vs 600 units in Hong Kong)
The output/worker was higher in Hong Kong compared to China.

As a result of this the production commitments required to be made to China would


definitely consist of twice the number of units. For these reasons it is better to produce only
those SKUs in China for which the forecasts are more accurate so that the economies of
scope can be realized by ordering larger quantities.
Taking the benchmark of 0.4 for the coefficient of Variance. In the cases where the COV is
below 0.2 is considered to be a low risk item. For low risk items 80 % of the order can be given
in the 1st phase itself while for high risk items only 20% of the order should be made rest 80%
can be order after the Vegas show when there is high certainty. Now when the order quantity
falls below 1200 it has be scaled up to 1200 since that is the minimum order size for Hong
Kong.

A4) Operational changes to improve performance:


Some of the operational issues which Sport Obermayer faces at the moment are:

Difficulty in forecasting demand due to variability in fashion preferences and also


because of a wide product line with a large number of SKUs
Sourcing, i.e. allocation of production between the Hong Kong and China plants. While
the China plant is more suited to large scale production orders, it is inefficient in terms
of handling a wide variety of products
Large lead times for manufacturing by sub contractors. Given the variability in forecasts
with lack of sales data, early production orders to sub contractors because of the large
lead times is a source of major risk as it can lead to over or under stocking of different
product varieties.
Logistics is another challenge for Sport Obermayer as the company has to provide
matching products well ahead of the season which not only put pressure on the
production process but also on the logistics process as well.

In lieu of these operational challenges, the following changes are proposed to improve the
operational performance of Sport Obermayer

The company should consider reducing the variety in its product line especially in the
Adult Segment. The product-process matrix for the adult segment is inefficient.
Columbia Sportswear with a high volume -low cost approach has proven to be a lot
more successful as compared to Sport Obermayer. Reducing the product line in the
adult segment would significantly ease the forecasting process.

The company should allocate the high volume-low cost product lines to the China plant
which due to easier forecasting can be done considerably early and allocate the
production of the other varied products primarily to the Hong Kong plant which is more
skilled and more efficient in term of speed of production. Thus the production order to
the Hong Kong plant can be delayed (the Hong Kong plant operates almost twice as
efficient as the China plant) and the order can be based on the updated forecast which
incorporates additional sales data.

In terms of managing the lead times of the suppliers, the company should in the long
run consider vertical integration especially into finished shell and lining fabric which
has very long lead times. The company should ideally attempt to open a plant in China
where the labour costs are low and these operations do not require considerable skill
levels. This can significantly reduce the lead times as the company can now control the
process. Decreased lead times imply additional time availability for delayed production
based on a more well informed forecasting process.

A5) Sourcing Policy


Short-term Operational Changes
The maximum production of 20,000 set by Wally should be increased. For example, because
there is a maximum of 21,000 available units for the production period (3,000 production
capacity x 7 months), extra quantity of Gail could be produced without having to cut into
production of other styles. This would be preferable because sourcing Gail from China would
require 813 more units to be produced than what is forecasted to be sold. However the cost
savings of producing them in China outweigh the cost of selling the extra at an 8% loss. For
our recommendations, Gail was produced in Hong Kong in order to adhere to Wallys 20,000
maximum production guidelines. In reality, the company produces about 200,000 parkas
yearly and has production capacity of 210,000 parkas; therefore, it is more cost efficient to
overproduce from China in cases such as Gail.
Long-term Operational Changes
Train Chinese employees to increase production in China as labour is cheaper in China and
they so accept large orders.