Operation Management

Sports Obermeyer, Ltd

Bob Ke Builder | Case Submission

Question 1. Using the sample data given in Exhibit-10, assuming 2*sigma to be the standard deviation
of the demand, if the problem was reduced to a classic news vendor setting (where the entire
production quantity has to be committed upfront before the Las Vegas show), how much of each
product would you order, and what is the total production quantity you would block from the Honk
Kong facility?

Answer 1:

Assuming 2*sigma to be the standard deviation of the demand

Cost of overproduction (Co) = Cost of production – Salvage value

= $9

Cost of underproduction (Cu) = Selling price – Cost of production

= $27

Service level = Cu/(Cu + Co) = 27/36 = 0.75

Z value = 0.6744

Order Quantity = Average Forecast + 0.6744*(2*SD)

Each product quantity ordered are as follows:

Averag
e Standard Order
Forecas Deviatio Quantit
Style t n 2*SD y
1278.66
Gail 1017 194 388 7
1477.66
Isis 1042 323 646 2
1692.50
Entice 1358 248 496 2
2983.59
Assault 2525 340 680 2
1613.89
Teri 1100 381 762 3
Electra 2150 404 808 2694.91
 5
Stephan 1819.77
e 1113 524 1048 1
4766.93
Seduce 4017 556 1112 3
4708.19
Anita 3296 1047 2094 4
3323.11
Daphne 2383 697 1394 4
26359.2
Totals 20001     4

Question 2. If Honk Kong production facility offered only a capacity of 10,000 units, how much of each
product listed in Exhibit-10 would you order?

Answer 2:

Capacity = 10000

Adjusted order quantity for each product will be as follows:

Averag Breakeve Half Adjusted

e n Order Forecas Order
Style Price Co Cu Service Z value 2*SD forecast 2*SD*Z Quantity t Quantity
Gail 110 8.8 26.4 0.75 0.67449 388 1017 262 1279 639 485
Isis 99 7.92 23.76 0.75 0.67449 646 1042 436 1478 739 561
Entice 80 6.4 19.2 0.75 0.67449 496 1358 335 1693 846 642
Assault 90 7.2 21.6 0.75 0.67449 680 2525 459 2984 1492 1132
Teri 123 9.84 29.52 0.75 0.67449 762 1100 514 1614 807 612
Electra 173 13.84 41.52 0.75 0.67449 808 2150 545 2695 1347 1022
Stephan
e 133 10.64 31.92 0.75 0.67449 1048 1113 707 1820 910 690
Seduce 73 5.84 17.52 0.75 0.67449 1112 4017 750 4767 2384 1808
Anita 93 7.44 22.32 0.75 0.67449 2094 3296 1412 4708 2354 1786
Daphne 148 11.84 35.52 0.75 0.67449 1394 2383 940 3323 1662 1261
Total                   13180 10000

Question 3. What are some of the operational changes that you can suggest to Sport Obermeyer to
reduce the expected costs of stock outs and markdowns?

Answer 3:

 To improve forecasting, the consumer behavior and latest trends need to be analysed. Focus
group discussions, posting products on social networking sites, analyzing customer reviews on
online platforms can be done.
 Since designs are finalized in September , therefore customers should be given the option to
pre-order products. This will help in analyzing customer demands in a more realistic way.
 Develop a skilled workforce labour and quality managers in the Lo village plant.
 Common fabrics can be used for multiple items to save on cost.
 Alpine can think of opening new plants in China
 Shipping directly from China to retailers without the Denver warehouse
 Sports obermeyer should think of expanding to new locations by selling excess inventory at new
locations
 Real-time data from retailers can be collected for estimating demand
 Fabric can be ordered in bulk and stored to cut down losses