Group 10 - Sport Obermeyer

7/24/2019 Group 10 - Sport Obermeyer

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Case Analysis

Sport Obermeyer

Group 10

Reg No. Student Name

M005-14 ABHISHEK GUPTA

M122-14 SHAHZEB FEROZ

M024-14 CHETAN SEHGAL

M007-14 ABHISHEK SAHU

M084-14 AZFER SAJJAD

M032-14 KAUSTAV PAL

M006-14 ABHISHEK PRAVEEN

M085-14 BALIBOYANA SRIHARSHA


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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 1stphase 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 costif higher inventory exist to cater the demand there always

exist an inventory holding cost risk associated with it

Unable to fully profit from hit productsthere are times wherein due to stock out of a

hit product one cannot fully profit from the hit productsAll these risk occur because of the uncertainty in the forecast of demand

Demand

Standa

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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) The plants in China are not as fast as Hong Kong in ramping up the production.

ii) The Chinese workers were not trained to do a broader range of tasks as compared

to workers in Hong Kong.

iii) 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)

iv) 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 1stphase 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.


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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 longrun 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.


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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.

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Group 10 - Sport Obermeyer