Supply Chain Management

Sport Obermeyer

BY:

Group 3

Ankita Nareda M017-14

Apoorva Reddy M020-14

Ayala Madhushree M083-14

Dilip Samanta M093-14

Priyanka Choudhary M046-14

Sangeeta Gayen M051-14

Sumit Kumar M063-14

Swati Singh M064-14

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Style Price Avg. 2*sd Cost Salvage Q*Q* hong kong Q* china E lost sales E sales

E leftover hongkong

E leftover china

Mismatch Cost Hong Kong

Mismatch cost China

Gail 110.00$ 1017 388 83.6 8.8 768.68 768.68 1200 309.624 707.376 61.304 492.624 12,759.61$ 45,022.35$ Isis 99.00$ 1042 646 75.24 7.92 628.56 628.56 1200 515.508 526.492 102.068 673.508 19,119.69$ 57,589.03$ Entice 80.00$ 1358 496 60.8 6.4 1040.56 1040.56 1200 395.808 962.192 78.368 237.808 11,862.73$ 20,536.27$ Assault 90.00$ 2525 680 68.4 7.2 2089.8 2089.8 2089.8 542.64 1982.36 107.44 107.44 18,296.35$ 18,296.35$ Teri 123.00$ 1100 762 93.48 9.84 612.32 612.32 1200 608.076 491.924 120.396 708.076 28,020.32$ 77,173.88$ Electra 173.00$ 2150 808 131.48 13.84 1632.88 1632.88 1632.88 644.784 1505.216 127.664 127.664 41,789.82$ 41,789.82$ Stephanie 133.00$ 1113 1048 101.08 10.64 442.28 600 1200 836.304 276.696 323.304 923.304 55,934.44$ 1,10,198.44$ Seduced 73.00$ 4017 1112 55.48 5.84 3305.32 3305.32 3305.32 887.376 3129.624 175.696 175.696 24,268.38$ 24,268.38$ Anita 93.00$ 3296 2094 70.68 7.44 1955.84 1955.84 1955.84 1671.012 1624.988 330.852 330.852 58,220.07$ 58,220.07$ Daphne 148.00$ 2383 1394 112.48 11.84 1490.84 1490.84 1490.84 1112.412 1270.588 220.252 220.252 61,679.04$ 61,679.04$ Total 13967.08 14124.8 16474.68 3,31,950.45$ 5,14,773.62$

Number of units of each style Wally should make during initial phase of production

Assuming that all 10 styles are made in HongKong, it was found that all styles except Stephanie can be obtained at their optimal quantities to attain the desired service level (0.264)

This is due to the fact that no quantity less than 600 units can be ordered.

Risk associated with our ordering policy-quantified

The associated risk has been quantified in terms of mismatch cost. Mismatch cost takes into account expected loss of sales and left over inventory.

Since, success of a fashion line depends on how well the company is able to predict market response to different styles, any instance of running out of desirable styles and excess of undesirable styles could be a risky proposition.

Also, we have taken into account mismatch costs of all styles when produced in Hongkong as well as China

It was found that overall, sourcing from China was riskier than sourcing from Hongkong

Differences between Hongkong and China production commitments

It was observed that the differences occur due to larger minimum order requirements in China (i.e. 1200 as opposed to 600 units in Hongkong) and because of the fact the few styles have lower optimal quantity requirements than the minimum order of 1200 units

However, this does not account for qualitative differences in terms of reliability and output quality between the 2 plants

Recommended operational changes to improve performance

The major operational challenges that Wally and his firm faces are –

Uncertainty in forecasting due to unpredictable customers demand. The finished product is a fashion item which has a very short life cycle. Longer cycle of planning and production activities They have no R&D unit for the upcoming fashion trends and depend on market

Some of the changes that Wally can incorporate are –

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Collecting historical data of the fashion show at Vegas and analysing it with the actual demand and purchase, this will help in telling the accuracy of the show trend and whether waiting for fashion data from Vegas will benefit

Establishing a Data Centre at Seattle to reduce the lead time and cost of the inland transportation from Seattle to Denver

Increasing Service Level requirement by increasing distribution channel to a country having wider period of product usage

Increasing the bargaining power with suppliers by ordering with big suppliers and commitment to the timeline of production

Keep products of basic colour and postponement of specific fashion colours for the products since the colours can be changed overnight

Improving the production quality at China to be at par with Hong Kong and reducing the lead time of raw materials.

Sourcing policy recommendations

China

Pros Cons Low labour cost/garment Less output per worker

Minimum order of 1200 for production Actual labour content per parka is high High paid labour time per parka Labour trained for single operation only Repair rate of 10% Quota restrictions on imports from

China to US Less cleanliness and quality conscious High training requirements

Hongkong

Pros Cons High output per worker Actual labour content per parka is low Paid labour time per parka is low Cross trained workforce Minimum order quantity of 600 Repair rate of 1-2%

High wage rate Low unemployment rate Preference for office jobs

Thus, looking at pros and cons of China and Hongkong, following strategies could be adopted

Short term:

In the short term, source products with lower associated risk from China and remaining from HongKong.

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Higher volume products can utilize higher minimum production quantity requirements of China. Thus, best of both countries can be captured.

Long term:

There is a point beyond which the smaller minimum quantities in Hongkong yield a higher return even though the unit cost is higher.

Higher worker skill levels and productivity levels can be utilized by gradually shifting the sourcing to Hongkong

Most of the suppliers of raw materials are based out of Hong Kong, thus making it a more attractive location in the long term in order to exploit operational efficiencies

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