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SPORT OBERMEYER:
Case Report
Submittedby –
Group-7
M002-14 ABHIJIT KUMAR
M035-14 LUKALAPU RAJA SEKHAR
M057-14 SHIVEN CHAUD...
Answer 1:
Individual Forecasts
Style Laura Carolyn Greg Wendy Tom Wally
Average
Forecast SD 2*SD CoVar
Gail 900 1000 900 1...
Basisfor decidingonstyle willbe Coefficientof VariationandnotStandardDeviation.
Ordersto be placed:
Style CoVar Average Fo...
Answer 2:
As per the average forecast for each line a risk assessment was conducted for all lines In order to
determine wh...
Answer 3:
Style CoVar Average Forecast % to be ordered Order Quantity
Assault 0.13 2525 85% 2146
Seduced 0.14 4017 84% 337...
Answer 4:
Following are the operations changes recommended to Wally to improve performance.
 Improve the demand forecasts...
Answer 5:
Comparisonof manufacturinginChinaVs.ManufacturinginHongKong
Hong Kong China
Cost of productionveryhigh Cheaperto...
Problemsof manufacturing inChina
Qualityandreliabilityof productsproducedinChina
Larger minimumorderandquotarestriction on...
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Sport Obermeyer Case Solution

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Sport Obermeyer Case Solution

  1. 1. SPORT OBERMEYER: Case Report Submittedby – Group-7 M002-14 ABHIJIT KUMAR M035-14 LUKALAPU RAJA SEKHAR M057-14 SHIVEN CHAUDHARY M061-14 SNEHIL AGRAWAL M069-14 ABHISHEK JAYANT M075-14 ANKITA M091-14 CHETAN C.INGALESHWAR M120-14 SAYAN KAR
  2. 2. Answer 1: Individual Forecasts Style Laura Carolyn Greg Wendy Tom Wally Average Forecast SD 2*SD CoVar Gail 900 1000 900 1300 800 1200 1016.67 194.08 388.16 0.19 Isis 800 700 1000 1600 950 1200 1041.67 323.14 646.27 0.31 Entice 1200 1600 1500 1550 950 1350 1358.33 247.82 495.65 0.18 Assault 2500 1900 2700 2450 2800 2800 2525.00 340.22 680.44 0.13 Teri 800 900 1000 1100 950 1850 1100.00 380.79 761.58 0.35 Electra 2500 1900 1900 2800 1800 2000 2150.00 403.73 807.47 0.19 Stephanie 600 900 1000 1100 950 2125 1112.50 523.87 1047.74 0.47 Seduced 4600 4300 3900 4000 4300 3000 4016.67 556.48 1112.95 0.14 Anita 4400 3300 3500 1500 4200 2875 3295.83 1046.95 2093.90 0.32 Daphne 1700 3500 2600 2600 2300 1600 2383.33 696.90 1393.80 0.29 Totals 20000 20000 20000 20000 20000 20000 20000 The table giveninthe bookdidnot consistof the columnindicatingthe Coefficientof Variation.While StandardDeviationgivesthe absolute valueof variationfrommean Coefficientof Variationshowsit relative tothe meanandhence ismore representativeof the true picture. Assumptionstobe made: a) All productionactivitiesare beingcarriedoutinHongKong.Thus the minimumorderquantity for anystyle mustbe 60 units/month. b) Initial productioncommitmentmustbe at least10,000 units. c) Orderis beingplacedinNovember.Therefore numberof monthstill the LasVegasshow (tobe heldinMarch) is equal to4. Thus, minimumorderquantity/itemforthisperiodshouldbe 240.
  3. 3. Basisfor decidingonstyle willbe Coefficientof VariationandnotStandardDeviation. Ordersto be placed: Style CoVar Average Forecast % to be ordered Order Quantity Assault 0.13 2525 85% 2146 Seduced 0.14 4017 84% 3374 Entice 0.18 1358 80% 1086 Gail 0.19 1017 79% 803 Electra 0.19 2150 79% 1699 Daphne 0.29 2383 20% 240 Isis 0.31 1042 46% 240 Anita 0.32 3296 15% 240 Teri 0.35 1100 44% 240 Stephanie 0.47 1113 43% 240 Now,Total OrderQuantity=10,308 units Explanation: Obermeyermustorderthe maximumamountof those styleswiththe minimumvalue forCoVar.The reasonisthat the variationof theirforecasteddemandislesserthanthe others.Now,the value for%to be orderedhasbeenderivedas: % to be ordered=(1-CoVar-0.02)*100% 0.02 in the above formulacorrespondsto2%.This 2% has beenkeptasa precautionagainstactual demandfallingwaybelowthe forecasteddemand. For Isisthissafetymarginhasbeenincreasedto5% as the CoVarfor Isisand otherbrandsisway beyond the oneswiththe minimumCoVar(Styleswithfiguresfrom0.13 till 0.19). The figure forAnitahas been derivedby adheringtothe minimumorderquantityperstyleof 240. The ideaisto delayorderingas much as possible asthe March showinLas Vegas providedinformationwhichledtogreateraccuracyin forecasting.Hence the Total Quantitybeingordered is10,308 units.
  4. 4. Answer 2: As per the average forecast for each line a risk assessment was conducted for all lines In order to determine what items should be produced. The Coefficient of Variation (COV) is determined in order to analyse the risk associated with each product line. The key of the allocation is to make sure that the production of first order is not wasted, i.e. do not produced too many units of unsalable styles in the firstorder. To determine the associated risk for each product line a benchmark of 0.2 COV was used and quantify risk with the assumption that styles with a COV below 0.2 is considered a low risk item while any item witha COV higherthan0.2 is consideredahighriskitem. Basic criterionstoselectwhattoproduce inthe firstorderare:  Cheaperones(lesswaste)  Lessdemanduncertaintyones(lowerforecaststandarddeviation)  Highervolume ones(lesslikelytooverproduce) If we assume that all women’s parkas are sold for the same price, we can define a risk factor as the average demand minus first production divided by standard deviation. To determine how many of each style to order in the first round, preference was given to the lower risk items. 80% of the lower risk items should be ordered initially because itis more certain that the amounts forecasted will be accurate. For items with a COV above 0.2 only 20% of the average forecast will be ordered so that Sport Obermeyercanwaituntil afterthe Las Vegasshow toverifywith80% certaintythe successof eachstyle. As the minimum production requirements for an order is only 600 units versus the 1,200 units required in China, it is recommended that any high risk item be produced in Hong Kong because they are more flexible, produce higher quality items. Also, with higher variability and higher risk it is safe to order from locationswithlowminimumorderquantityrequirement. To keep from overproducing, if an item requires less than 1,200 units due to production requirements,it should be required that it be produced in Hong Kong. It must also be noted that the maximum production for Sport Obermeyer is 20,000 units (on a 10% scale) and therefore this should be met but not exceededwithinbothorderscombined.
  5. 5. Answer 3: Style CoVar Average Forecast % to be ordered Order Quantity Assault 0.13 2525 85% 2146 Seduced 0.14 4017 84% 3374 Entice 0.18 1358 80% 1086 Gail 0.19 1017 79% 803 Electra 0.19 2150 79% 1699 Daphne 0.29 2383 20% 480 Isis 0.31 1042 46% 480 Anita 0.32 3296 15% 480 Teri 0.35 1100 44% 480 Stephanie 0.47 1113 43% 480 Now,Total OrderQuantity=11,508 units Explanation: As explainedabove,the maximumordersize isdecidedonthe basisof the minimumvalue of CoVar. Keepingthe logicconsistentwiththe one usedforHongKong,forthe low riskitems – Assault,Seduced, Entice,Gail and Electra– the maximumpossible orderhasbeenplacedtakingintoaccountthe same proportionforsafetystockas well. For the highriskitems – Daphne,Isis,Anita,Teri,Stephanie –the orderquantityhasbeenkeptat the minimumpossible amount.Also,the orderquantityforeachstyle safelycrossesthe figureof 240 (minimumquantitytobe orderedfor4 monthsproductioninHong Kong).Since the minimumorder quantityisdouble thatof Hong Kong,the amountfor eachof these itemsbecomes480. Whencomparedwiththe productioninHongKong,the difference isof 1200 units.Thisisprimarilydue to the minimumorderquantity.ThiswouldaffectSport Obermeyerinanadverse waybecause these highriskitemsare knownto have the most fluctuationsinthe demandandforecastcannotbe done accuratelyforthem.Therefore orderinglargerquantitiesof these itemsismore riskyforSport Obermeyer.
  6. 6. Answer 4: Following are the operations changes recommended to Wally to improve performance.  Improve the demand forecasts made by buying committee. Should use a weighted average method instead of just using a simple average.  Obtaining market feedback earlier than Las Vegas which can help converting some Speculative production to Reactive production. For maximising the value of this feedback Sport Obermeyer’s should include both small and large retailers & Urban and Resort retailers  Predicting customer demand for individual styles and also if possible reducing number of styles being handled. Production system  Increasing quality of production in china  Reducing lead time of production specifically for preparation of raw materials.  Decreasing lead time for finished goods, which in turn will help to cater to existing capacity Company should emphasise more on dependability than on cost.  Choose raw material suppliers on the basis of ease of availability rather than cost factor  Process fast and efficiently orders through information sharing with suppliers  Building a local production unit for any last minute orders. Supply chain  Increasing bargaining power with suppliers by ordering from big supplier who can commit to be on time  Establish distribution centre in Seattle to reduce lead time and cost through inland transportation from Seattle to Denver  Increasing service level requirements Information Systems  Collect old data and analyse demand of show in Vegas and compare with actual purchase  Using historical data to capture the market trend and market movement
  7. 7. Answer 5: Comparisonof manufacturinginChinaVs.ManufacturinginHongKong Hong Kong China Cost of productionveryhigh Cheapertoproduce,extremelylow wage rates, higherovertime hours,lowerlaborcostper garmentof .78 US $ comparedto9.69 US $ in Hong Kong Smallervolumesrequired,600Units insame style,More flexible Larger volumesrequired,1200 Unitsin same style Lessflexible Staff ismore crosstrained,Fasterproduction Staff islesscross trained,Slowerproduction Staff ismore efficient,10people ineach parka line Staff ismore inefficient,40people ineachparka line,leadingtogreaterimbalance inthese lines Each employee produces,twice asmuchas Chinese workers Qualityconcerns Challenges 1. Wage rate 2. Work force a. Low unemployment b. Youngerworkersprefer office jobs Challenges 1. Workforce a. Lessquality andcleanliness conscious b. Trainingrequirements Smallerleadtimesforrawmaterial Higherleadtimesforraw material Important Landmarks US Market Shipment Location Suppliers Production center Distribution Center
  8. 8. Problemsof manufacturing inChina Qualityandreliabilityof productsproducedinChina Larger minimumorderandquotarestriction onproducts Skill level of HongKongismuch betterthanChina Raw materialsprocuredfromsuppliersfromdifferentcountriesincreasesleadtime So the policyshouldbe toproduce inHong Kongin shortterm andtry to overcome limitationsof China by makingbelowsequential improvementsandinlongtermproductionshouldbe done inChina. 1. Increase efficiencyof staff bytrainingthematHongKong andgivingthemcross trainings 2. Givingworkerscrossoperationroles,therebyreducingsize of parkaline andreducing imbalance inthe lines 3. Qualitycanbe improvedbyimprovingthe process(KPI’s,eliminatingwaste fromsystem) Short Term Hong Kong Overcome limitations of manufacturing in China Long Term China

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