Case Sports

Question 1: Using the sample data of Exhibit 10 make recommendations for how many units of each style Wally Obermeyer should order during the initial phase of production? Assume all ten styles are made in Hong Kong, and that Obermeyer’s initial commitment must be at least 10,000 units.(Ignore the price difference between units in your initial analysis.) Answer: Wally had estimated that the forecast accuracy was the highest for those styles that the Buying committee had the highest level of agreement. He found that the Standard Deviation of the Buying Committee for a style was twice the actual demand for the style. Therefore he manipulated the equation accordingly. We assume that the data is normally distributed. Now if we take into the equation for standard normal distribution is µ - kσ, where µ is the average value and σ is the standard deviation. Now value of k is generally 0,1, 2, 3 and so on, showing the level of standard deviation. Now for k = 1, 68% of the data will lie between µ±σ, for k = 2, 95% of the data will lie in between µ±2σ. Now we test for value of k does the total production sum up to around 10000. i)

Case 1: k = 0

Style Gail Isis Entice Assault Teri Electra Stephanie Seduced Anita Daphne Total

Mean (µ) 1017 1042 1358 2525 1100 2150 1113 4017 3296 2383 20000

Standard Dev. (σ) 388 646 496 680 762 807 1048 1113 2094 1394

Production Units (µ - kσ) 1017 1042 1358 2525 1100 2150 1113 4017 3296 2383 20000

Therefore we see taht this is much more than 10000. Therefore not accepted. ii) Style Gail Isis Entice Assault Teri Electra

Case 2: k = 1 Mean (µ) 1017 1042 1358 2525 1100 2150

Standard Dev. (σ) 388 646 496 680 762 807

Production Units (µ - kσ) 629 396 862 1845 338 1343

Stephanie Seduced Anita Daphne Total

1113 4017 3296 2383 20000

1048 1113 2094 1394

65 2094 1202 989 10573

Now we can see that this value is acceptable. If we test for k = 2, the value will fall below 10000. Therefore, the company should approximately produce the above mentioned units. Question 3: How should Obermeyer think (both short term and long term) about sourcing in Hong Kong versus sourcing in China? Answer: This year, Wally was expecting to produce about half its products in China. However in the short run run, the company should source its materials from Honk Kong and in the long run from China. Now, the reasons for sourcing from Hong Kong in the short run are: 1) China had the constraint of large minimum order sizes which could limit the company’s

ability to increase the range of products it offered or manage the inventory risks. In China, the minimum order size was 1200, where as in Hong Kong it was 600. 2) The workforce in Hong Kong was twice as productive as compared to the Chinese. Therefore, a parka line in Hong Kong that required 10 workers to complete all operations would typically require 40 workers in China. 3) Also, the workers in Hong Kong were able to ramp up their production faster than the Chinese workers. Therefore, this ability, coupled with shorter production lines, enabled the Hong Kong factory to produce smaller orders more efficiently. 4) Also, the company could procure the YKK zippers from the Hong Kong factory faster than from Chin, because the factory of standard YKK zippers was located in Hong Kong. Therefore, on a short term basis, it woould be easier for the company to source the products from Hong Kong itself. However, to source materials in the long run, the copany shoul look towards China, because long term will involve large orders. The wages in China were $.16 per hour as compared to $3.84 per hour in Hong Kong. Therefore, if the company wanted to process large orders, it should look towards China rather than Hong Kong dispite the lower productivity of the Chinese workers.