SportObermeyer Analysis GroupB

CASE ANALYSIS | SUPPLY CHAIN MANAGEMENT

NOVEMBER 5, 2014

COMPARISON OF PRODUCTION FACILITIES

 Low

labor costs (0,16$/hour vs 3,84$/hour)  Longer working days (48,5h/week)  More workers available than in Hong Kong

    

 Uncertain

quality and reliability of operations  Larger minimum order quantities compared to HK  Higher repair rate  Less quality and cleanliness conscious  Higher costs of training requirements  Uncertain trade relations with the USA

  

  

Work 50% faster than counterparts in China Workers are trained in broader ranges of tasks Require less workers to produce a parka for example Shorter production line in HK Smaller minimum order quantities (600 v/s 1200) HK may ramp up production faster Higher output in parkas production (19 v/s 12) Low repair rate

Higher labour costs compared to China Maximum working overtime Less workers available

PRODUCTION PLANNING HEURISTIC FOR INITIAL ORDER •

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•

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Forecast accuracy is higher for the styles where the Buying Committee had higher agreement; Demand from previous years indicate that the standard deviation of the demand for a style is approximately twice the standard deviation of the Buying Committee‟s forecast for sales Cost of underproduction is a lost opportunity of 24% of revenues; cost of overproduction is a loss of 8% on revenues. The former is thus preferred A minimum order of 60 units per style is required at the Hong Kong production facility; Total order should be greater than 10.000 units;

‟ (= Standard deviation / mean) implies higher agreement; A lower „ The 10 styles are divided into 3 categories based on the Coeff icient of variation:  C.V. < 0.1 – Lower variation expected, we can thus produce the mean;  0.1 < C.V. < 0.2 – Variation expected, take lower risk, produce (µ - σ);  C.V. > 0.2 – High variations expected, thus to avoid risk produce (µ - 2 *σ); As suggested by Exhibit 5, once the actual sales figures arrive, the forecasts are refined •

•

- Total order for initi al phase of production =

units

ITEM WISE INITIAL ORDER

3183 838 2836 2004 1009 1585 4245 2224 861 1215 20000     

3196 920 2491 2400 974 1870 2990 2094 1735 1330 20000

3581 891 3286 1715 848 1711 3616 2115 987 1250 20000

3748 964 2914 1980 1015 1467 3436 3497 585 394 20000

3324 1037 2566 2002 1211 1864 4592 1435 1360 609 20000

3182 940 2764 2214 934 2108 3484 2234 929 1211 20000

3369 932 2810 2053 999 1768 3727 2267 1076 1002 20000

240.9 67.5 283.4 232.8 120.8 229.2 585.8 672.5 407.9 395.5

0.071 0.072 0.101 0.113 0.121 0.130 0.157 0.297 0.379 0.395

0 0 1 1 1 1 1 2 2 2

3369 932 2526 1820 878 1538 3141 922 260 210 15596

the multiple standard deviation (k=0,1,2) is a measure of how risk averse Obermeyer Sport is. We assume that Wally is very conservative while placing these order Ratio: 0-0,1  we will produce the mean, lowest risk Ratio: 0,1-0,2  mean – standard deviation (k=1) Ratio: 0,2-1  mean – 2* standard deviation (k=2), the highest risk Conclusion: tried to minimize the risk of the forecast to avoid overproduction

OPERATIONAL CHANGES

1/2

1. Reduce number of styles  

Incorporate the pre-schooler category into the boys and girls category Reduce types of style from 4 to 2

2. Optimize number of vendors    

Because of reduced number of styles we can reduce the number of di fferent fabrics Only buy from vendors with the best price for the “basic” style and for the best price for the “luxurious” style Ordering in larger quantities will lead to a lower price Due to these changes we hope to raise profit margin

3. Lead time reduction   

Solution will reduce lead-time of the different suppliers (e.g. ABC Inventory) Due to standardization of our products, we can reduce cost of different add-ons (zippers, buttons, etc.) of the sky garments In order to reduce lead-time, Obermeyer should reduce the zippers styles as far as they can without compromising on the quality and the uniqueness of Sport Obermeyer‟s fashion clothing

OPERATIONAL CHANGES

2/2

4. Cut and sew 

Produce the basic styles in China  Require lower quality and a higher number of production  Minimum order quantity is higher than in HK  Accept risk of higher repairing rate



Produce the luxury style in Hong Kong  workers are highly skilled  faster production  Minimum order quantity is lower  repair rate is low Considerations Proposals are based on cost optimization Tried to improve the readiness of the product in order to commercialise the new product just after the Las Vegas Show in September 1992 Would liked to adjust the trend and the product of the same year If we want to bring the product onto the market until October 1992 we have to reduce the chain from 21 months to 9 month Very high risk - Trend can be completely different from the Obermeyer style, this would lead to a extreme sales drop • •

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ABC CATEGORIZATION OF INVENTORY

1/2

is the most critical and must always be in “just enough”

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•

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quantities The quantities are reviewed and ordered more frequently Try to receive order as and when needed and monitor inventory very closely is relatively less critical and must be monitored less

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frequently •

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Category C should not consume much of the inventory management time Order infrequently in large quantities and keep high safety stock.

ABC CATEGORIZATION OF INVENTORY

S. No.

Item

2 3

Greige Shell fabric production Greige Shell fabric finishing Insulation Finished Lining Fabric

4

Zippers

1

5 6 7

Logo Patches, Drawcords, Hang,Tags etc. Snaps (undyed) Dyeing of snaps Threads

% of total value 30%

13% 16% 13% 12%

2/2

Lead time

45-90 days 45-60 days 14-21 days 45-60 days 60 days from HK/ 91 days from Japan

10%

15-30 days

3% 1% 2%

30-60 days 15-30 days 30 days

ABC Category

A

B

C

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