Presented By: GROUP 6 Abhijeet Kumar 13PGP001 Akshay Sharma 13PGP008 Kaiwalya Misra 13PGP025 Hemant Nagalkar 13PGP033 Sharad Kumar 13PGP052
CONTENTS 1 2 3 4 5 6 7 8 9
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Introduction to Obermeyer
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Case Facts
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Order Cycle
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The Supply Chain
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Production Planning
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Question 1: 1: Order placement Dilemma
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Question 2: 2: Recommended Operational Changes
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Question 3: 3: Short Term and Long Term Sourcing
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Conclusion
INTRODUCTION
Origins traced to 1947. Over years, Prominent competitor in US skiwear market. 1992: 45% share in Children skiwear and 11% share in adult skiwear market. 1992: estimated sales – $32.8 Million. Product Line: Parkas, vests, ski suits, shells, ski pants, sweaters, turtle necks, and accessories. Women’s, Boy’s, Girl’s and Preschoolers. Men’s, Women’s,
BRAND HIGHLIGHT
Excellent Price/Value relationship.
Value is defined as both functionality and style.
Target Market: Middle to High End of skiwear market.
MANUFACTURING STRUCTURE SPORT OBERMEYER LTD.
OBERSPORT LTD.
ALPINE LTD. Hong Kong Lo Village, China
OTHER SUBCONTRACTOR Hong Kong Macau China
THE SUPPLY CHAIN Textiles & accessories suppliers Apparel Manufacturers
Produce, dye and print shell and lining fabrics, supply insulation, zippers, thread, logo patches and snaps.
Subcontractors, receive production orders and materials from Obersport. Cut, sew and final assembly.
Obersport
Responsible for material and production sourcing in the Far East. It also acts as a distribution centre for materials and finished goods.
Sport Obermeyer
Product design, production planning and sales.
Retailers
Purchase from Sport Obermeyer and sell products to consumers.
ORDER CYCLE The Design Process Sample Production Raw material sourcing & production Retail ordering process Shipment to Obermeyer warehouse Shipment to Retail
PLANNING & PRODUCTION CYCLE JULY’ 92
SEPTEMBER’ 92
FEBRUARY’ 92
MAY’ 92
Design Process
Concept Finalization
Sketches sent to Obersport
Designs Finalized
NOVEMBER ’92
MARCH’ 93
APRIL-JULY’ 93
DEC’- FEB’ 94
LAS VEGAS SHOW
Additional Orders placed
Replenishment Order received
Place 1st production Order
PROBLEMS
Inaccurate Forecast Mechanism:
After Effects:
In Nov 1992 the company has to place 1st order with suppliers for 93’-94’ sales. Based on intuition, experience and sheer speculation. Las Vegas trade show is scheduled in March’93.
Excess merchandise and had to be sold at deep discounts. Inability to provide the most popular items during the season resulting for loss of sales.
Production Location Dilemma : China or Hong Kong
PROBLEM STATEMENT 1
Using the sample data given in Exhibit 10, make a
recommendation for how many units of each style Wally Obermeyer should order during the initial phase of production. Assume: that all ten styles in the sample problem are made in Hong Kong, and that Obermeyer's initial production commitment must be at least 10,000 units. (Ignore price differences among styles in your initial analysis).
EXHIBIT 10 Style
Laura
Carolyn
INDIVIDUAL FORECAST Greg Wendy Tom
Gail
900
1,000
900
1,300
800
1,200
Isis
800
700
1,000
1,600
950
1,200
Entice
1,200
1,600
1,500
1,550
950
1,350
Assault
2,500
1,900
2,700
2,450
2,800
2,800
800
900
1,000
1,100
950
1,850
2,500
1,900
1,900
2,800
1,800
2,000
600
900
1,000
1,100
950
2,125
Seduced
4,600
4,300
3,900
4,000
4,300
3,000
Anita
4,400
3,300
3,500
1,500
4,200
2,875
Daphne
1,700
3,500
2,600
2,600
2,300
1,600
20,000
20,000
20,000
20,000
20,000
20,000
Teri Electra Stephanie
Totals
Wally
Style
Average Forecast
Standard deviation
2 x Standard Deviation
Gail Isis Entice Assault Teri Electra Stephanie Seduced Anita Daphne
1,017 1,042 1,358 2,525 1,100 2,150 1,113 4,017 3,296 2,383
194 323 248 340 381 404 524 556 1,047 697
388 646 496 680 762 807 1,048 1,113 2,094 1,349
Totals
20,000
DETERMINING SPECULATIVE QUANTITY Using k=1
Style
Average Forecast (µ)
Standard Deviation(σ)
Gail Isis Entice Assault Teri Electra Stephanie Seduced Anita Daphne Totals
1,017 1,042 1,358 2,525 1,100 2,150 1,113 4,017 3,296 2,383 20,000
388 646 496 680 762 807 1,048 1,113 2,094 1,349
Production Quantity (µ-kσ) 629 396 862 1,845 338 1,343 65 2,904 1,202 1,034 10,618
DETERMINING SPECULATIVE QUANTITY Using k=2
Style
Average Forecast (µ)
Standard Deviation(σ)
Gail Isis Entice Assault Teri Electra Stephanie Seduced Anita Daphne Totals
1,017 1,042 1,358 2,525 1,100 2,150 1,113 4,017 3,296 2,383 20,000
388 646 496 680 762 807 1,048 1,113 2,094 1,349
Production Quantity (µ-kσ) 241 0 366 1,165 0 536 0 1,791 0 0 4,099
CONCLUSION
Since using K=1 gives an estimation of final quantity of 10,618 which is close to our requirements of at least 10,000 we will use this data for placing the production orders. Gail Isis Entice Assault Teri Electra Stephanie Seduced Anita Daphne
629 396 862 1,845 338 1,343 65 2,904 1,202 1,034
PROBLEM STATEMENT 2
What Operational changes would you recommend to Wally to improve performance?
Company Operations: Company operations:
Majorly Innovative Products 95%New products yearly 200 demand error High market mediation Need speed & flexibility
Key Challenges:
Ski Clothes is fashionable product, Its life cycle is short Long time of planning and production activities Uncertain forecasting due to customer demand Fashion taker >> No R&D
OPERATIONAL Changes:
Reducing number of styles handled and to predict customer demand for individual style.
To create promotion strategy to persuade retailers to order.
OPERATIONAL Changes: PRODUCTION SYSTEM
Increasing production Quality of China to be closed to Hong Kong.
To reduce lead time of production especially the preparation of raw materials.
Lead time reduction Asia
Fabric Producer
Fabric Dyer
undyed greige goods
Cut/Sew Factory
Denver Warehouse
Retailer
Consumer Sport Obermeyer
Fabric dyer lead time of several months.
Dyer has long lead time on greige goods and needed to keep their capacity utilized year round but can change colors overnight.
Obermeyer can predict total annual sales and sales of basic colors, but can’t predict fashion colors.
OPERATIONAL Changes: Solution: Offer dyer one year commitment on greige goods and capacity
Dye basic colors early in year and fashion colors late in season on few days notice
SUPPLY CHAIN SYSTEM Increase bargaining power with suppliers by ordering via big supplier that can commit on timeline
Collect stock raw materials which is base on Ski cloth production
OPERATIONAL Changes:
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•
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Increase distribution channel to a country that have different period of product usage Increase services level requirements Establish DC in Seattle to reduce lead time and cost from inland transportation from Seattle to Denver.
Original distribution process:
Seattle
Hong Kong
Establish Distribution Center in Seattle without through Denver
OPERATIONAL Changes: INFORMATION SYSTEM
Collect the data backward and analyze the demand of the show in Vegas and compare with actual purchase.
Speedup data/information analysis and utilize historical data /Committee forecasting / Research and Trend & Market Movement.
PROBLEM STATEMENT 3
How should Obermeyer management think (both short-term and long-term) about sourcing in Honk Kong versus China?
TOPIC Hourly wage
HONG KONG
CHINA
HK$30
RMB 0.91
[ HK$7.8 = US$1 ]
[RMB 5.7 = US$1 ]
Hourly wage Comparison (In US $)
30/7.8= US$ 3.84
0.91/5.7 = US$ 0.15
Working hours
8 hours/day, 6 days/week
9 hours/day, 6.5 days/week
Total : 48 hrs/week
Total = 58.5 hrs/week
Weekly (output/worker)
19 parkas
12 parkas
Labor cost / Garment
HK$ 75.6 = 75.6/7.8 = US$ 3.69
RMB 4.45
~ 25 times more than the Chinese rate
= 4.45/5.7 = US$ 0.78 ~ 5 times more than
TOPIC Line configuration
HONG KONG
CHINA
10-12 people/line
40 people/line
12 x 3.84 = US$ 46
40 X 0.15 = US$ 6
~ 7.5 times more than the Chinese rate
Training
Cross-trained
Trained for single operation only
Min order quantity
600 units in same style
1200 units in same style
Repair rate
1-2%
~10%
Challenges
1. Wage Rate (very high) 2. Workforce
Workforce
[ Low unemployment (~2%) , Younger workers prefer office jobs ]
[ Less quality and cleanliness conscious, Training requirement ]
Hong Kong
Benefits
Concerns
Faster production
Smaller lot sizes
More flexible
Higher labor cost
High Quality
Less repair rate (1-2%)
Better for higher risk designs
CHINA (guangdong)
Benefits
Concerns
Lower labor cost
Quality
Larger lot sizes
Better for lower risk designs
High repair rate / Reliability issue
Slower production rate
Less flexible
ANALYSIS
Smaller minimum quantities in Hong Kong yield higher returns even though the unit cost is higher In China , minimum order quantity is higher, extra need to paid even if small quantity is required.
Extra Products less likely to be sold.
China should be targeted only if the quantity is higher .
It may consume the import quota if produced more and then imported more.
Recommendation
HONG KONG
CHINA
Long Term Sourcing
Short Term Sourcing
Short Term (only if quantity is higher)
