Company Background Klaus Obermeyer founded Obermeyer in 1947,

Company Background  Klaus Obermeyer founded Obermeyer in 1947,

Company Background Klaus Obermeyer founded Obermeyer in 1947, when he was among the first ski instructors on Aspen Mountain. "SKIING IS A CELEBRATION OF LIFE" Obermeyer Products Gender : mens, womans, boys, girls, preschoolers Broad line of fashion ski Style/colour combination & sizes Sweaters Jackets Shells Vests Manufacturing Structure: Facilities Map The Supply Chain Process Produce, dye and print shell and lining fabrics, supply Textile and Accessories Suppliers Apparel Manufacturers Obersport Sport

Obermeyer Retailers insulation, zippers, thread, logo patches and snaps. Subcontractors, receive production orders and materials from Obersport. Cut, sew and final assembly. Responsible for material and production sourcing in the Far East. It also acts as a distribution centre for materials and finished goods. Product design, production planning and sales. Purchase from Sport Obermeyer and sell products to consumers. Planning and Productions Cycle93-94 92 The Design Process Feb92 : Design process Mar92 : Las Vegas show (Sample Production, Raw material sourcing and production) May92 : Finalized design concept Jul92 : Prototype production Sep92 : Finalized design Feb93 : Raw Material sourcing & Production 93 93 94

Retailer Ordering Process Las Vegas trade show, Mar93 : 1st order representing 80% of its annual volume. April-May : 2nd and final production order Design Process Outdoorswear show Munich Feb First Order March Nov Finalized Design Las Vegas Show Sep Design Process 1992 May Design concepts July Prototype Group 9 Flexible MBA #12 Suppliers Procurement lead time % of total

material cost Component Variety Country of origin Shell Fabric 10 Japan, USA, Switzerland, Germany, Austria, Korea, Taiwan 45-90 days 30 Finishing of Shell Fabric 8-12 colorprints per fabric Finishing takes place in country of origin (see above) Dyeing or Printing: 45-60 days 13 Finished Lining Fabric

6 Nylon: Korea, Taiwan Fleece: Korea, Taiwan, USA 45-60 days 13 Insulation 3-4 Hong Kong, Korea, Taiwan, China 2-3 weeks 16 differen t weight s Zippers 400 Hong Kong, Japan 60-90 days 12 Thread 80 colors

Hong Kong 30 days 2 Logo Patches, Drawcords, Hang Tags, etc. various Mostly from Hong Kong 1 5-30 days 10 Snaps (undyed) 10 Germany, Italy, Hong Kong 1-2 months 3 Dyeing of Snaps 50 colors Hong Kong 1 5-30 days 1

Manufacturers Total Capacity: 30,000 Units/Month Annual Demand: 200,000 Units Topic Hong Kong China Hourly Wage US $ 3.85 US $ 0.16 Working Hours => Total = 48 hours/week => Total = 58.5 hours/week Maximum overtime allowed = 200 hours/year During peak production periods, workers work 1 3 hours per day Weekly (Nonpeak) Output per Worker 1 9 parkas 1 2 parkas Paid labor time per parka (including repair work)

2.53 hours/parka 4.88 hours/parka Line Configuration 10-12 people/line 40 people/line Training Cross-trained Trained for single operation only Minimum Order Quantity 600 units in same style 1 ,200 units in same style Repair Rate 1-2% 10% Labor Cost/Garment US $ 9.7 US $ 0.78 Total Cost US $ 110 US $ 94

Challenges Wage Rate Lack of training ORDERING & SHIPMENT Process: 6 weeks Factories in Hong Kong Seattle warehous e Order 80% in Mar 93 Order 20% in Apr-Jun 93 Denver warehous e Forecasts Product Sketches Forecast Committe e

800 Ski RetailersRetailers order in Apr-Jun 93 How demand forecasts improving with increasing information Observe 20% : Final forecast @ 575 units Profit (+24 % of whole sale price) Left unsold: loss( -8% of wholesale price) Group 9 Flexible MBA #12 Observe 80% : Final forecast @ 500 units Production Planning Example Rococo Parka Wholesale price $112.50 Average profit 24%*112.50 = $27 Average loss 8%*112.50 = $9 Issues How to measure demand uncertainty from disparate forecasts How to allocate production between the factories in Hong Kong and China How much of each product to make in each factory Describe the Challenge Long lead times: Its November 92 and the company is starting to make firm commitments for its 93 94 seas on.

Little or no feedback from market First real signal at Vegas trade show in March Inaccurate forecasts Retailers had not purchased>>>>Deep discounts Ran out of its most popular items >>>>Lost sales The Supply Chain Textile and Accessories Supplies Group 9 Flexible MBA #12 Apparel Manufactures Obersport Sport Obermeryer Retailers Table Group 9 Flexible MBA #12 Group 9 Flexible MBA #12 Question Question 1. Using the sample data given in Table 2-20 , make a recommend for how many units of each style Wally sho uld make during the initial phase of production. Assum

e that all of 10 styles in the sample problem are made i n Hong Kong and that Wallys initial production commit ment must be at least 10,000 units. Ignore price differen ces among styles in your initial analysis? Question 3. Repeat your methodology and assume now that all 10 styles are made in China. W hat is the difference (If any) between the tw o initial production commitments? Wallys Forecast Model Mean Mean=Average of Buying Committee Forecast Standard Deviation = 2xSTD of the Buying Committee Forecasted Group 9 Flexible MBA #12 SAMPLE BUYING COMMITTEE FORECASTS, 10 STYLES OF WOMEN'S PARKAS Style Price Average Forecast Standard Deviation 2 x SD Gail $110 1,017 194

388 Isis $99 1,042 323 646 Entice $80 1,358 248 496 Assault $90 2,525 340 680 Teri $123 1,100

381 762 Electra $173 2,150 404 807 Stephanie $133 1,113 524 1,048 Seduced $73 4,017 556 1,113 Anita $93 3,296

1,047 2,094 $148 2,383 697 1,394 Daphne Total 20,000 Minimum Production Quantity For A Style: Hong Kong = 600 Units China = 1,200 Units ** Technically, Wally found that SD of demand was approximately twice SD of the Buying Committees forecasts. Calculate a Safety Factor for each style. Safety Factor (SF)= Max (-2m,m-,0) Rank styles by the safety factor, in descending order Calculate the Order quantity. Starting with the top style. Order Quantity = Max (600, -600 [Min. SF x ])) ** Min. SF among all styles Reference: http://courses.washington.edu/smartman/Ass3.htm

Hong Kong Hong Kong Style Price SD 2x SD u - 2m /SD m-u/ SD Safety Factor u - 600 Total 1st Period Order Seduced $73 4,017 556 1,113

2.53 -3.07 2.53 3,417 3060.8 3,060 Assault $90 2,525 340 680 1.95 -2.83 1.95 1,925 1707.2 1,707 Electra $173

2,150 404 807 1.18 -1.92 1.18 1,550 1291.6 1,291 $93 3,296 1,047 2,094 1.00 -1.29 1.00 2,696 2025.9 2,025 $148

2,383 697 1,394 0.85 -1.28 0.85 1,783 1336.9 1,337 $80 1,358 248 496 0.32 -1.53 0.32 758 599.39 600

Gail $110 1,017 194 388 -0.47 -1.07 0.00 417 292.78 600 Isis $99 1,042 323 646 -0.24 -0.68 0.00 442

235.19 600 Teri $123 1,100 381 762 -0.13 -0.66 0.00 500 256.29 600 Stephanie $133 1,113 524 1,048 -0.08

-0.49 0.00 513 177.72 600 Anita Daphne Entice Total 12,420 China China Style Price SD 2x SD - 2m / SD m-/ SD Safety

Factor Total 1st Period Order 1,200 $73 4,017 556 1,113 1.45 -2.53 1.45 2,817 2,728 2,728 Gail $110 1,017 194 388

-3.56 0.47 0.47 -183 -214 1,200 Anita $93 3,296 1,047 2,094 0.43 -1.00 0.43 2,096 1,928 1,928 Isis $99 1,042

323 646 -2.10 0.24 0.24 -158 -210 1,200 Assault $90 2,525 340 680 0.18 -1.95 0.18 1,325 1,271 1,271

Teri $123 1,100 381 762 -1.71 0.13 0.13 -100 -161 1,200 Stephanie $133 1,113 524 1,048 -1.23 0.08 0.08 -87

-171 1,200 Electra $173 2,150 404 807 -0.31 -1.18 0 950 885 1,200 Daphne $148 2,383 697 1,394 -0.01

-0.85 0 1,183 1,071 1,200 $80 1,358 248 496 -2.10 -0.32 0 158 118 1,200 Seduced Entice Total 14,327 Answer 1. & 3. Difference between the two initial

production commitments Style Gail Isis Entice Assault Teri Electra Stephanie Seduced Anita Daphne Total Price 110 99 80 90 123 173 133 73 93 148 Produce =avg-2std 629 395 863 1,845 338 1,343 65 2,904 1,202 990 10,572

Hong Kong 629 600 863 1,845 600 1,343 600 2,904 1,202 990 11,573 China 1,200 1,200 1,200 1,845 1,200 1,343 1,200 2,904 1,202 1,200 14,493 Hong Kong China Excess Order Excess Order 0 571 205 805 0 337 0 0

262 862 0 0 535 1,135 0 0 0 0 0 210 1,002 3,920 Hong Kong Extra Cost 0 20,295 0 0 32,226 0 71,155 0 0 0 123,676 China Hong Kong China Extra Cost Op. Time (wk) Op. Time (wk) 62,810 2.76 2.50 79,695 2.63 2.50

26,960 3.78 2.50 0 8.09 3.84 106,026 2.63 2.50 0 5.89 2.80 150,955 2.63 2.50 0 12.74 6.05 0 5.27 2.50 31,080 4.34 2.50 457,526 50.76 30.19 Question 2. Can you come up a measure of risk associated with an your ordering policy? This measure should be quantifia ble. Standard Deviation Coefficient of Variation : Average SD Answer

Coefficient of variation = Style Gail Isis Entice Assault Teri Electra Stephanie Seduced Anita Daphne Total Laura 900 800 1,200 2,500 800 2,500 600 4,600 4,400 1,700 20,000 Individual Forecasts Carolyn Greg Wendy 1,000 900 1,300 700 1,000 1,600 1,600 1,500 1,550

1,900 2,700 2,450 900 1,000 1,100 1,900 1,900 2,800 900 1,000 1,100 4,300 3,900 4,000 3,300 3,500 1,500 3,500 2,600 2,600 20,000 20,000 20,000 Tom 800 950 950 2,800 950 1,800 950 4,300 4,200 2,300 20,000 Standard deviation Wally

1,200 1,200 1,350 2,800 1,850 2,000 2,125 3,000 2,875 1,600 20,000 Average forecast Average Standard forecast deviation 1,017 194 1,042 323 1,358 248 2,525 340 1,100 381 2,150 404 1,113 524 4,017 556 3,296 1,047 2,383 697 20,000 2xSTD Coefficient of variation

388 0.382 646 0.620 496 0.365 680 0.269 762 0.692 807 0.376 1,048 0.942 1,113 0.277 2,094 0.635 1,394 0.585 Answer Question 4. What operational changes would you recommend to Wally to improve performance? Obermeyers Problem Skiwear products have short life cycle Long lead time Volatile demand Demand uncertainty Operation Changes Reducing number of styles Increasing production quality and efficiency in China to be close to Hong Kong --- Improve Wor ker Skill Reduce Manufacturing Lead Time Smaller minimum order requirements

Improved Market Information Stock raw materials which is base on Ski cloth production Operation Changes Establish DC in Seattle to reduce lead time and cost from inland transportation from Seattle to Denv er Invite the twenty-five largest retail customers to sneak preview in February th e year before. Their early purchase orders were used to improve initial forecasts. Operation Changes Reduce variability and cut the potential for component shortages holding up production. For example, increase the use of black zippers as a color contrast. Standardize colors and materials so that a typical season there are two or three shades for each design cycle instead of fiv e or six. Question 5 How should Wally think (both short term and long term) about sourcing in Hong Kong versus China? Short Term Long Term Answer Hong Kong Advantages High quality More efficiency Smaller minimum

order quantity China Advantages Low labor cost Disadvantages Low efficiency Disadvantages Larger minimum High labor cost order quantity Low unemployment Group 9 Flexible MBA #12 Answer Sourcing in Hong Kong Difficult to expand because of low employment and younger workers prefer office jobs Sourcing in China Larger minimum order sizes could limit the companys ability to increase the range of products and to manage inventory risk How to improve quality and efficiency Recommended sourcing policy: Mixing China: big-lot size, less complex style Group 9 Flexible MBA #12 Kong: small lot size, more complex style Hong Question 5 What kind of sourcing policy do you recommend? Hong Kong Complicated Style Product which require workers skill China

Basic Style Product Mass Product Thank You ! Group 3 YMBA - 29 1

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