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Sports Obermeyer

Jordan Avery, Alina Cornejo,


Michael Gilkenson, Farida Jariwala,
Sara Rogovin, Fabio Romero, Eric Timm
Agenda
Obermeyer Sports: The Company
Challenges
Inventory Management and Risk
Pooling
Potential Solutions
History
Klaus Obermeyer emigrated from Germany to Aspen,
Colorado in 1947
He began teaching at the Aspen Ski School when he realized
that many of his students were poorly supplied to handle the
cold weather


His response was to begin
producing functional, stylish
ski clothing with his wife,
Nome
History
In 1961, the first Sport Obermeyer factory warehouse opened
in Aspen

Sports Obermeyer came with innovations such as soft-shell
jackets, double lens goggles, and the first waterproof-
breathable fabrics

Customers of Sport Obermeyer are mostly retail stores in
urban areas, retail stores near ski resorts, large department
stores like Nordstrom, and mail retailers like REI

Industry
Over the years, Sport Obermeyer developed into a main
competitor in the U.S. skiwear market
In 1992 Sport Obermeyer owned 45 percent of the childrens
skiwear market and 11 percent of the adults skiwear market



Styles
Obermeyer products were divided into different genders:
mens, womens, boys, girls, and preschoolers
Within each gender Obermeyer classified their customers
according to:
Price
Type of skier
How fashion forward the market was
The company targeted the middle to high end of the skiwear
market, and designed the majority of their products
exclusively for use while skiing
Skiing is a celebration of life
Klaus Obermeyer
Oct 92
Sample
Production
Nov 92
1
st
production
order placed
Mar 93
Las Vegas
Show for
93-94 season
Apr 93 - Jul 93
Additional
orders
received.
Dec 93 Feb 94
Replenishment
orders received
Production Timeline
Feb 92
Design
process
begins
Mar 92
Las Vegas
Show for
92-93
season
May 92
Final
concept
Jul 92
Obersport
receives
sketches
Aug 92
Prototype
production
Sep 92
Final
designs
Prototype Production
Sample and Full Scale Production
Agenda
Obermeyer Sports: The Company
Challenges
Inventory Management and Risk
Pooling
Potential Solutions
Challenges
Poor Forecasting
Under producing popular items
Over producing unpopular items
Long lead times on products
Supply Chain: Understanding tradeoffs between China and
Hong Kong
Key differences
Decrease supplier base
Too many parka shell designs?


Poor Forecasts
Obermeyer Forecasts
When over-forecasted leftover parkas were sold at a loss that
averaged 8% of wholesale price.

Impact of Lead Times on Inventory
Sport Obermeyer has 4-month lead time from order point to
delivery
Use single period inventory model
No reorder point so forecasting is more vital
Advantages of reducing lead times


CHINA OR HONG KONG?

Supply Chain: Understanding tradeoffs
between China and Hong Kong

China
Benefits: lower wage rates
Disadvantages: slower production, number of workers
required, line instability, strict quota restrictions
Hong Kong
Benefits: shorter production lines, faster assembly, less
required workers, ability to produce smaller quantities
quicker
Disadvantages: High wage rates



Supply Chain: Understanding tradeoffs
between China and Hong Kong

Discussion Question 1
How should Wally think (both short-term and long-term) about
sourcing in Hong Kong vs. China?
What kind of sourcing policy do you recommend?
Decrease Supplier Base
Ex: Griege Shell Fabric comes from 7 different locations
USA, Switzerland, Germany, Austria, Taiwan, Korea, Japan

Results of Decreasing the Number
of Suppliers
1. Benefit: Decrease lead times
increase speed of production
2. Challenge: suppliers going out of business
Increased risk, not as diversified supplier base
Lose Money
Completely stop production
Lose clients/retailers


Too Many Parka Shell Designs?
Pride themself in broad range of styles/prints
Attracts consumers
Raises profits and reputation
Produce specialties
Decrease shell designs
Advantage: Reduce the number of suppliers
Lower lead times
Faster, more even production
Disadvantage: Lower customer base



Agenda
Obermeyer Sports: The Company
Challenges
Inventory Management and Risk
Pooling
Potential Solutions
Challenges of Forecasting
The three rules of forecasting
1. The forecast is always wrong.
2. The longer the forecast horizon, the worse the
forecast.
3. Aggregate forecasts are more accurate.
Methods of Forecasting
Time series
Use past behavior to predict future behavior
Causal
Demand as a function of economy, weather, etc.
Risk pooling
Offsets demand variability
Market research

Discussion Question 2
If you were working with Wally which forecasting method(s)
would you recommend using to eliminate under/over
forecasting?
Service Level vs. Inventory Investment
Tradeoff
Effective Inventory Management Policy
Sport Obermeyer uses forecasting to determine how much to
produce
Currently using a single period model
Similar to newsvendor problem


Strengths
-High-quality
products
-Wide variety of
products leads to
high adaptability
market fluctuations
Weaknesses
-Poorly-structured
supply chain
-High lead times
-Poor forecasting
methods
Opportunities
-Expansion into non-North
American markets
-Technological
advancements in
forecasting software
-Technological
advancements in
manufacturing processes
Threats
-Tariffs and sanctions
imposed on international
commerce
-Competitors offering
goods of same quality at
lower price
-Operate in a niche,
luxury industry
Agenda
Obermeyer Sports: The Company
Challenges
Inventory Management and Risk
Pooling
Potential Solutions
Obermeyer vs. Competition
Obermeyer
11% market share for adult ski wear
Create styles of quality clothing focused on durable, high-
performance ski clothing
Columbia
23% market share for adult ski wear
Produce lower-price, high-volume-per-style

1992-1993 Initial Strategy
Forecast demand using a model with 10% of actual demand
Commit half of production in November and second half in
March
Variation in demand much lower where Buying Committee
had similar forecasts

1992-1993 Initial Strategy
Poll individuals of Buying Committee
Large variation between individual forecasts
Delphi Method
Compile and summarize individuals forecasts
Poll individuals again after seeing results
Iterate until consensus

Discussion Question 3
What ideas do you have on how to improve Wallys forecasting
and inventory management issues?
Electronic Inventory Tracking System
Track Sports Obermeyers Sales Data
Maximize Sports Obermeyers Profits
Air Deliver Parkas from Hong Kong
$47.42 Profit Per Parka that would not be made otherwise.
Expand into South America
Maximize profits on popular products
An additional season to sell
Minimize downside risk
Sell remaining inventory of unpopular North American
products at wholesale
Decrease Sample Production
Reduce time in design phase
Use graphics in web design as replacement for physical
samples
Sample making process would be reduced by 30-40 days
Earlier full-scale production
Use of cost effective suppliers for initial product supply
Allow Wally to accomplish goal of 50% production through
China
Actual Response
Used computerized system to slash time for order processing
Pre-positioned raw materials
Held sneak preview of upcoming line
Kept everything undifferentiated
Encouraged same types of raw materials

Results
The Changes Wally made in the following years led to an
increase in profits by 50%, and thus a 50% increase in profit
margin to 36%
No. 1 Customer Rating
Over-production decreased from 25,000 to 22,000
Under-production decreased from 7,500 to 800
Compared to Columbia who has an average profit margin
across all products of 4.15%, Obermeyer Sport





Total Industry
The U.S. snow sports retail brought in $3.3 billion in the 2010-11
season, a $3 million increase from the 2007-08
Snow sports sales increased 8% in units and 12% in dollars
Leaner inventories, like Sport Obermeyers revised
inventory/forecasting model, allowed prices to continue to grow
Final inventories were 19% leaner
Equipment prices 10% higher
Season finished with retail margins:
up 10% for equipment
10% for accessories
4% for apparel goods sold


Questions?