sport obermeyer

Supply Chain Management

Performed by Group 8

CONTENTS

Company Profile
Supply Chain
Production Process
Order Cycle
Products Transportation
Retailers
Ordering & Shipment Process
Question & Answer

Company Profile

(About)

Founded in 1947 by Klaus Obermeyer, Obermeyer is a highend skiwear design and merchandising company
headquartered in Aspen, Colorado.

It sells its products through US and Canada department

stores and ski shops.

Fashion skiwear manufacturer offering a broad line of ski

apparels including parkas, vests, ski suits, shells, ski pants,
sweaters, turtlenecks & accessories.

Estimated Sales of US $ 32.8 million in the year 1992.

Major Production done in Hong Kong and China by partner

company Obersport Ltd.

Obersport Ltd. was a joint venture established in 1985 by

Klaus Obermeyer & Raymond Tse.

Obersports is responsible for the raw material sourcing and

production for all Sports Obermeyers products in the Far
East.

Company Profile

Sport Obermeyer

(Video)

Company Profile

(Products)

Sport Obermeyer, Ltd. designs and

manufactures authentic skiwear for:
men, women, teens, and kids

men

teen
s

wome
n

kids

Authentic high performance ski

wear styles:
Ski Jackets, Shells, Coats, Ski Suits,
Down Jackets, Vests, Ski Pants,
Stretch Pants, Suspender Pants, Bib
Pants, Soft Shells, Insulators,
Windshirts, Sweaters, Fleece, ZipT's, Turtlenecks, Fleece Hoodies,
Base Layers, Fleece Underwear,
Fleece Tops and Tights, Knit and
Fleece Hats, Ski Gloves, Ski Mittens,
Accessories. Core Zone Venting
system. Extended Wear system.
Kids Bunting, Kids Mitten Clips, Kids
'I-Grow' System

Company Profile

(Innovations)

1947 Dual construction ski boot

1948 Down ski parkas (Klaus' own goose down
comforter)
1949 Ski sweaters (imported from Germany)
1950 High-Altitude sun tan lotion
1951 Pre-shaped ergonomic gloves
1952 Turtleneck & zip turtlenecks
1954 First Flow boot (from a viscous liquid
car grease)
1958 Quilted Parkas (shavings from a textile
factory)
1960 Mirrored sunglasses (French precision
lenses)
1961 Nylon windshirts/Boot fit press
1962 Side-zip warm-up pants
1963 First ski fashion advertisement in SKI
magazine
1965 Stretch ski pants utilizing Schoeller
fabrics
1966 Double lens goggles
1974 Two-pronged ski brakes
1975 Implementation of

Company Profile
(Facilities)

Supply Chain
Planning and management of sourcing, producing &
wholesaling
Textile &
Accessories
Suppliers

Produce,
dye and
print shell
and lining
fabrics,
supply
insulation,
zippers,
thread, logo
patches and
snaps.

Apparel
Manufactur
es

Subcontracto
rs, receive
production
orders and
materials
from
Obersport.
Cut, sew and
final
assembly.

Obersport

Sport
Obermeyer

Responsible
for material
and
production
sourcing in
the Far East.

Product
design,
productio
n
planning
and sales.

Acts as a
distribution
centre for
materials and
finished
goods.

Retail
Locations

Purchase
from Sport
Obermeye
r and sell
products
to
consumers
.

Supply Chain
Raw materials were collected around the world.

Shell
Fabrics &
Lining
United
States
Korea
Germany
Austria
Taiwan
Switzerlan
d

Subcontract
ors
Dye &
print
fabric
options
45-60 day
lead time
Dyeing
(min.
order
quantity
1.000
yards)
Printing
(min.
order
quantity
3.000

Trims

Zippers

Hong Kong
d-rings
buckles
pullstrings
buttons
Germany
snaps
labels
tags

YKK
Japan
60 day
lead
time
Other
Japan
nonstandard
zippers
90 day
lead
time

Cut & Sew

Labor
Outsource
d
Hong Kong
China

Production Process
Asia
Fabric
Producer

Fabric
Dyer

undyed greige
goods

Cut/Sew
Factory

Denver
Warehouse

Sport
Obermeyer

Components

Procurement Lead Time

Greige Shell Fabric

45 90 days

Finishing of Shell Fabric (Dying &

Printing)

45 60 days

Finished Lining Fabric

Insulation
Zippers
Thread
Logo Patches, Drawcords, Hang Tags,
etc.
Snaps (undyed)
Dyeing of Snaps

Retailer

Consumer

45 60 days
2 3 weeks
Standard (HK) 60 days, Custom (JP) 90+ days
30 days
15 30 days
1 2 months
15 30 days

Order Cycle
- Sold at specialty ski
retailers most sales
between September &
January
- Full delivery prior to
retail season

- Ordering/shipment
- 80% sales at Las
Vegas Trade show
- Second/final orders
placed

- Design
process/sample
production
- Design based on
European styles
- Style/color
combinations made

- Sourcing/production
- Place orders quickly
- Long lead times, i.e.
90 days

Product Transportation

Denver

August

End of August

Hong Kong

June & July

Retailers

Seattle

Retailers

Delivering products
by early September

Sport
Obermeyer

Specialty
Ski-Retail
Stores
Department
Stores

Direct Mail
Retailers

Most sales occur between

September and January

Consumers

Ordering & Shipment Process

6 weeks

Order 80%
in Mar 93

Order 20%
in Apr-Jun
93

Forecasts
Product
Sketches

Forecast
Committe

Retailers
order in
Apr-Jun 93

800 Ski
Retailers

QUESTION & ANSWER

Question 1
Using the sample data given in Table 3-19,
make a recommendation for how many
units of each style Wally should make
during the initial phase of production.
Assume that all of the 10 styles in the
sample are made in Hong Kong and that
Wally`s initial production commitment
must be at least 10,000 units.
Ignore price differences among styles in
your initial analysis.

Q1 (Solution)
Problem Situation
Buying Committees forecast of 10 women parka style sample
(which represented 10% of Obermeyers total demand):
10 women parka styles totaling up to 20.000 (10% of
200.000) units
Production plant cutting and sewing sample capacity of 3.000
(10% of 30.000) units per month
The 10 women parka styles is produced entirely either in Hong
Kong or in China
Minimum production quantity for Hong Kong is 600 units and
China is 1200 units

Assumption
All 10 styles in the sample problem are made in Hongkong.
Initial production commitment at least 10.000 units.

Q1 (Solution)
Table 2.20 Sample Buying Committee Forecast, 10 Styles of
Womens Parkas
Price
Caroly
Averag
No. Style

($)

Laura

Greg Wendy

Tom

Wally

SD

2SD

Gali

110

900

1000

900

1300

800

1200

1017

194

388

Isis

99

800

700

1000

1600

950

1200

1042

323

646

Entice

80

1200

1600

1500

1550

950

1350

1358

248

496

Assault

90

2500

1900

2700

2450

2800

2800

2525

340

680

Teri

123

800

900

1000

1100

950

1850

1100

381

762

Electra

173

2500

1900

1900

2800

1800

2000

2150

404

808

133

600

900

1000

1100

950

2125

1113

524

1048

73

4600

4300

3900

4000

4300

3000

4017

556

1112

93

4400

3300

3500

1500

4200

2875

3296

1047

2094

148

1700

3500

2600

2600

2300

1600

2383

697

1394

20000

Stepha
nie
Seduce
8
d
7

Anita

10 Daphne

TOTAL

Q1 (Solution)
Company Strategy
Ignore price differences among parka styles
(assuming each style has the same price)
Initial phase production:
Forecasted to comprise 20% of the demand, the
production unit order should be low risk oriented

Second phase production:

Forecasted to comprise 80% of the demand, the
production unit order should maximize profit

Recommendation
Identification, assessment, and prioritization by coordinated and
economical application of resources to minimize, monitor, and
control the probability and/or impact of unfortunate events.

Q1 (Solution)

Production order with minimum

order size
To determine the initial phase order quantities for
each parka style, we will need to:
1)
2)
3)

Calculate production Safety Factor for each parka

style,
Prioritize among the parka styles, and
Calculate the order size.

This
safety
factor
incorporates
demand
uncertainty as well as expected demand
General Production Safety Factor formula:
) SF = Max(-2m, m-, 0)/
Minimum production quantity in Hongkong is denoted by
m and the value is 600 unit

Q1 (Solution)
Production Safety Factor (PSF)
Parka styles of Type 1: >2m
SF = (-2m)/

Parka styles of Type 2:<m

SF = (m-)/

Parka styles of Type 3:m<<2m

SF = (m < < 2m)/ = (0)/

Q1 (Solution)
Production Safety Factor (PSF)
Parka Styles of Type 1
SF = (-2m)/
>2m
Its relatively safe to
order (at least) the
minimum quantity.
We will be likely able to
adjust in the later
production period.

2
m

Q1 (Solution)
Production Safety Factor (PSF)
Parka styles of Type 2
SF = (m-)/
<m
When producing this
parka style, well have
to use the minimum
order quantity at some
point during the
season.

Q1 (Solution)
Production Safety Factor (PSF)
Parka styles of Type 3
SF = (m < < 2m)/ = (0)/
m<<2m
The riskiest product to make
in the first phase production.
When committing to produce
some amount during the first
phase, we are likely unable
to adjust the second phase
production after receiving
more information in Las
Vegas.

2
m

Q1 (Solution)
Hong Kong: Minimum production of 600 units
Average
2SD ()
()
1017
388

Style
Gail

Type

SF

Style

Seduced

Average
()
4017

2SD ()

Type

SF

1112

2.533273

Isis

1042

646

Assault

2525

680

1.948529

Entice

1358

496

0.318548

Electra

2150

808

1.175743

Assault

2525

680

1.948529

Anita

3296

2094

1.000955

Teri

1100

762

Daphne

2383

1394

0.848637

Electra
Stephani
e
Seduced

2150

808

1.175743

Entice

1358

496

0.318548

1113

1048

Stephanie

1113

1048

4017

1112

2.533273

Teri

1100

762

Anita

3296

2094

1.000955

Isis

1042

646

Daphne

2383

1394

0.848637

Gail

1017

388

Parka style of Type 1:

SF = (-2m)/

Parka style of Type 3:

No order in the first phase

Q1 (Solution)
Hong Kong: Minimum production of 600 units
Style

Average
()

2SD ()

Type

SF

Order
Quantity

Seduced
Assault
Electra
Anita
Daphne
Entice

4017
2525
2150
3296
2383
1358

1112
680
808
2094
1394
496

1
1
1
1
1
1

2.533273
1.948529
1.175743
1.000955
0.848637
0.318548

3063
1708
1293
2029
1339
600

Cumulative
Order
Quantity
3063
4771
6064
8093
9432
10032

Stephanie

1113

1048

10032

Teri

1100

762

10032

Isis

1042

646

10032

Gail

1017

388

10032

Order Quantity = Max {m, -m-(SFmin*)}

Production in Hong Kong should exclude:

Stephanie, Teri, Isis, & Gail

Prob.
62%
63%
62%
62%
62%
62%

Question 2
Can you come up with a measure of
risk associated with your ordering
policy? This measure should be
quantifiable.

Q2 (Solution)

Why Do We Need to Measure

Risk?

One of rules of forecasting: The forecast is

always wrong
The risks that Obermeyer are facing as the
consequences of demand uncertainty:
Stock outs (-24 % whole sale price)
Market downs( -8% of wholesale price)
Outdated designs
High inventory holding cost
Unable to fully profit from hit products

Q2 (Solution)

How to Measure and Quantify

Risk?

Coefficient of variation (cV) is the ratio of standard

deviation to average demand
Gives a relative measure of the variability,
relative to the average demand. It is also known
as unitized risk or the variation coefficient.

cV allows us to determine how much volatility (risk)

we are assuming in comparison to the amount of
return you can expect from your investment

cV = Standard Deviation () / Average

Demand ()

Q2 (Solution)
Result
Style
Gail
Isis
Entice
Assault
Teri
Electra
Stephanie
Seduced
Anita
Daphne
Totals

Standard
Deviation ()
194
323
248
340
381
404
524
556
1047
697

Average
Demand ()
1017
1042
1358
2525
1100
2150
1113
4017
3296
2383
20000

Coefficient of
Variation
0.1908
0.3100
0.1826
0.1347
0.3464
0.1879
0.4708
0.1384
0.3177
0.2925

Q2 (Solution)
Result Interpretations
Product styles with highest risk:
Stephanie (0.4708) and Teri (0.3464)
Product styles with lowest risk:
Assault (0.1347) and Seduced (0.1384)
Risk-based production sequencing:
- Use speculative capacity for low risk products
- Reserve later production capacity (reactive capacity)
for high risk products

Question 3
Repeat your methodology and
assume now that all 10 styles are
made in China. What is the difference
(If any) between the two initial
production commitments?

Q3 (Solution)
China

Minimum production quantity, denoted by m, is

1200 (units).

Style
Gail
Isis
Entice
Assault
Teri
Electra
Stephanie
Seduced
Anita
Daphne

Average
()
1017
1042
1358
2525
1100
2150
1113
4017
3296
2383

2SD ()
388
646
496
680
762
808
1048
1112
2094
1394

Parka style of Type 1(u>2m): SF =

(-2m)/
Parka style of Type 2(u<m): SF =
(m-)/

Type
2
2
3
1
2
3
2
1
1
3

SF
0.4716
0.2446
0
0.1838
0.1312
0
0.0830
1.4541
0.4279
0

Q3 (Solution)
China

Minimum production quantity, denoted by m, is

1200 (units).
Cumulativ

Average
Style
()
Seduced
4017
Gail
1017
Anita
3296
Isis
1042
Assault
2525
Teri
1100
Stephanie
1113
Entice
1358
Electra
2150
Daphne
2383

2SD ()
1112
388
2094
646
680
762
1048
496
808
1394

Type
1
2
1
2
1
2
2
3
3
3

SF
1.454137
0.471649
0.427889
0.244582
0.183824
0.131234
0.083015
0
0
0

Order
Quantity
2725
1200
1922
1200
1269
1200
1200
1200
1200
1200

e Order
Quantity
2725
3925
5847
7047
8315
9515
10715
11915
13115
14315

Production Quantity= Max {m, -m-(SFmin*)}

Q3 (Solution)
The difference between two initial production
commitments on China and Hong Kong
Topic

Hong Kong

China

Hourly Wage

HK$30(=US$3.85)

RMB 0.91(=US$0.16)

Exchange Rate

HK$7.8=US$1

RMB 5.70=US$1

Weekly
(Nonpeak)
output/worker

19 parkas

12 parkas

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

1200units in same style

Repair Rate

1-2%

~10%

Challenges

Wage Rate
Workforce: Younger
workers prefer office
jobs

Workforce:
1. Less quality and cleanliness
conscious
2. Training requirements

Question 4
What operational changes should
Obermeyer Sport be recommended
to improve performance?

Q4 (Solution)
Problems

Short life cycle (Ski Clothes is fashionable

product.)

Long time of planning and production.

Uncertain forecasting customer demand

Fashion

Q4 (Solution)
Lead Time Reduction
Asia
Fabric
Producer

Fabric
Dyer

undyed greige
goods

Cut/Sew
Factory

Denver
Warehouse

Sport
Obermeyer

Retailer

Dyer has long lead time (keep their capacity

utilized year round)
Change colors overnight
Can predict total annual sales (basic colors)
Cannot predict fashion colors

Consumer

Q4 (Solution)
Solutions
Offer dyer one year
Basic colors earlier
Fashion colors late in season

Q4 (Solution)
Supply Chain System
Promotion strategy persuade retailers to early
order (propose a discount)
Establish DC in Seattle (reduce lead time and cost
from Seattle to Denver)

Q4 (Solution)
Original Distribution Process

Seattle
Hong Kong

Establish Distribution
Center in Seattle without
through Denver

Q4 (Solution)
Production System
To reduce lead time of the preparation of raw
materials (scheduling)
Reduce number of styles
Product innovation

Q4 (Solution)

Operational Changes (Information

System)
Committee forecasting (Research trend and market
movement)
Big data analysis (market information based on
historical data)

Question 5
How should Obermeyer Sport think
about sourcing in Hong Kong versus
China?
What kind of sourcing policy do you
recommend?

Q5 (Solution)
Advantages of Each Location
Hong Kong
China

Q5 (Solution)
ASPECT

HONG KONG

CHINA

Quality

Good

Low

Cost of Manufacturing

High

Low

Labor Productivity

High

Low

Capacity and work

load

Small

Large

High

Low

600 pcs/style

1200 pcs/style

Very fast (plane) but

expensive Long but cheap

Long but cheap

Flexibility
Minimum order
quantity
Transport

Q5 (Solution)
Location

Short Term
High standard factory

HONG KONG

Reducing the lead time

Produce the product

with high uncertainty
demand

Produce the new series

in HK first before to
produce after in China

CHINA

Long Term

Increasing production
Set up China as a main quality
factory
Improve the
performance

Q5 (Solution)
Recommendation
Assigning the orders which before Las Vegas Show to
China Mainland.
Even it won't be a a large part of Obermeyer's whole
orders, it also can meet the minimum order quantity.
Because these orders are early, so Obermeyer does
not have to worry about the quota restriction.
It will have enough time to repair, if there are some
quality issue (we can make it done before selling
month).

Q5 (Solution)
Recommendation (continued)
Assigning the large orders (late orders) to Hong
Kong.
Because of Hong Kong's high productivity, orders
can be done more quickly.
Because of Hong Kong's lower repair rate, we
have fewer concern about the delay.
We don't have to take a high risk of the quota
restriction

Q5 (Solution)
Recommendation (continued)
Improve the demand forecast made internally by
Buying Committe in Nov. 1992, just before
Speculative Production.
Obtain market feedback earlier than Las vegas.
Decrease lead times for both raw materials and
finished goods.
Increase production capacity.
Decrease minimum order quantities.

Thank You
Any Question?