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Sport Obermeyer Case

Prof Mellie Pullman

Objectives

Supply Chain Choices & Operations Strategy Product Category challenges Operational changes that reduce costs of mismatched supply and demand Coordination Issues in a global supply chain

Type of Product

Typical Operational & Supply Chain Strategies


Cost Quality Time (delivery, lead time, etc) Flexibility (multiple choices, customization) Sustainability

Sport Obermeyer ?
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Challenge of delivering on the strategy?

Challenges of matching supply to demand

Supply Side

Demand Side

Costs & Risks of Over-stock versus Under-stock

Over-stock

Under-stock

China
November Pre year

Colorado
Design clothes Make forecasts

US Retailer

November

Take Orders Make Fabric Assemble Clothes

Order textiles & styles

March

Las Vegas show

Make orders to Sport O.

August

Deliver to Colorado

Warehouse

September

Distribute to retailers Retail Season

February
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Two Order Periods

How are they different?

Risk-Based Production Sequencing Strategy


New Info. Material Lead time Lead Time to Store

Speculative Production Capacity Reactive Production Capacity

Planning Approach

How many of each style to product? When to produce each style?

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Buying Committee Forecasts


Style Job Price Laura Market Director Caroly n CS Mgr Greg Product -ion mgr Wendy Product -ion coord Tom Sales Rep Wally VP Ave Forecast Stan d Dev 2x Stand Dev

Gail Isis Entice Assault Teri Electra Stephani Seduced

$110 $ 99 $ 80 $ 90 $123 $173 $133 $ 73

900 800 1200 2500 800 2500 600 4600

1000 700 1600 1900 900 1900 900 4300

900 1000 1500 2700 1000 1900 1000 3900

1300 1600 1550 2450 1100 2800 1100 4000

800 950 950 2800 950 1800 950 4300

1200 1200 1350 2800 1850 2000 2125 3000

1017 1042 1358 2525 1100 2150 1113 4017

194 323 248 340 381 404 524 556

388 646 496 680 762 807 1048 1113

Anita
Daphne

$ 93
$148

4400
1700 20000

3300
3500 20000

3500
2600 20000

1500
2600 20000

4200
2300 20000

2875
1600 20000

3296
2383 20000

104 7
697

2094
1394

Totals

Standard Deviation of demand= 2x Standard Deviation Forecast

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Team Break out 1

Using the available data, assess the risk of each suit and come up with a system to determine:

How many of each to style to produce When to produce each style Where to make it

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Low Risk Styles

We under-produce during initial production so we want: Least expensive products


Low demand uncertainty

Highest expected demand


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Standard Normal Distribution - produce m-zs

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Production Strategy A
Account for production minimum

If we assume same wholesale price, we want to produce the mean of a styles forecast minus the same number of standard deviations of that forecast i.e., mi-ksi (k is same for all).
Approach: produce up to the same demand percentile (k) for all suits.
Sum (m-ks)each style = 10,000 (meet production minimum)

Determine k for all styles

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Solve for k with total close to 10000 (k=1.06)


Style Seduced Assault Electra Anita Daphne Entice Gail Isis Teri Stephanie Totals Avg. of Forecast m Std. Dev. Forecast 4017 2525 2150 3296 2383 1358 1017 1042 1100 1113 20001 1113 680 807 2094 1394 496 398 646 762 1048
First Period Production

Q= m-ks 2837 1804 1295 1076 905 832 606 357 292 2 10008

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But what about the batch size minimums?

Large production minimums force us to make either many parkas of a given style or none.
How do we consider the batch size minimums for the second order cycle?

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Strategy B: Categories for Risk Assessment


m= minimum order quantity (600 here) SAFE: Styles where demand is more than 2X the minimum order quantity (well have a second order commitment) SOS: Sort of Safe=expected demand is less than minimum order quantity. If we make em at all, make em first (have to make minimum) RISKY: demand is between C1 & C2.
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Approach

Compute risk for each style Rank styles by risk

Figure out the amount of non-risk suits

to produce in the first run

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Assign Risk
Style Seduced Assault Electra Anita Daphne Entice Gail Isis Teri Stephanie Avg. of Forecast m 4017 2525 2150 3296 2383 1358 1017 1042 1100 1113 Std. Dev. Forecast 1113 680 807 2094 1394 496 398 646 762 1048 Risk Type Safe Safe Safe Safe Safe Safe Risky Risky Risky Risky

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Modified Approach

Determine how many styles to make to give total first period production quantity.

Assess each case by determining the optimal quantities for non-risk suits using Production Quantity = Max(600, mi-600-k*si) Same approach as before (determine the appropriate k so that lot size <10,000)
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Example:

Production Quantity = Max(600, mi-600-k*si) ; k =.33

Style Seduced Assault Electra Anita Daphne Entice

Avg. of Forecast m 4017 2525 2150 3296 2383 1358

Std. Dev. Forecast 1113 680 807 2094 1394 496

3049.71 1700.6 1283.69 2004.98 1322.98 600

9961.96

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Should we make more suits?

Production minimum order is 10,000? Pros? Cons?


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Sport Obermeyer Savings from using this risk adjustment


Models Decisions Total Production (units) 124,805 Over-production (units) 22,036 Under-production (units) Over-production (% of sales) Under-production (% of sales) Total Cost (% of sales) 792 1.3% .18% 1.48% Sport O Decisions 121,432 25,094 7493 1.73% 1.56% 3.30%
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Team Breakout 2

What supply chain & operations changes can be implemented to reduce stock-outs and mark-downs?

Design, production, forecasting, etc.? Specific: How are you going to do it, Actions?

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Operational Changes to Reduce Markdown and Stock-out Costs

Reducing minimum production lot-size constraints How ?

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Effect of Minimum Order Quantity on Cost


S.O./M.D. Cost as % of Sales
7 6.8 6.6 6.4 6.2 6 5.8 5.6 5.4 5.2 5 0 5.4 5.1 200 5.15 400 600 800 1000 1200 6.4

5.8

Minimum Order Quantity

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Capacity Changes

Increase reactive production capacity

How? Pros and cons?

Increase total capacity

How? Pros and Cons?

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Stock-out & Mark-down Costs as a Function of Reactive Capacity


S.O./M.D. Cost as % of Sales
12 10 8 6 4 2 0 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 Reactive Capacity (as a % of Sales)
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Lead Times

Decrease raw material and/or manufacturing lead times


Which ones? How?

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Lead Times

Reduce findings leads times (labels, button, zippers)


inventory more findings standardize findings between product groups

more commonality reduced zipper variety 5 fold.

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Where does it make sense to inventory product?


Griege Fabric

Dye Solid Colors

Printed

Size 8 Black Electra

SKU

SKU

SKU

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Obtain market information earlier

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Accurate Response Program

Using buying committee to develop probabilistic forecast of demand and variance (fashion risk) Assess overage and underage costs to develop relative costs of stocking too little or too much Use Model to determine appropriate initial production quantities (low risk first) Read early demand indicators Update demand forecast 34 Determine final production quantities