Obermeyer Case

Topics: Risk, Risk management, Rate equation Pages: 6 (1632 words) Published: April 6, 2013
Sport Obermeyer| October 4
BUAD 6600|
Meagan Frances AyersJames FranksEmelie HallJean-Hubert Trahan| Instructor: Sachin Modi|


The purpose of this article is to determine how many units of each style Sport Obermeyer should produce during its initial phase of production (November through March) and during its second phase of production (March through October). Factors that need to be considered in this decision are the risk associated with each style, from where each product will be sourced (Hong Kong or China), and the numerical and opportunity costs associated with the sourcing decision. Operational changes are also recommended in order to improve performance in the short and long-term.


Through a risk analysis it is recommended that:

* The Assault, Seduced, Entice, and Electra lines are produced in China for both the first and second production phase. * The Gail, Daphne, Isis, Anita, Teri, and Stephanie lines are produced in Hong Kong for both the first and second production phase. * The following quantities be ordered of each style or he first order: Assault (2,020), Seduced (3,213), Entice (1,200), Electra (1,720), Gail (813), Daphne (600), Isis (600), Anita (600), Teri (600), and Stephanie (600). * The following quantities be ordered of each style or he first order: Assault (505), Seduced (804), Entice (158), Electra (430), Gail (204), Daphne (1783), Isis (442), Anita (2,637), Teri (500), and Stephanie (513). *See Assumptions.

It is also recommended that short term and long term operational changes are implemented in order to make production more fluid and productive. These changes include:

* The maximum production should be increased (Short-Term). * Workers of the China plant should be trained to make products faster and of higher quality in order to shorten the lead time of products (Long-Term).

Risk Assessment

In order to determine what items should be produced where, a risk assessment was conducted for all lines per the average forecast for each line. The Coefficient of Variation (COV) was determined in order to analyze the risk associated with each line.

A benchmark of 0.2 COV was used to determine the associated risk. Any item with a COV below 0.2 is considered a low risk item while any item with a COV higher than 0.2 is considered a high risk item.

When sourcing from China, four styles need to be ordered in excess of the average forecast in order to reach minimum production amounts. To determine how many of each style to order in the first round, preference was given to the lower risk items. 80% of the lower risk items should be ordered initially because it is more certain that the amounts forecasted will be accurate. For items with a COV above 0.2 only 20% of the average forecast will be ordered so that Sport Obermeyer can wait until after the Las Vegas show to verify with 80% certainty the success of each style.

It is recommended that any high risk item be produced in Hong Kong because they are more flexible, produce higher quality items, and the minimum production requirements for an order is only 600 units versus the 1,200 units required in China. [Please refer to Exhibit 1]

Likewise, if an item requires less than 1,200 units, it should be required that it be produced in Hong Kong due to production requirements and to keep from overproducing. It must also be noted that the maximum production for Sport Obermeyer is 20,000 units (on a 10% scale) and therefore this should be met but not exceeded within both orders combined.

Assessment of Producing All Products in Hong Kong

At the Hong Kong plant, there is a minimum of 600 units required per line produced. For this reason, the initial quantity for the Daphne, Isis, Teri, and Stephanie lines would need to be increased to meet this requirement for the first order. The quantity ordered per line for the first order would be as...
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