In order to address long lead times and a high inventory count with uncertain demand, I have decided for the initial Hong Kong order to produce those products that have the smallest standard deviation when comparing the Buying Committee Forecasts. An attempt will also be made to purchase the lowest cost items within this group as initial order size of 10,000 units allows. Combined, this will allow for the least amount of risk when using the limited information we have for the initial order. The ideal products to order are those with enough forecast quantity that the minimum quantity order will be less than the forecast and also leave enough room for a reorder of the minimum quantity or more if required. While this is a directional change from our annual forecasting method, we must act to improve this process in order to protect net revenue and market share.
Effective immediately I am recommending we increase inventory of raw materials for production in order to limit the lead time in this step of the supply chain. Our production team will work with our business partners at Obersport to procure excesses in long life raw materials. While there will be an incremental cost, we are likely to see per unit cost decrease based on the volumes purchased and cut down our total cycle time.
Lastly, I am recommending that we continue to sourcing production in both Hong Kong and China, to benefit from each location. China has low per unit costs, while Hong Kong has the ability to offer faster production times in smaller quantities. In order for us to have full cost advantage from sourcing in both locations, we must continue to reduce processing times at each stage of their planning and production cycle.
These operational changes will be discussed at the forecasting planning meeting next week.
February 28, 2013
Increases in product variety and intense industry competition are causing inaccurate forecasts of retailer demand. Having weak forecast of inventory to meet demand has resulted in slow moving SKU’s with excess inventory at seasons end being sold at discounts. Meanwhile, the company is frequently unable to meet demand for popular styles resulting in lost revenue and dissatisfied retailers and end consumers. Secondly, the company must decide how to allocate production between factories in Hong Kong and China. These immediate issues are a symptom of the companies broader systemic issues which are noted below.
While the immediate issue is production planning for short life cycle products and mismatched supply and demand, there are a number of systemic issues that should be analyzed.
Inaccurate Forecasts of Retailer Demand
Nature: Tactical Timing: Long Term
Production decisions for the annual skiwear line are made with little data surrounding the performance of the current year line. Waiting for final accurate market information, while highly valuable, delays delivery to retailers reducing exposure to end consumers. Inaccurate forecasts of retailer demand are a growing problem that is costing the company in lost revenue.
Long Lead Times
Nature: Tactical Timing: Short Term & Long Term
Long lead times are a reality in the apparel industry, particularly in high quality garments. At Sport Obermeyer the lead time is approximately two years. As an example, Obersport asked subcontractors to dye or print fabric. Dying subcontractors required a lead time of 45-60 days and a minimum quantity order of 1,000 yards. Printing subcontractors required a minimum of3, 000 yards and lead times were also 45-60 days. As a result of long lead times, stock-outs of popular items frequently occurs during peak selling periods, and excess inventory of slow moving SKU’s are sold well below wholesale rates.
Large Variety of Product
Nature: Tactical Timing: Long Term
The design process leverages...