Managing risk in global operations under highly uncertain demand requires a heavy reliance on accurate forecasting. Sport Obermeyer, Ltd is in the business of manufacturing skiwear which includes short life cycle items due to their short selling season and dependence on trends in fashion. Each year Sport Obermeyer is challenged with matching supply to demand because production must be forecasted more than one year ahead of the expected selling season. These forecasts determine how much Sport Obermeyer should produce, but still entail an element of risk. Labor restrictions and production lead times that are significantly longer than the product’s selling season make accurate forecasting of trends crucial to Sport Obermeyer’s business. This analysis will address the production cycle, current challenges, how much product should be ordered, when it should be produced, and where it should be produced for the ’93-’94 selling season as well as some suggested recommendations for improving operational performance.
The Production Cycle:
The cycle time between initial design of ski parkas and the final sale to retailers typically runs from February of the year prior to the selling season through September. This indicates a total cycle time of approximately seventeen to nineteen months, depending on final shipment to the retailers. Final shipment is restricted by production capacity and occurs over the June – August time frame. This is immediately prior to the selling season which begins in September and runs through January of the following year. The time until sale to final end consumer can vary depending on the product and when it is sold during the selling season. This cycle also incorporates several major processes including the development of prototypes and testing them in the market, working trade shows to secure sales, and developing forecasts. An outline of the production process is shown in figure 1 below, leading up to the selling season where products are actually delivered to the retailers. The retail timeline is outlined in figure 2. The raw materials process flow has also been included in the appendix.
This lengthy production cycle is necessary for Sport Obermeyer to develop attractive designs for the market, as these designs are usually influenced by the European market. The “fashion-forward” European market produces designs that usually flow to the U.S. market the following year. This makes it necessary to begin developing designs in February of the previous year, ultimately taking 8 months to finalize these designs (September). This production cycle is also lengthy due to the long lead times for raw materials sourcing, further compounded by the variety of raw materials used in production. Numerous colors, fabric types, and additional components, such as zippers, make raw materials procurement a long, burdened process. A third issue lengthening the cycle time is the limited production capacity at the manufacturing facilities. Using the parka’s capacity of 30,000 units per month, Sport Obermeyer would have to have manufacturers begin producing almost 7 months prior to the selling season to meet the 200,000 unit selling season demand.
This long cycle time also makes it difficult for Sport Obermeyer to obtain accurate demand forecasts, as it begins the forecasting process well before any actual sales data is gathered for the current season. Inaccurate forecast increase the probability that there will be a mismatch in demand that will lead to excess inventory for some products, and shortages of inventory for others. Both of these scenarios carry a cost. The first is the cost of overage and amounts to the loss that will be incurred by holding the inventory for longer than anticipated combined with the excessive markdowns that must follow to dump the excess inventory before it becomes obsolete. This is clearly a tangible cost to the firm. The latter is the cost of underage and is the...
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