Sport Obermeyer Handout

Sport Obermeyer

1

Sport Obermeyer’s Time Line and “Speculative” versus “Reactive” Production
"NOW"
Initial
Forecast

9 months
Feb
…
Oct
1992 … 1992
Design of
1993-94
Line.

Las Vegas
Revised
Forecast

5 months
Nov … Mar
1992 … 1993

5 months
April … Aug
1993 … 1993

"Speculative"
Production

"Reactive"
Production

of 1993-94 Line

of 1993-94 Line

In Feb 1993, start design of 1994-95 line. “Speculative” Production

27 Months

Sept
1993

Oct
1993

Nov
1993

8 months
Dec
Jan
1993
1994
Selling of

Feb
1994

Mar
1994

Apr
1994

1993-94 Line
(peak selling in Dec & Jan)

In Feb 1994, start design of
1995-96 line.

“Reactive” Production

2

Speculative Production:
Overstock versus Stockout?
Assume that Sport Obermeyer: is in the Speculative Production phase, forecasts that demand (D) for the Andy parka has a Normal Probability
Distribution with a mean of 1000 and a standard deviation of 250, and has decided that the Andy parka’s Speculative Production should be
Q=750.
Pr{Stockout}=Pr{D>Q}
=0.841

Pr{Overstock}=Pr{D<Q}
=0.159

750
Q

During the Speculative Production, Sport Obermeyer should be more concerned about

3

Speculative Production:
Guidelines for Choosing a Parka to Produce
In this slide and the next 4 slides, we will assume that Sport Obermeyer is in the Speculative
Production phase and must decide whether to produce the Andy parka or the Peter parka.
We will also assume that a parka’s demand has a
Normal Probability Distribution.
We will investigate how this decision is affected by: the parka’s standard deviation of demand, the parka’s mean demand, and the parka’s unit cost of production.

4

The Effect of a Parka’s
Standard Deviation of Demand
Assume that Andy and Peter have the same unit cost of production and the same mean demand of 1000, but that
Andy’s demand has a standard deviation of 100 while
Peter’s demand has a standard deviation of 200.

Pr{Overstock}=Pr{D<Q}
= Area to Left of Q
Q

During Speculative Production,
5

The Effect of a Parka’s