Wally Obermeyer is facing a challenge in accurately forecasting the market response and demand for the upcoming season. Historically, the company founder, Klaus Obermeyer, relied minimally on forecast data, and more on intuition and artistic tastes. In comparison, his son Wally prefers to make decisions based on analytical techniques and information gathering. If Wally’s approach proves successful, it can change how Sport Obermeyer approaches its manufacturing processes, secure its position long-term as the middle- to high-end producer of skiwear, increase profits, and better meet the company’s objective of delivering matching collections to retailers at the same time and earlier in the season.
Sport Obermeyer has many challenges to overcome. Forecasting is problematic since production commitments are required in November, but the bulk of the orders are not placed by retailers until the Las Vegas trade show in the following March. Also, the market trends are seasonal, changing frequently, and adding to the difficulty in forecasting. The company cannot postpone production completion dates due to the quota limit on importation of goods from China, where a bulk of its production occurs. Adding further complications to the manufacturing decisions, the company has a new manufacturing facility coming online in Hong Kong, and must determine what products, and how much of those products should be manufactured in each of the facilities. Issues with vendors of raw materials must be addressed. There are long lead times for some vendors, and because of that, excess inventory is maintained in the manufacturing facilities. The company must also maintain a competitive edge with the growing pressure from competitors, specifically Columbia.
Sport Obermeyer has relied on a buying committee comprised of key manager to forecast production demands, and make decisions regarding production commitments. Historically, this committee has done fairly well in predicting which styles will be popular, and forecasting has been best for the styles on which agreement was greatest between the committee members. In order to take the greatest advantage of this committee, Wally Obermeyer is utilizing the Delphi method. This method will give Wally the opportunity to determine which members of the committee have the greatest accuracy. While it may not pay off in the immediate decisions, over several years, he will be able to determine which members’ opinions should receive the greatest weight when making production decisions. In the meantime, a decision must be made regarding the upcoming season. Wally should proceed with the minimum order necessary, one-half of the total expected demand for the season (10,000 units), to keep up with production demands. Since the minimum production quantity for a style is 600 units from the Hong Kong facility, Wally should initially only consider production of styles predicted to exceed this limit until the bulk of the order come in following the Las Vegas show. In doing so, the risk of overproducing a style, and being forced to sell it at a deficit will be mitigated. Past data indicates the buying committee’s forecast is accurate within two standard deviations. Using these forecasts, Sport Obermeyer should delay production of the Isis, Teri, and Stephanie styles since they demand is forecasted to be low for them, and proceed with the remainder of the items in consideration (See Table 1 for quantities relating to each style). Forecasting also has difficulties due to the delay in information from retailers regarding which products are most popular. Long-term, and if financially feasible, Sport Obermeyer should consider providing retailers responsible for the majority of purchases of their good with software that will provide Sport Obermeyer with real-time data on sales of its product. By doing so, the company will better be able to predict what items are desired for replenishment orders, and greatly...
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