Sport Obermeyer

Topics: Economic order quantity, Hong Kong, Economy of the People's Republic of China Pages: 5 (1734 words) Published: April 19, 2010
*Sport Obermeyer:* Case Analysis
Pratyusha Lakshmi Puranam

Executive Summary:
Obermeyer offers a broad line of fashion ski apparel, including parkas, vests, ski suits, shells, ski pants, sweaters, turtlenecks, and accessories. Parkas are considered the most critical design component of a collection; the other garments were fashioned to match the parkas’ style and color. Their products were offered in five different genders: men’s, women’s, boys’, girls’, and preschoolers’. The company segments each “gender” market according to price, type of skier, and how “fashion-forward” the market was. Within each “gender”, numerous styles are offered, each in several colors and a range of sizes. In the current situation, Obermeyer is facing two major issues: inability to meet the demand of retailers during peak sales and a confusion of where to produce the garments – Hong Kong or China. The best way to mitigate the inability to meet the demand of retailers during peaks sales would be to forecast the demands with either past data or with the help of a forecasting committee. It would be idea for Obermeyer to forecast future demand with the help of a forecasting committee. To come over the confusion of which city to continue production in, Obermeyer should choose to continue short term production in Hong Kong but the Long Term production should be in China. Sport Obermeyer has the following main problems:

Inability to meet the exact demand of the retailers of the latest fashion which is actually a result of poor forecasting of the jackets: Sport Obermeyer depends on the Las Vegas show to determine what fashions were going to dominate the season coming up and then produce the best fashions. This was a problem because the gap between the show and the production of final product and making it available to the retailer takes time and meanwhile anything can happen. Thus a rigid and accurate forecast must be made based on data as well as experience. They are in a dilemma of which location to continue their production in – Hong Kong or China: Raymond Tse had built the new factory in China where the cost was less but the quality had to be compromised. Moreover, the labor had to be trained and a higher minimum order was required. These issues were addressed by the Hong Kong facility where quality of product was good, the labor could multitask, a lower minimum order size was required and the time of production was low. But the overall cost was high. Recommendations:

In order to overcome the forecasting issue, effective forecasting methods like forecasting with the committee should be adopted. The calculations can be based on the newsvendor problem and will help to forecast the optimum requirement of products. To overcome the dilemma of where to produce, the production initially continue in Honk Kong andshould be eventually moved to China. Later, Hong Kong should be used when the minimum order size does not suit that in China. Supporting Analysis:

Sport Obermeyer has the issue of lack of stock during peak sales of certain types of parkas. This is very similar to the New Vendor problem. The newsvendor problem is a classic in management science partly because selecting an optimal inventory level in the face of uncertain demand is an important problem but also because the solution is so elegant and intuitive: the inventory should be selected so that the probability that the vendor stocks out should be set equal to the ratio of the item’s unit cost to its unit price. Precisely, the Newsvendor Framework is:

One chance to decide on the stocking quantity for the product you’re selling Demand for the product is uncertain
Known marginal profit for each unit sold and known marginal loss for the ones that are bought and not sold Goal: Maximize expected profit
P(x)Marginal Profit – (1 – P(x))Marginal Loss = 0
i.e. P(x) =...

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