Sport Obermeyer Handout

Topics: Standard deviation, Economic order quantity, Normal distribution Pages: 24 (1758 words) Published: March 1, 2015
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 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 The Effect of a Parka’s
Mean Demand
Assume that Andy and Peter have
the same unit cost of production and
the same standard deviation for demand of 200,
but that
Andy’s demand has a mean of 1000 while
Peter’s demand has a mean of 1200.

Pr{Overstock}=Pr{DIt has a relatively ______ standard deviation of demand.
It has relatively ______ mean demand.
It has a relatively ______ unit cost of production.

8

Speculative Production:
Equalizing over 2 Parkas
the Probability of an Overstock
Assume that Andy and Peter have
the same unit cost of production
but that
Andy’s demand has a mean of 1000 & standard deviation of 250, Peter’s demand has a mean of 2500 & standard deviation of 500.

Q=1000 - k250

Q=2500 – k500

QUESTION: How can we set the production quantities so that
Pr{Overstock of Andy} = Pr{Overstock for Peter}?

9

Solving Wally’s Sample Problem
(on page 8 of the Case)
Using the concept on the previous slide and the sample data
in Exhibit 10, we will determine for Wally the order quantity for each style during Speculative Production. To simply, we
will assume that:
all 10 styles in the sample problem are made in Hong
Kong,
no style has a minimum order quantity,
all styles have the same unit cost of production, and
total Speculative...
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