sport obermeyer

Supply Chain ManagementPerformed by Group 8

CONTENTS

• Company Profile• Supply Chain• Production Process• Order Cycle• Products Transportation• Retailers• Ordering & Shipment Process• Question & Answer

Company Profile (About)

• Founded in 1947 by Klaus Obermeyer, Obermeyer is a high-end skiwear design and merchandising company headquartered in Aspen, Colorado.

• It sells its products through US and Canada department stores and ski shops.

• Fashion skiwear manufacturer offering a broad line of ski apparels including parkas, vests, ski suits, shells, ski pants, sweaters, turtlenecks & accessories.

• Estimated Sales of US $ 32.8 million in the year 1992.

• Major Production done in Hong Kong and China by partner company Obersport Ltd.

• Obersport Ltd. was a joint venture established in 1985 by Klaus Obermeyer & Raymond Tse.

• Obersports is responsible for the raw material sourcing and production for all Sports Obermeyer’s products in the Far East.

Company Profile (Video)

Sport Obermeyer

Company Profile (Products)

Authentic high performance ski wear styles: Ski Jackets, Shells, Coats, Ski Suits, Down Jackets, Vests, Ski Pants, Stretch Pants, Suspender Pants, Bib Pants, Soft Shells, Insulators, Windshirts, Sweaters, Fleece, Zip-T's, Turtlenecks, Fleece Hoodies, Base Layers, Fleece Underwear, Fleece Tops and Tights, Knit and Fleece Hats, Ski Gloves, Ski Mittens, Accessories. Core Zone Venting system. Extended Wear® system. Kids Bunting, Kids Mitten Clips, Kids 'I-Grow'® System

Sport Obermeyer, Ltd. designs and manufactures authentic skiwear for:men, women, teens, and kids

men women

teens kids

Company Profile (Innovations)1947 Dual construction ski boot1948 Down ski parkas (Klaus' own goose down comforter)1949 Ski sweaters (imported from Germany)1950 High-Altitude sun tan lotion1951 Pre-shaped ergonomic gloves1952 Turtleneck & zip turtlenecks1954 First “Flow” boot (from a viscous liquid “car grease”)1958 Quilted Parkas (shavings from a textile factory)1960 Mirrored sunglasses (French precision lenses)1961 Nylon windshirts/Boot fit press1962 Side-zip warm-up pants1963 First ski fashion advertisement in SKI magazine1965 Stretch ski pants utilizing Schoeller fabrics1966 Double lens goggles1974 Two-pronged ski brakes1975 Implementation of waterproof/breathable fabrics1978 Seam sealing fabrication technology1982 Obermeyer “I-Grow” Extended Wear Systems1988 First Goretex® Waterproof/Breathable shell lining1993 Double seat and knees in pants2002 Anti-microbial fabrics with wicking properties2007 Sustainable fabrics with 48% recycled textiles

Company Profile (Facilities)

Supply ChainPlanning and management of sourcing, producing & wholesaling

Textile & Accessories

Suppliers

Apparel Manufactures Obersport Sport

ObermeyerRetail

Locations

Produce, dye and print shell and lining fabrics, supply insulation, zippers, thread, logo patches and snaps.

Subcontractors, receive production orders and materials from Obersport.

Cut, sew and final assembly.

Responsible for material and production sourcing in the Far East.

Acts as a distribution centre for materials and finished goods.

Product design, production planning and sales.

Purchase from Sport Obermeyer and sell products to consumers.

Supply Chain

Raw materials were collected around the world.

Shell Fabrics & Lining

• United States• Korea• Germany• Austria• Taiwan• Switzerland

Subcontractors

• Dye & print fabric options

• 45-60 day lead time

• Dyeing (min. order quantity 1.000 yards)

• Printing (min. order quantity 3.000 yards)

Trims

• Hong Kong• d-rings• buckles• pull-strings• buttons

• Germany• snaps• labels• tags

Zippers

• YKK• Japan• 60 day lead

time• Other

• Japan• non-

standard zippers

• 90 day lead time

Cut & Sew Labor

• Outsourced• Hong Kong• China

Production Process

Fabric Producer

Fabric Dyer Cut/Sew Factory

Denver Warehouse

Retailer

undyed greige goodsSport Obermeyer

Asia

Consumer

Components

Greige Shell Fabric

Finishing of Shell Fabric (Dying & Printing)

Finished Lining Fabric

Insulation

Zippers

Thread

Logo Patches, Drawcords, Hang Tags, etc.

Snaps (undyed)

Dyeing of Snaps

Procurement Lead Time

45 – 90 days

45 – 60 days

45 – 60 days

2 – 3 weeks

Standard (HK) 60 days, Custom (JP) 90+ days

30 days

15 – 30 days

1 – 2 months

15 – 30 days

Order Cycle- Sold at specialty ski retailers most sales

between September & January

- Full delivery prior to retail season

- Design process/sample production

- Design based on European styles

- Style/color combinations made

- Sourcing/production- Place orders quickly

- Long lead times, i.e. 90 days

- Ordering/shipment- 80% sales at Las Vegas

Trade show- Second/final orders placed

Product Transportation

Hong Kong

Seattle

Denver

RetailersJune & July

August End of August

Specialty Ski-Retail Stores

Department Stores

Direct Mail Retailers

Consumers

Most sales occur between September and January

Delivering products by early September

Sport Obermeyer

Retailers

Ordering & Shipment Process

Product Sketches

Forecasts

Order 20% in Apr-Jun 93

Order 80% in Mar 93

Retailers order in Apr-Jun 93

6 weeks

Forecast Committe

800 SkiRetailers

QUESTION & ANSWER

Question 1

• Using the sample data given in Table 3-19, make a recommendation for how many units of each style Wally should make during the initial phase of production. Assume that all of the 10 styles in the sample are made in Hong Kong and that Wally`s initial production commitment must be at least 10,000 units.

• Ignore price differences among styles in your initial analysis.

Q1 (Solution)Problem Situation

• Buying Committee’s forecast of 10 women parka style sample (which represented 10% of Obermeyer’s total demand):– 10 women parka styles totaling up to 20.000 (10% of 200.000) units– Production plant cutting and sewing sample capacity of 3.000 (10%

of 30.000) units per month• The 10 women parka styles is produced entirely either in Hong Kong or

in China• Minimum production quantity for Hong Kong is 600 units and China is

1200 units

Assumption

• All 10 styles in the sample problem are made in Hongkong. Initial production commitment at least 10.000 units.

Q1 (Solution)No. Style Price ($) Laura Carolyn Greg Wendy Tom Wally Average SD 2SD

1 Gali 110 900 1000 900 1300 800 1200 1017 194 388

2 Isis 99 800 700 1000 1600 950 1200 1042 323 646

3 Entice 80 1200 1600 1500 1550 950 1350 1358 248 496

4 Assault 90 2500 1900 2700 2450 2800 2800 2525 340 680

5 Teri 123 800 900 1000 1100 950 1850 1100 381 762

6 Electra 173 2500 1900 1900 2800 1800 2000 2150 404 808

7 Stephanie 133 600 900 1000 1100 950 2125 1113 524 1048

8 Seduced 73 4600 4300 3900 4000 4300 3000 4017 556 1112

9 Anita 93 4400 3300 3500 1500 4200 2875 3296 1047 2094

10 Daphne 148 1700 3500 2600 2600 2300 1600 2383 697 1394

TOTAL 20000

Table 2.20 Sample Buying Committee Forecast, 10 Styles of Women’s Parkas

Q1 (Solution)Company Strategy

• Ignore price differences among parka styles (assuming each style has the same price)

• Initial phase production:– Forecasted to comprise 20% of the demand, the production unit

order should be low risk oriented

• Second phase production:– Forecasted to comprise 80% of the demand, the production unit

order should maximize profit

Recommendation• Identification, assessment, and prioritization by coordinated and

economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events.

Q1 (Solution)Production order with minimum order size• To determine the initial phase order quantities for each parka

style, we will need to:1) Calculate production “Safety Factor” for each parka style,2) Prioritize among the parka styles, and3) Calculate the order size.

• This safety factor incorporates demand uncertainty as well as expected demand

• General Production Safety Factor formula:– SF = Max(µ-2m, m-µ, 0)/σ

Minimum production quantity in Hongkong is denoted by m and the value is 600 unit

Q1 (Solution)Production Safety Factor (PSF)

• Parka styles of Type 1: µ>2m– SF = (µ-2m)/σ

• Parka styles of Type 2:µ<m– SF = (m-µ)/σ

• Parka styles of Type 3:m<µ<2m– SF = (m < µ < 2m)/σ = (0)/σ

Q1 (Solution)Production Safety Factor (PSF)

Parka Styles of Type 1• SF = (µ-2m)/σ• µ>2m• It’s relatively safe to

order (at least) the minimum quantity.

• We will be likely able to adjust in the later production period.

µ2m

Q1 (Solution)Production Safety Factor (PSF)

Parka styles of Type 2• SF = (m-µ)/σ• µ<m• When producing this

parka style, we’ll have to use the minimum order quantity at some point during the season.

µ m

Q1 (Solution)Production Safety Factor (PSF)

Parka styles of Type 3• SF = (m < µ < 2m)/σ = (0)/σ• m<µ<2m• The riskiest product to make in

the first phase production.• When committing to produce

some amount during the first phase, we are likely unable to adjust the second phase production after receiving more information in Las Vegas.

µ 2m

Q1 (Solution)Hong Kong: Minimum production of 600 units

Style Average (µ) 2SD (σ) Type SF

Gail 1017 388 3 0

Isis 1042 646 3 0

Entice 1358 496 1 0.318548

Assault 2525 680 1 1.948529

Teri 1100 762 3 0

Electra 2150 808 1 1.175743

Stephanie 1113 1048 3 0

Seduced 4017 1112 1 2.533273

Anita 3296 2094 1 1.000955

Daphne 2383 1394 1 0.848637

Style Average (µ) 2SD (σ) Type SF

Seduced 4017 1112 1 2.533273

Assault 2525 680 1 1.948529

Electra 2150 808 1 1.175743

Anita 3296 2094 1 1.000955

Daphne 2383 1394 1 0.848637

Entice 1358 496 1 0.318548

Stephanie 1113 1048 3 0

Teri 1100 762 3 0

Isis 1042 646 3 0

Gail 1017 388 3 0

• Parka style of Type 1:• SF = (µ-2m)/σ

• Parka style of Type 3:• No order in the first phase

Q1 (Solution)Hong Kong: Minimum production of 600 units

• Order Quantity = Max {m, µ-m-(SFmin*σ)}• Production in Hong Kong should exclude:

• Stephanie, Teri, Isis, & Gail

Style Average (µ) 2SD (σ) Type SF Order Quantity Cumulative Order Quantity Prob.

Seduced 4017 1112 1 2.533273 3063 3063 62%

Assault 2525 680 1 1.948529 1708 4771 63%

Electra 2150 808 1 1.175743 1293 6064 62%

Anita 3296 2094 1 1.000955 2029 8093 62%

Daphne 2383 1394 1 0.848637 1339 9432 62%

Entice 1358 496 1 0.318548 600 10032 62%

Stephanie 1113 1048 3 0 0 10032

Teri 1100 762 3 0 0 10032

Isis 1042 646 3 0 0 10032

Gail 1017 388 3 0 0 10032

Question 2

• Can you come up with a measure of risk associated with your ordering policy? This measure should be quantifiable.

Q2 (Solution)

Why Do We Need to Measure Risk?• One of rules of forecasting: “The forecast is always wrong”• The risks that Obermeyer are facing as the consequences of

demand uncertainty:– Stock outs (-24 % whole sale price)– Market downs( -8% of wholesale price)– Outdated designs– High inventory holding cost– Unable to fully profit from hit products

Q2 (Solution)

How to Measure and Quantify Risk?• Coefficient of variation (cV) is the ratio of standard deviation to

average demand– Gives a relative measure of the variability, relative to the

average demand. It is also known as unitized risk or the variation coefficient.

• cV allows us to determine how much volatility (risk) we are assuming in comparison to the amount of return you can expect from your investment

cV = Standard Deviation (σ) / Average Demand (μ)

Q2 (Solution)

Style Standard Deviation (σ) Average Demand (μ) Coefficient of

Variation

Gail 194 1017 0.1908Isis 323 1042 0.3100

Entice 248 1358 0.1826Assault 340 2525 0.1347

Teri 381 1100 0.3464Electra 404 2150 0.1879

Stephanie 524 1113 0.4708Seduced 556 4017 0.1384

Anita 1047 3296 0.3177Daphne 697 2383 0.2925Totals   20000  

Result

Q2 (Solution)

• Product styles with highest risk:Stephanie (0.4708) and Teri (0.3464)

• Product styles with lowest risk:Assault (0.1347) and Seduced (0.1384)

• Risk-based production sequencing:- Use speculative capacity for low risk products- Reserve later production capacity (reactive capacity) for high risk

products

Result Interpretations

Question 3

• Repeat your methodology and assume now that all 10 styles are made in China. What is the difference (If any) between the two initial production commitments?

StyleAverage

(µ) 2SD (σ) Type SFGail 1017 388 2 0.4716Isis 1042 646 2 0.2446

Entice 1358 496 3 0Assault 2525 680 1 0.1838

Teri 1100 762 2 0.1312Electra 2150 808 3 0

Stephanie 1113 1048 2 0.0830Seduced 4017 1112 1 1.4541

Anita 3296 2094 1 0.4279Daphne 2383 1394 3 0

Q3 (Solution)

Minimum production quantity, denoted by m, is 1200 (units).

China

• Parka style of Type 1(u>2m): SF = (µ-2m)/σ• Parka style of Type 2(u<m): SF = (m-µ)/σ• Parka style of Type 3(m<u<2m): SF=0

Q3 (Solution)

ChinaMinimum production quantity, denoted by m, is

1200 (units).

• Production Quantity= Max {m, µ-m-(SFmin*σ)}

StyleAverage

(µ) 2SD (σ) Type SFOrder

Quantity

Cumulative Order Quantity

Seduced 4017 1112 1 1.454137 2725 2725Gail 1017 388 2 0.471649 1200 3925

Anita 3296 2094 1 0.427889 1922 5847Isis 1042 646 2 0.244582 1200 7047

Assault 2525 680 1 0.183824 1269 8315Teri 1100 762 2 0.131234 1200 9515

Stephanie 1113 1048 2 0.083015 1200 10715Entice 1358 496 3 0 1200 11915Electra 2150 808 3 0 1200 13115Daphne 2383 1394 3 0 1200 14315

Q3 (Solution)The difference between two initial production commitments

on China and Hong KongTopic Hong Kong China

Hourly Wage HK$30(=US$3.85) RMB 0.91(=US$0.16)

Exchange Rate HK$7.8=US$1 RMB 5.70=US$1

Weekly (Nonpeak) output/worker

19 parkas 12 parkas

Line Configuration 10-12 people/line 40 people/line

Training Cross-trained Trained for single operation only

Minimum Order Quantity

600 units in same style 1200units in same style

Repair Rate 1-2% ~10%

Challenges • Wage Rate• Workforce: Younger workers

prefer office jobs

• Workforce: 1. Less quality and cleanliness conscious2. Training requirements

Question 4

• What operational changes should Obermeyer Sport be recommended to improve performance?

Q4 (Solution)Problems

• Short life cycle (Ski Clothes is fashionable product.)

• Long time of planning and production.

• Uncertain forecasting（ customer demand）• Fashion？

Q4 (Solution)Lead Time Reduction

Fabric Producer

Fabric Dyer Cut/Sew Factory

Denver Warehouse

Retailer

undyed greige goodsSport Obermeyer

Asia

Consumer

• Dyer has long lead time (keep their capacity utilized year round)

• Change colors overnight• Can predict total annual sales (basic colors) • Cannot predict fashion colors

Q4 (Solution)Solutions

• Offer dyer one year• Basic colors earlier • Fashion colors late in season

Q4 (Solution)Supply Chain System

• Promotion strategy persuade retailers to early order (propose a discount)

• Establish DC in Seattle (reduce lead time and cost from Seattle to Denver)

Q4 (Solution)Original Distribution Process

Seattle

Hong Kong

Establish Distribution Center in Seattle without

through Denver

Q4 (Solution)Production System

• To reduce lead time of the preparation of raw materials (scheduling)

• Reduce number of styles

• Product innovation

Q4 (Solution)Operational Changes (Information System)

• Committee forecasting (Research trend and market movement)

• Big data analysis (market information based on historical data)

Question 5

• How should Obermeyer Sport think about sourcing in Hong Kong versus China?

• What kind of sourcing policy do you recommend?

Q5 (Solution)Advantages of Each Location

Hong Kong

China

Q5 (Solution)ASPECT HONG KONG CHINA

Quality Good Low

Cost of Manufacturing High Low

Labor Productivity High Low

Capacity and work load Small Large

Flexibility High Low

Minimum order quantity 600 pcs/style 1200 pcs/style

Transport Very fast (plane) but expensive Long but cheap Long but cheap

Q5 (Solution)

Location Short Term Long Term

HONG KONG

High standard factory Reducing the lead time

Produce the product with high uncertainty demand

Produce the new series in HK first before to produce after in China

CHINA Set up China as a main factory Increasing production quality

Improve the performance

Q5 (Solution)

Assigning the orders which before Las Vegas Show to China Mainland.• Even it won't be a a large part of Obermeyer's whole orders, it

also can meet the minimum order quantity.• Because these orders are early, so Obermeyer does not have

to worry about the quota restriction.• It will have enough time to repair, if there are some quality

issue (we can make it done before selling month).

Recommendation

Q5 (Solution)

Assigning the large orders (late orders) to Hong Kong.• Because of Hong Kong's high productivity, orders can be done

more quickly.• Because of Hong Kong's lower repair rate, we have fewer

concern about the delay.• We don't have to take a high risk of the quota restriction

Recommendation (continued)

Q5 (Solution)

• Improve the demand forecast made internally by Buying Committe in Nov. 1992, just before Speculative Production.

• Obtain market feedback earlier than Las vegas.• Decrease lead times for both raw materials and finished

goods.• Increase production capacity. • Decrease minimum order quantities.

Recommendation (continued)

Thank You

Any Question?