obermeyer solution 1

COMPANY COMPANY HistoryHistory::

“Skiing is a celebration of life”Klaus Obermeyer

1947: Klaus Obermeyer, a German immigrant began teaching at the Aspen Ski School

COMPANY COMPANY History:History:

1985: Obersport; a joint venture in Hong Kong, the company began to increase productivity to meet their new demands.

COMPANY COMPANY Network:Network:

Recently, a number of contractual ventures were added and a new complex in Lo Village Guangdong China

PRODUCT PRODUCT & Segmentation& Segmentation::

PRODUCT PRODUCT Variety:Variety:

The Obermeyer supply chain stretches The Obermeyer supply chain stretches from Asia to Aspenfrom Asia to Aspen

Textile and Accessories Suppliers

Apparel

Manufactures

ObersportObersport Retailers

SUPPLY CHAIN SUPPLY CHAIN Process:Process:

Raw Raw MaterialsMaterials

Finished Finished goodsgoods

Design Process Las Vegas Concept Sketches sent Designs begins Show Finalise to Obersport Finalised

Feb 92 Mar 92 May 92 Jul 92 Sep 92

Nov 92 Mar 93 Apr 93 - Jul 93 Dec 93-Feb 94

Place 1st Production Las Vegas Additional Replenishment Order with Obersport Show orders received orders received

Prototype, Sample Production

Full scale production

PLANNING PLANNING & Production Cycle& Production Cycle::

Fabric Producer

Fabric Dyer

Cut/Sew Factory

Denver Warehouse

Retailer

undyed greige goods

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

6 wk

6 weeks

6 wk

PRODUCTION Process:

Factories in Hong Kong

Seattle warehouse

800 Ski RetailersProduct

SketchesForecast

Committee

Forecasts

Order 20% in Apr-Jun

93

Order 80% in Mar 93

Retailers order in

Apr-Jun 93

Denver warehouse

6 weeks6 weeksORDERING & SHIPMENT Process:

SALES & REPLENISHING Process:

Peak SalesPeak Sales

Aug 92 Sep 92 Oct 92 Nov 92 Dec 92 Feb 93

Sales

Re-SalesRe-Sales

Stock outs (+24 % of whole sale price)Stock outs (+24 % of whole sale price)

Market downs( -8% of wholesale price)Market downs( -8% of wholesale price)

1. Using the sample data given in Table 31. Using the sample data given in Table 3-19 , -19 , make a recommend for how many units of make a recommend for how many units of each style Wally should make during the initial each style Wally should make during the initial phase of production. Assume that all of 10 phase of production. Assume that all of 10 styles in the sample problem are made in Hong styles in the sample problem are made in Hong Kong and that Wally’s initial production Kong and that Wally’s initial production commitment must be at least 10,000 units. commitment must be at least 10,000 units. Ignore price differences among styles in your Ignore price differences among styles in your initial analysis?initial analysis?

3. Repeat your methodology and 3. Repeat your methodology and assume now that all 10 styles are assume now that all 10 styles are made in China. What is the difference made in China. What is the difference (If any) between the two initial (If any) between the two initial production commitments?production commitments?

1. & 3. Comparison units of each style when 1. & 3. Comparison units of each style when

produced in HK and Chinaproduced in HK and China

Differences between production in HK and ChinaDifferences between production in HK and China

• InventoryInventory

• Total CostTotal Cost

• Operation TimeOperation Time

• Quality (% Repair)Quality (% Repair)

1. & 3. The differences between production in HK 1. & 3. The differences between production in HK

and Chinaand China

2. Can you come up a measure of risk 2. Can you come up a measure of risk associated with an your ordering associated with an your ordering policy? This measure should be policy? This measure should be quantifiable.quantifiable.

-Stock outs (-24 % whole sale price)Stock outs (-24 % whole sale price)-Market downs( -8% of wholesale price)Market downs( -8% of wholesale price)-(Old) designs(Old) designs-High inventory holding costHigh inventory holding cost-Unable to fully profit from hit products-Unable to fully profit from hit products

What’s the result if demand What’s the result if demand forecasting uncertainty?forecasting uncertainty?

Forecasts are always uncertainForecasts are always uncertain

Why does risk happens ?Why does risk happens ?

Demand Average

Standard deviation

Standard deviation

How can we assessing How can we assessing forecast certainty?forecast certainty?

1 . Based on historical data1 . Based on historical data - Past forecast error- Past forecast error - Variability of demand- Variability of demand

2. Rather than producing one joint 2. Rather than producing one joint forecast ,each member of the purchasing forecast ,each member of the purchasing committee produces his/her own forecast .committee produces his/her own forecast .

Obermeyer’s Buying committee

3. The deviation in views is good 3. The deviation in views is good estimator of forecast reliability estimator of forecast reliability

Table of standard deviation vs Coefficient of variationTable of standard deviation vs Coefficient of variation

4. How is this information helpful ?4. How is this information helpful ?

- - Using Using Early production Early production Capacity (Capacity (Speculative Speculative capacity) capacity) for Assoult and Seducedfor Assoult and Seduced- Reserve later production Capacity (reactive capacity) for Daphne and Anita as demand become more apparent

“Risk –based production planning”

4. What operational changes would 4. What operational changes would you recommend to Wally to improve you recommend to Wally to improve performance?performance?

• Ski Clothes is fashionable product, Its life cycle is short

• Long time of planning and production activities

• Uncertain forecasting due to customer demand

• Fashion taker >> No R&D

KEY Problems:KEY Problems:

• Reducing number of styles handled and to predict customer demand for individual style.

• To create promotion strategy to persuade retailers to order.

OPERATIONAL Changes:OPERATIONAL Changes:

Production system

•Increasing production Quality of China to be closed to Hong Kong.

• To reduce lead time of production especially the preparation of raw materials.


Lead time reductionLead time reduction

• Fabric dyer lead time of several months

• Dyer has long lead time on greige goods and needed to keep their capacity utilized year round but can change colors overnight

• Obermeyer can predict total annual sales and sales of basic colors, but can’t predict fashion colors

Fabric Producer

Fabric Dyer

Cut/Sew Factory

Denver Warehouse

Retailer

undyed greige goods Sport Obermeyer

Asia

Consumer

Solution:

• Offer dyer one year commitment on greige goods and capacity

• Dye basic colors early in year and fashion colors late in season on few days notice

Supply chain system

• Increasing bargaining power with suppliers by ordering via big supplier that can commit on timeline

• To collect stock raw materials which is base on Ski cloth production


•Increasing distribution channel to a country that have different period of product usage

•Increase services level requirements

•Establish DC in Seattle to reduce lead time and cost from inland transportation from Seattle to Denver


Hong Kong

Seattle

Original distribution processOriginal distribution process

Establish Distribution Center in Seattle without

through Denver

Information system

• Collect the data backward and analyze the demand of the show in Vegas and compare with actual purchase.

• Expedition of data and information and utilize historical data / Committee forecasting / Research and Trend & Market Movement.


5. How should Wally think (both 5. How should Wally think (both short term and long term) about short term and long term) about sourcing in Hong Kong versus China? sourcing in Hong Kong versus China?

What kind of sourcing policy do What kind of sourcing policy do you recommend?you recommend?

Production OptionsProduction Options• Hong Kong

– Faster

– More flexible

– High / Reliable Quality

• Concern– Smaller lot sizes

– Higher labor cost

• China (Guangdong, Lo Village)

– Lower labor cost

– Larger lot sizes

• Concern– Quality & Reliability

– Slower

– Less flexible

Where is better?Where is better?

Short term Long term

Hong KongHong Kong ChinaChina

Klaus Obermeyer

Thank youThank you

obermeyer solution 1

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