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Sport Obermeyer A high end fashion skiwear designer and merchandising company.
Based on experience, intuition and sheer speculation No feedback from retailers Inaccurate forecasts of retailer demand
FASHON GAMBLE
THE
CHALLENGES
Its November 92 and the company is starting to make firm commitments for its 93 94 season.
Inaccurate forecasts
Deep discounts Lost sales
PRODUCTS
Parkas, Vests, Sweater, ski suits, shells, ski pants, turtlenecks and accessories Parkas : Most critical design Products were offered in five different genders Company segmented each gender market according to price, type of skier and fashion forwardness US Skiwear estimated sales in 1992: US$ 32.8 million Obermeyers Share:
THE PROCESS
Design (February 92) Prototypes (July 92) Final Designs (September 92) Sample Production, Fabric & Component orders (50%) Cut & Sew begins (February, 93) Las Vegas show (March, 93 80% of orders) SO places final orders with OL OL places orders for components Alpine & Subcons Cut & Sew Transport to Seattle (June July) Retailers want full delivery prior to start of season (early September 93) Replenishment orders from Retailers
Obermeyer sourced most of its products through Obersport Obermeyer also give contract to fabric supplier for specified amount of fabric each month Lead time taken into account for all materials Most tasks performed only after production quantity planned by Obermeyer
27 Months
Sept 1993
Oct 1993
Nov 1993
"Speculative" Production
of 1993-94 Line
"Reactive" Production
of 1993-94 Line
Feb 1994
Mar 1994
Apr 1994
PARKAS
Obermeyer produce 200,000 parkas every year Capacity: 30000 unit per month Earn 24% of wholesale price on each Unsold in season sold at a loss of 8% Profit of US$ 27 and loss of US$9 on each parkas Buying committee forecasts for 10 style of Parkas
How to make best forecast How to allocate production between factories at Hong Kong and China Last year 1/3rd Parkas was made in China. Company plan to produce 50% parkas in China as
labor cost in China is low require larger minimum order some concern of quality and reliability is there
China RMB 0.91 RMB (Renminbi) 5.7 = US$1 9 hours/day, 6.5 days/week Total = 58.5 hours/week
During peak production periods, workers work 13 hours/day, 6.5 days/week 12 parkas
19 parkas
China -3.6 hours -4.88 hours/parka RMB 4.45 40 people/line Trained for single opn. only 1200 units in same style -10%
Workforce Less
PARKAS
The larger minimum order size of China limits the capacity of companys ability to increase the range of products
Wally ask comitee members that what demand will be for each products and take their forecast Wally studied on the committee forecasts Estimated the early production of each style Demand and forecasts for last year analysed
With mean equal to average of committee forecasts Standard deviation twice of committee forecasts
SOLUTIONS OF PROBLEMS
To calculate Mismatch cost we must calculate Batch Size Expected lost sales Expected left over inventory For every individual products
FOR GAIL
f we take Cu Co like Roccoco parkas cause of the resembling each other Cu=27 Co=9 F(Q)= 0,75 z=0,68
Q1= 1017+0,68*388=1280,84 Exp. Lost Sales= 388*57,35 Exp. Sales= 1017-55,35=959,65 Exp. Leftover nv. =1280,84- 959,65
f we calculate this for all products and sort in ascending order we can see that Assault Q=2987,4 Seduced Q=4773,84 Daphne Q=3330,92
Should be in first order with this quantities First order =11092,16 And the rest must be in second order.
STYLE Gail Isis Entice Teri Assault Electra Stephanie Seduced Anita Daphne Sum
STYLE Gail Isis Entice Teri Assault Electra Stephanie Seduced Anita Daphne Sum
z=1,0608 Mean of Demand 1017 1042 1358 2525 1100 2150 1113 4017 3296 2383 20001 Standard Deviation of Demand 388 646 496 680 762 807 1048 1113 2094 1394 First Period Production Quantity Max (0, -z) 605 357 832 1804 292 1294 1 2836 1975 904 10000
Just right!
STYLE Gail Isis Entice Teri Assault Electra Stephanie Seduced Anita Daphne Sum
RECOMMENDATONS
1)
Instead of using just a simple average of the individual forecasts made by Laura, Carolyn, Greg, Wendy, Tom & Wally use a weighted average, with the weights reflecting past accuracy.
2) Decrease lead times for both raw materials and finished goods, thereby allowing more time to utilize existing capacity.
Choose suppliers of raw materials more on the basis of dependability than cost . Expedite orders through information sharing with suppliers. Expedite shipments using faster (but more expensive) shippers. Establish some local (but more expensive) production capacity for last minute production. From the items with long lead times, increase the amount of safety stock
3)
Exploring
an alliance with a swimwear manufacturer who can supply excess capacity when Sport Obermeyer needs it and consume capacity when Sport Obermeyer has excess capacity.
4)
Decrease minimum order quantities, thereby improving the ability to fine tune during Speculative Production
Sport Obermeyer can decrease the minimum order quantities by providing incentives to its suppliers to have more flexible production lines.
Improved process design (e.g., a cellular production system). Improved equipment (e.g., more flexible cutting machines).
SOURCING
Products with exhaustive property and needed skill in manufacturing (like Biege parkas) should be produced in Hong Kong
Products which are fashinoble and relatively easy produce can be manufactured in China
High demand products suitable for China facilities because of high order quantity restrictions
Also should be noted that products from China will be ordered in early dates risk for this products will be increased. So that this products should have lower mismacth/quantity ratio