Sports Obermeyer, Ltd.

Written Analysis of Case

Submitted to: Dr. Muhammad Kamran Mumtaz

Rimsha Imran - 07044

Contents
Company background..................................................................................................................................3
Problem Identification.................................................................................................................................3
Analysis.......................................................................................................................................................3
Competitive Advantage...........................................................................................................................3
P-P Matrix...............................................................................................................................................4
Process Order Cycle................................................................................................................................5
OSD.........................................................................................................................................................5
Supply Chain...............................................................................................................................................7
Production Facility Analysis........................................................................................................................8
Production Planning (The Critical Fractile Method).....................................................................................8
Labor Efficiency..........................................................................................................................................9
Initial Phase of Production...........................................................................................................................9
Order Allocation and Determination between Facilities............................................................................10
Recommendations.....................................................................................................................................11

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Company background
A company named as “Sports Obermeyer Ltd” is a fashion skiwear manufacturer. The company
was established in 1947 by Klaus Obermeyer. Over the years, the company became famous for
fashionable ski-wear as the US market was lagging Europe as far as fashion was concerned, a
gap that Klaus filled. In 1992, the company had a market share of 45% in children wear and 11%
in adult wear.

Problem Identification
The main issue faced by the company is in its operations. The company has no scale to measure
the acceptability of its products before they go into the next production cycle hence no accurate
forecasting could have been done regarding the demand of the products. The company had no
perfect information on how the customers had received their offerings in previous years. Hence,
the company wasn’t sure on how which variants and SKU’s to produce for the upcoming year.
The case calls this as a fashion gamble. They would either had to sell the poor designs at very
lower prices causing loss or their top demand product gets finished effecting their earnings. In
short, the two main issues to be resolved by the protagonist of the case Mr. Wally Obermeyer
are:

i. How to make appropriate production commitments for the coming year’s line
ii. How to allocate production between factories in Hong Kong and China.

Analysis

Competitive Advantage
The company operations strategy is focused on two areas that are Delivery and Flexibility.
Effective implementation of the company’s product strategy relied on several logistics related
activities. Delivering the end product to the retailers was a time sensitive activity as it would lose
out on sales if it is under-produced and incur losses on inventory write-downs and discounted
sales if it is overproduced. Also, the company would ensure that the retailer gets replenished with
the requisite product, be it by air mail or UPS packages. Also, the company produces more than
700 SKUs and products for 5 different market segments called “genders”. Also, the company
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continually adjusts its forecasts as when certain events unfold, such as Las Vegas show. This
shows that the company is focused on flexibility as well. Also minor could be quality.

Cost

Quality Flexibility

Delivery

P-P Matrix
According to the volume and variety matrix the Sports Obemeyer are producing in batches. There is a
mismatch in the requirement of Sports Obermeyer requirement and the production happening in China.
The batch size are comparatively smaller.

HIGH

Volume
BATCH

LOW
Variety HIGH

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Process Order Cycle
The order cycle of Sports Obemeyer

Shipment
Beginning to Retail
of first Remaining (End of
Prototype production order August via
Developm order received small
ent (July (Feburary (April and package
1992) 1993) May 1993) carriers)

Design Las Vegas Shipment Replenish

Finalizatio show to ment
n (March warehouse orders
(Septembe 1993; 80% (June and (Feburary
r 1992; order July 1993) 1994)
Sample received)
produced)

OSD

To see how the product-process and its competitive priorities work in tandem, below is the
operating system design which enables Sports Obermeyer to be able to deliver to its customers
on what it promises to do.

Operating System Design

Structural  
Sports Obermeyer outsourced their products through Obersport, a
joint venture established by Klaus Obermeyer and Raymond Tse, to
assist in the production of Sport Obermeyer products in the Far East,
outsourced to independent subcontractors.

Moreover, it purchased the outer shell fabric from vendors in the

Scope United States, Japan, Korea, Germany, Austria, Taiwan, and
Switzerland. The lining fabric was purchased primarily from Korea
and Taiwan and outsourced other components such as insulation
materials, D-rings, buckles, snaps, buttons, zippers, pull-strings with
attached castings, and labels/tags from Germany, Japan.

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 Sports Obermeyer produced about 200,000 parkas each year.
Maximum available capacity to the company for cutting and sewing
Capacity was 30,000 units a month, including the production capacity at all
factories available to make Obermeyer products.

The production process was highly labour intensive, hence relied

Technology heavily on the level of productivity of the workers (i.e. not
automated).
Infrastructural  

Klaus Obermeyer was actively involved in the company’s

management but believed in achieving harmony, as in putting his
trust in the management team, be cooperative rather than have a top
down approach and make decisions based around judgments and
intuitions. Furthermore, he relied on Raymond to make the
Organisation production and investment decisions.

Wally, vice president had different management approach and relied

more heavily on formal data gathering and analytical techniques to
make decisions.
Allocation of operations to workers differed from one factory to
another, depending on the workers’ level of skill and degree of cross-
training. Workers in Honk Kong were about 50% faster than their
Chinese counterpart, were highly skilled and were typically trained
Workforce in a broader range of tasks. Moreover, workers were paid on a piece
rate basis in both Countries, consistent with the competitive wage
rates in these countries.

Obermeyer products were offered in five different ‘genders’: men’s,

women’s, boys’, girls’ and pre-schoolers’. Each gender was further
segmented according to price, type of skier and how fashion forward
the market was and within each ‘gender’, numerous styles were
Product and Process Design offered, each in several colours and a range of sizes.

Longer production lines in China than Hong Kong, with a minimum

order quantity of 1200 (China) and 600 for Hong Kong.
Obersport was responsible for monitoring production and quality at
all subcontractor facilities. Workers from Obersport, randomly
Quality inspected selected pieces from each subcontractor’s production
before the units were shipped to the US.

Production was based around forecasted demand levels of different

product varieties however, manufacturing starts well in advance of
the selling season, based on scant available information. Henceforth,
Planning ‘Buying committee’, comprised of 6 key managers, make production
commitments based on the group’s consensus, using blending
analysis, experience, intuition and sheer speculation.

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 Planning starts 2 years before the actual sale of products to the
consumers.

Supply Chain

Produce, dyesuppliers
Textiles & accessories and print shell and lining fabrics, supply insulation, zippers, thread, logo patches and snap

Subcontractors receive production orders and materials from Obersport. Cut, sew and final assembly.
Apparel Manufacturers

Responsible for material and production sourcing in the Far East. It also acts as a distribution centre for materials and f
Obersport

Sport Obermeyer Product design, production planning and sales.

Purchase from Sport Obermeyer and sell products to consumers.

Retailers

Production Facility Analysis

Obersport, a joint venture between Sports Obermeyer and Raymond TSE, MD obersport, was
responsible for fabric and component sourcing for the company. There were two options for
sourcing, Hong Kong Alpine factories and the factory complex in Guangdong China. The
problem with the Chinese facility was that worker skill level was very low. Also, Hong Kong
workers were cross trained and could multi task. A Hong Kong sewers output was nearly twice
that of a Chinese worker. However, Chinese labor was much cheaper than Hong Kong’s The cost
information in Exhibit in terms of USD is as follows:

In USD Hong Kong China

Hourly Wage $3.85 $0.16

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 Labor Cost per Garment $9.69 $0.78

Production Planning (The Critical Fractile Method)

We use the critical fractile method to calculate the probability of Sport Obermeyer meeting the
customer demand. As per the following calculations, for Rocco Parkas, there is a 25% chance
that the company would not be able to meet the demand. Put another way, there is a 75%
probability of meeting demand.

Cost 85.5
Sales Price 112.5
Overage Cost (Co) 9.00
Underage Cost (Cu) 27.00
Probability of meeting Demand 75.00%
Cu/(Co+Cu)

Labor Efficiency
In order to quantitatively ascertain which plant is more efficient as far as labor productivity is
concerned, the following calculations for determine labor utilization have done for both Hong
Kong and China facilities.

Labor Utilization Hong Kong

Output (Parkas) per worker per week (A) 19 12
Labor Content per Parka in hours (B) 2.35 3.6
Workers per line (C) 11 40
Hours per week (D) 48 58.5
Direct Labor (A*B*C) 491.2 1728
Available time (D*C) 528 2340
Labor Utilization (Direct labor/available time) 93.02% 73.85%

It is evident that Hong Kong is much labor efficient from the above numbers, as it is labor
utilization is 93% as compared to 74% of the Chinese facility. The analysis has been performed
based on hours available and hours worked per week.

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Initial Phase of Production
Using the sample data given in exhibit 10, we can calculate period production quantity using
formula (mean-K*S.D). Since we know that the production order has a limit of 10000, therefore,
we have to find the value of k which satisfied this number.

Coefficient of Variation (CV) divides the standard deviations by the respective averages.

Coefficient of
Style
Variation
Gall 0.19
Isls 0.31
Entice 0.18
Assault 0.13
Teri 0.35
Ele ctra 0.19
Stephanie 0.47
Seduced 0.14
Anita 0.32
Daphne 0.29

Since using K=1.06 gives an estimation of final quantity of 10,007 which is close to our
requirements of at least 10,000 we will use this data for placing the production orders.

Order Allocation and Determination between Facilities

The two major issues that need to be resolved in this case are the quantity of Parkas to produce in
two tranches of orders. The first is before the Las Vegas event, a time when order are not certain.
The second order would be after the event, a time when more information about the demand
would be available.

The second issue to determine how much a source from Hong Kong and how much from China.
For both these issues we need to decide within the stated constraints mentioned in the case. As
the sample problem focuses on only 10% of the total demand our production capacity and
minimum order quantity (MOQ) estimates would be updated to match this assumption. This
means that minimum order quantity of both the plants would be 60 for Hong Kong and 120 for
China (10% of actual MOQ) and the cutting and sewing capacity would be 3000 units per month.

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Style Average Forecast (Mean) Production in 1st half Production in 2nd Half Coefficient of variation Production facility
Assault 2525 1804 721 0.13 China
Seduced 4017 2837 1180 0.14 China
Entice 1358 832 526 0.18 China
Electra 2150 1295 855 0.19 China
Gail 1017 606 411 0.19 HK
Daphne 2383 905 1478 0.29 HK
Isis 1042 357 685 0.31 HK
Anita 3296 1076 2220 0.32 HK
Teri 1100 292 808 0.35 HK
Stephanie 1113 2 1111 0.47 HK
Total 20001 10007 9994

Recommendations
 The labor cost in China is far cheaper then cost in Hong Kong. However, labor in China
is not as well trained as in Hong Kong so they have different advantages. Currently, labor
in China is not very efficient. Therefore, training of the labor should be utmost priority.
This will increase the overall productivity. Therefore, it is suggested that sourcing in
Hong Kong should be used for short-term and sourcing in Mainland China for long-term.
 Enhance the productivity of China plant by sending skilled workers from Hong Kong to
the Chinese plant, as it had happened in the case of Toyota Motor Corporation. This
technology and skill transfer would help the Chinese facility come at par with the Hong
Kong facility. Coupled with its low cost of production, this facility could become the
preferred one for Sports Obermeyer.
 Use the 5-why tool with the production team to reach to the root cause of the problem
since everyone was giving a different forecasting plan which shows there was some other
underlying issues leading to this problem.
 Perform market research to gauge consumer demand and reception the designs and
variants to offer by Sport Obermeyer in the upcoming year.

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