Case Study : sport Obermeyer

Context

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Executive Summary ..........................................................................................3

History Klaus Obermeyer....................................................................................5
Klaus' Guiding Philosophies .................................................................................6
Introduction ...................................................................................................8
Problem ........................................................................................................9
Inaccurate Forecast Mechanism: ........................................................................9
After Effects: .............................................................................................10
Long lead times: ........................................................................................10
Little or no feedback from market ...................................................................10
Objective/Scope ............................................................................................10
Analysis .......................................................................................................10
Risk Assessment ..........................................................................................10
Assessment of Producing All Products in Hong Kong ................................................12
Assessment of Producing All Products in China ......................................................13
Recommended Production Totals ......................................................................14
Short-term Operational Changes ......................................................................16
Long-term Operational Changes .......................................................................17
Assumptions .................................................................................................17
Implementation Plan .......................................................................................17
Brand Highlight .............................................................................................17
Products ......................................................................................................18
Product Characteristics .................................................................................18
Product Transportation ..................................................................................19
Retailers ...................................................................................................20
Manufacturing Structure ...................................................................................23
The Process ..................................................................................................23
Production Process .......................................................................................24
Lead time reduction .....................................................................................24
Production Approaches ..................................................................................25
Pros and Cons of the Production Process .............................................................26
The Supply Chain ...........................................................................................27
Supply Chain Strategies .................................................................................28
Parkas ........................................................................................................28
Issues Faced By Wally ...................................................................................29
Differences between production in HK and China .....................................................29
Hong Kong .................................................................................................29
China .......................................................................................................29
Recommendations ..........................................................................................29

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Conclusion ...................................................................................................32
References ...................................................................................................33

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Executive Summary
This report deals with the analysis of the Sport Obermeyer case, an American company, founded in 1947,
specialized in the creation of ski wear. The case presents some problems faced by the company as a long
time since the design to production and placement of the product for sale. In addition, the company is
struggling with the sales forecast, which ends up generating excess production and inventory in stores.
And yet, an important decision on how the company should schedule production, which is divided
between the factories in China, where labor cost is cheaper, and Hong Kong, where there is greater
efficiency in production. Therefore, among the problems identified, recommendations are presented,
initially, is to tailor the order quantity according to the minimum lot size of each locality, China and Hong
Kong 1,200 units, 600 units.

The excess inventory of finished goods could be sold in new markets. And the demand uncertainty
problem could be solved by increasing the response capacity of production. This will allow reducing
mismatch costs and consolidating activities. In addition, problems with the production can be minimized
by means of negotiations with suppliers, retailers and joint ventures in order to obtain better operating
conditions and reduction of lead time. So, the operational changes suggested involving reduction of SKUs
and reducing the time between the product design and the first output. To change the current reality of
Sports Obermeyer, some changes could be introduced, such as reducing the time between design and first
production, reducing SKU's close work with retailer champions, improvement in cost reduction in China
and Hong Kong. These measures would involve, for example, stakeholders in the business, such as
retailers and factories. Thus, to implement these measures, the Sports Obermeyer should consider some
actions in the short and long term.

Sport Obermeyer is a high-end fashion skiwear design and merchandising company. Though Sport
Obermeyer ski wears were profitable (24% expected profit), they still lack the experience for the shortlife-cycle products with uncertain demand and shortening the lead time. In addition, Sport Obermeyer
should consider the order allocation between HK and China for the short term and long term. This case

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created the framework for the operational improvement, for example, inventory efficiency, lead time of
production and raw material, and efficiency small lot production. Sport Obermeyer, Inc. is a ski apparel
company facing a dilemma in ordering production of its products. The Company has high costs for both
over-ordering and under-ordering in a single season. The question currently facing management at Sport
Obermeyer is to determine the order quantity for its first phase of production. At this point in time,
management has very limited insight to the demand for particular styles for the upcoming ski season.

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History Klaus Obermeyer

THE HISTORY OF A SKI ENTHUSIAST

Klaus Obermeyer's enthusiasm is contagious, his energy seemingly endless, his optimism without bounds.
To hear him yodel is to experience the depth of his spirit. To watch him ski is to witness his true love of
the sport. It all began in 1919, in Oberstaufen, Germany, the small Bavarian alpine village in which Klaus
was born. He was an avid rock climber, as well as a ski mountaineer, racer and jumper.
In 1947, Klaus arrived in Aspen, Colorado, where Friedl Pfeiffer had opened the Aspen Ski School. At
night, he followed his entrepreneurial spirit. Sensing that people would spend more time on the slopes if
they were warm and comfortable he founded Sport Obermeyer - in the attic of his home. There, one of the
first of many innovations was born in the form of a down ski parka stitched together from his goose down
comforter. Soon after came high-altitude suntan lotion, turtlenecks, nylon wind shirts, mirrored sunglasses
and more. In 1961, the first Sport Obermeyer factory warehouse opened in Aspen, and the innovations
continued with soft-shell jackets, double lens goggles, and the first waterproof-breathable fabrics.
Port Obermeyer's origins traced to 1947, when Klaus Obermeyer emigrated from Germany to the United
States and started teaching at the Aspen Ski School. On frigid, snowy days Klaus found many of his
students cold and miserable due to the impractical clothing they wore garments both less protective and
less stylish than the clothing skiers wore in his native Germany.

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Klaus' Guiding Philosophies

Skiing is a celebration of life

Klaus Obermeyer

"The Earth and its natural beauty is a gift. It allows us to celebrate life and to experience
the magic of nature". This has been Klaus' life story: born in the Alps, skiing and
mountaineering, Klaus came to love and respect his natural surroundings. "To be able to
experience frozen water falling down in the form of ice crystals, waking up to a fresh
carpet of snow every morning... it was and still is a miracle."
"We must step lightly on the planet, we are here for only a very short period of time really
and it is not right to destroy something which gives us such great beauty and asks for
nothing in return."

You always have it never made.

Our intention is still to make snow sports enjoyable for everyone, and while our products
have come a long way, there is always room for improvement.

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Step lightly on the planet.

Today we use post-consumer recycled polyester (PET) in high performance gear, the
architectural design of our headquarters minimizes energy consumption, and employees are
rewarded for using alternative transportation.

The days you dont ski,

you dont get back.
Klaus leads by example, skiing every day of the season. The conditions in Aspen are
perfect for product testing its our mountain lab. Were outside wearing Obermeyer every
day; we wouldnt want to face the elements in anything less than the best, so thats what
we make.

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Introduction
The Sport Obermeyer case describes the forecasting, planning, and production processes of a global
skiwear supply channel. Although the company has a global supply network, most of its critical outwear
products are sourced through the Hong Kong-based company Obersport, a joint venture between Sport
Obermeyer and a Hong Kong partner. Obersport, in turn, manages supply and production processes in
Hong Kong and China. Sport Obermeyer was founded by Klaus Obermeyer. Klaus used an informal
approach to demand forecasting and product strategy. Klaus' son Wally is a recent Harvard MBA and takes
a more analytical approach to the business.

Origins traced to 1947.

Over years, prominent competitor in US skiwear market.
1992: 45% share in Children skiwear and 11% share in adult skiwear market.
1992: estimated sales $32.8 Million.
Product Line: Parkas, vests, ski suits, shells, ski pants, sweaters, turtle necks, and accessories.
Mens, Womens, Boys, Girls and Preschoolers.

Case Hints

1) Production planning for short-life cycle fashion products;

2) Operational changes the reduce costs of mismatched supply and demand;
3) Coordination issues in a global supply chain.

Production Planning for Short-Life-Cycle Fashion Products

The production planning problem that Obermeyer faces is a complex optimization problem under
uncertainty. You're not expected to formally solve the problem but should be able to identify key issues
regarding demand uncertainty, the risk associated with producing a product with uncertain demand, and
the general impacts of mismatched supply and demand. At the core of the problem is that it is costly to
produce products that do not sell, and costly not to product products that will sell.

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Need to consider the following elements: product pricing; demand uncertainty, and expected demand. All
else being equal, you should consider why its preferable to produce less expensive products early.

The first step is to evaluate the risk of unit production: devise a way to measure the likelihood that the unit
will sell. You will have to construct a demand distribution for each style (mean, standard deviation,
assume normal distribution).

Second, you'll need to think about a procurement strategy that minimizes the the expected costs of stock
outs and markdowns. What factors need to be considered?

Lastly, with regard to each product, you'll need to consider the relationship between minimum order
quantities versus expected demand (and demand uncertainty). You can operationally segment the products
using these two variables.

Sport Obermeyer Sport Obermeyer is a high-end fashion skiwear design and merchandising company
headquartered in Aspen, Colorado. Over the years, Sports Obermeyer has developed into a dominant
competitor. Sports Obermeyer's estimated sales in 1992 were $32.8 million. The company holds 45%
share of children's skiwear.

Problem
Before releasing the 1993-1994 line, Sport Obermeyer used a committee that consisted of six key
managers for forecasting to make the production commitments based on their decisions. However, Wally
Obermeyer, the VP of the Sport Obermeyer, changed the system this year. He asked the same six
managers to forecast demand on their own for each of the Obermeyer products and used their individual
forecasts as a basis of generating final commitments for suppliers. Both the previous and the current
forecasting methods used by Sport Obermeyer are generated without external feedback or contribution.
The result of this internal analysis is inaccurate and inefficient forecasting results.
Inaccurate Forecast Mechanism:
In Nov 1992 the company has to place 1st order with suppliers for 93-94 sales.

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Based on intuition, experience and sheer speculation.

Las Vegas trade show is scheduled in March93.
After Effects:
Excess merchandise and had to be sold at deep discounts.
Inability to provide the most popular items during the season resulting for loss of sales.
Long lead times:
Its November 92 and the company is starting to make firm commitments for its 93 -94
season.
Little or no feedback from market
First real signal at Vegas trade show in March

Objective/Scope
The purpose of this article is to determine how many units of each style Sport Obermeyer should produce
during its initial phase of production (November through March) and during its second phase of
production (March through October). Factors that need to be considered in this decision are the risk
associated with each style, from where each product will be sourced (Hong Kong or China), and the
numerical and opportunity costs associated with the sourcing decision. Operational changes are also
recommended in order to improve performance in the short and long-term.

Analysis

Risk Assessment
In order to determine what items should be produced where, a risk assessment was conducted for all lines
per the average forecast for each line. The Coefficient of Variation (COV) was determined in order to
analyze the risk associated with each line.
A benchmark of 0.2 COV was used to determine the associated risk. Any item with a COV below 0.2 is
considered a low risk item while any item with a COV higher than 0.2 is considered a high risk item.

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When sourcing from China, four styles need to be ordered in excess of the average forecast in order to
reach minimum production amounts. To determine how many of each style to order in the first round,
preference was given to the lower risk items. 80% of the lower risk items should be ordered initially
because it is more certain that the amounts forecasted will be accurate. For items with a COV above 0.2
only 20% of the average forecast will be ordered so that Sport Obermeyer can wait until after the Las
Vegas show to verify with 80% certainty the success of each style.

It is recommended that any high risk item be produced in Hong Kong because they are more flexible,
produce higher quality items, and the minimum production requirements for an order is only 600 units
versus the 1,200 units required in China. [Exhibit 1]

Exhibit 1

Likewise, if an item requires less than 1,200 units, it should be required that it be produced in Hong Kong
due to production requirements and to keep from overproducing. It must also be noted that the maximum
production for Sport Obermeyer is 20,000 units (on a 10% scale) and therefore this should be met but not
exceeded within both orders combined.

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Assessment of Producing All Products in Hong Kong

At the Hong Kong plant, there is a minimum of 600 units required per line produced. For this reason, the
initial quantity for the Daphne, Isis, Teri, and Stephanie lines would need to be increased to meet this
requirement for the first order. The quantity ordered per line for the first order would be as follows:
Assault (2,020), Seduced (3,213), Entice (1,087), Electra (1,720), Gail (813), Daphne (600), Isis (600),
Anita (659), Teri (600), and Stephanie (600).

The second order quantity per item would be as follows: Assault (505), Seduced (803), Entice (272),
Electra (430), Gail (203), Daphne (1,783), Isis (442), Anita (2,637), Teri (500), and Stephanie (513).*

This brings the total units produced in orders one and two to the maximum of 20,000 units.

[Exhibit 2]

Adjusted Production Quantity Orders For Hong Kong (Minimum Quantity Order 600)
Style

Average
Forecast

Price

Original Qnty
for
1st Order

Adjusted Qnty
for
1st Order

Original Qnty
for
2nd Order

Adjusted Qnty
for
2nd Order

Total Qnty 1st &

2nd Order

Assault

90

2525

2020

2020

505

505

2525

Seduced

73

4017

3214

3213

803

803

4016

Entice

80

1358

1086

1087

272

272

1359

Electra

173

2150

1720

1720

430

430

2150

Gail

110

1017

814

813

203

203

1016

Daphne

148

2383

477

600

1906

1783

2383

Isis

99

1042

208

600

834

442

1042

Anita

93

3296

659

659

2637

2637

3296

Teri

123

1100

220

600

880

500

1100

Stephanie

133

1113

223

600

890

513

1113

10641

11912

9361

8088

20000

! Totals

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Assessment of Producing All Products in China

At the China plant, there is a minimum of 1,200 units required per line produced. For this reason, the
initial quantity for the Entice, Gail, Daphne, Isis, Anita, Teri, and Stephanie lines would need to be
increased to meet this requirement for the first order. The quantity ordered per line for the first order
would be as follows: Assault (2,020), Seduced (3,213), Entice (1,200), Electra (1,720), Gail (1,200),
Daphne (1,200), Isis (1,200), Anita (1,200), Teri (1,200), and Stephanie (1,200).

The second order quantity per item would be as follows: Assault (505), Seduced (804), Entice (158),
Electra (430), Gail (0), Daphne (1,183), Isis (0), Anita (2,096), Teri (0), and Stephanie (0).*

This brings the total units produced in orders one and two over the maximum of 20,000 units to 20,529
total produced units.
[Exhibit 3]

Adjusted Production Quantity Orders For China (Minimum Quantity Order 1,200)

Style

Average
Forecast

Price

Original Qnty Adjusted Qnty Original Qnty Adjusted Qnty

Total Qnty 1st
for
for
for
for
& 2nd Order
1st Order
1st Order
2nd Order
2nd Order

Assault

90

2525

2020

2020

505

505

2525

Seduced

73

4017

3214

3213

803

804

4017

Entice

80

1358

1086

1200

272

158

1358

Electra

173

2150

1720

1720

430

430

2150

Gail

110

1017

814

1200

203

1200

Daphne

148

2383

477

1200

1906

1183

2383

Isis

99

1042

208

1200

834

1200

Anita

93

3296

659

1200

2637

2096

3296

Teri

123

1100

220

1200

880

1200

Stephanie

133

1113

Totals

223

1200

890

1200

10641

15353

9361

5176

20529

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Recommended Production Totals

It is recommended that higher risk items be produced at the Hong Kong plant because these items will be
produced more quickly and be of higher quality. It is also beneficial because a majority of the higher risk
lines require smaller total quantity orders which Hong Kong is better able to produce because of their
smaller unit requirements versus China (600 versus 1,200 units minimum respectively).

This means that the high risk items should be produced at Hong Kong including: Daphne, Isis, Anita, Teri,
and Stephanie. The Gail line must also be produced at the Hong Kong plant because the total units
forecasted is less than the required minimum production at the China plant.

Production of styles such as Gail can be over produced.

It has a lower COV and is less risky so

production in China seems to make more sense at first assessment.

However, because the minimum

amount of 1,200 required for production in China exceeds the average forecast for Gail, or 1,017, it must
be sourced in Hong Kong in order to not go over 20,000 items as specified by Wally.

Therefore, all five high risk items and one low risk item should be produced at the Hong Kong plant. The
remaining low risk items should be produced at the China plant including: Assault, Seduced, Entice, and
Electra.

The quantity ordered per line for the first order would be as follows: Assault (2,020), Seduced (3,213),
Entice (1,200), Electra (1,720), Gail (814), Daphne (600), Isis (600), Anita (659), Teri (600), and
Stephanie (600). This brings the total quantity ordered for the first order to 12,026.

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[Exhibit 4]

Production Quantity Orders And Where To Produce

Style

Average
Forecast

Price

Adjusted Qnty
for
1st Order

Adjusted Qnty
Total Qnty 1st &
for
2nd Order
2nd Order

Assault

90

2525

2020

505

2525

Seduced

73

4017

3213

804

4017

Entice

80

1358

1200

158

1358

Electra

173

2150

1720

430

2150

Gail

110

1017

813

204

1017

Daphne

148

2383

600

1783

2383

Isis

99

1042

600

442

1042

Anita

93

3296

659

2637

3296

Teri

123

1100

600

500

1100

Stephanie

133

1113

600

513

1113

12025

7976

20001

! Totals

Where To
Produce

China
China
China
China
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong

The second order quantity per item would be as follows: Assault (505), Seduced (804), Entice (158),
Electra (430), Gail (203), Daphne (1,783), Isis (442), Anita (2,637), Teri (500), and Stephanie (513)*. This
brings the total quantity order for the first order to 7,975. [Please Refer to Exhibit 4]

This just brings the total units produced in orders one and two over the maximum of 20,000 units by only
one unit. This is not something we considered since it is such a minuscule difference and was only the
product of rounding issues.

At this point in time, the quantity ordered for the first order will remain stagnant per the average forecast.
However, the second order quantities will fluctuate after orders are placed following the Las Vegas trade
show.

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Short-term Operational Changes

The maximum production of 20,000 set by Wally should be increased. For example, because there is a
maximum of 21,000 available units for the production period (30,000 production capacity x 7 months),
extra quantity of Gail could be produced without having to cut into production of other styles. This would
be preferable because sourcing Gail from China would require 813 more units to be produced than what is
forecasted to be sold. However the cost savings of producing them in China outweigh the cost of selling
the extra at an 8% loss. For our recommendations, Gail was produced in Hong Kong in order to adhere to
Wallys 20,000 maximum production guidelines. In reality, the company produces about 200,000 parkas
yearly and has production capacity of 210,000 parkas; therefore, it is more cost efficient to overproduce
from China in cases such as Gail.
[Exhibit 5]

Production Quantity Orders And Where To Produce

Style

Price

Adjusted
Qnty for
1st Order

Average
Forecast

Adjusted
Qnty for
2nd Order

Total Qnty
1st & 2nd
Order

Assault

90

2525

2020

505

2525

Seduced

73

4017

3213

804

4017

Entice

80

1358

1200

158

1358

Electra

173

2150

1720

430

2150

Gail

110

1017

1200

1200

Daphne

148

2383

600

1783

2383

Isis

99

1042

600

442

1042

Anita

93

3296

659

2637

3296

Teri

123

1100

600

500

1100

Stephanie

133

1113

600

513

1113

12412

7772

20184

Totals

Where To
Produce

China
China
China
China
China
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong

Gail Exception
Minimum
Wholesale
Qnty over
Style
Avg Forecast Production
Cost
produced
China

! Gail $

110

1017

1200

183

Cost
Savings of
diffrence
Producing
between
in China
factories
$ 1,610.40 $ 8,298.72 $ 6,688.32

Cost to
Liquidate

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Long-term Operational Changes

Train Chinese employees to increase production in China.

Assumptions
The first order placed must be at least 600 units per item in Hong Kong and 1,200 units per item in
China. The remainder of the average forecast will be made up in the second order.
It is assumed that color and size of each style of parka has been factored into each sample committee
members forecast and is not relevant for this analysis.
The average forecast includes safety stock.

Implementation Plan
The first order will be placed by the beginning of November. The second order will be placed in the
beginning of March after the Las Vegas trade show. Please refer to Exhibit 4 for production quantities and
sourcing decisions for the first and second order of each item.

Brand Highlight
Excellent Price/Value relationship.
Value is defined as both functionality and style.
Target Market: Middle to High End of skiwear market.

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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:
45% of children skiwear mkt.
11% of adult skiwear mkt.
Offering an excellent price/ value relationship to target group
Product Characteristics

Sport Obermeyer, Ltd is a strong competitor in the U.S. skiwear market, offering a broad range of ski
apparel and accessories. Klaus Obermeyer, a German immigrant, was is the founder and owner of the
company. Through his teachings at the Aspen Ski School, he noticed that his students were cold and
miserable due to the impractical clothing they wore. In the off-season he traveled to Germany to find
durable and high performance ski clothing for his students and eventually began creating his own

P a g e | 19

products, including ski clothing and equipment. His goal was to create high performance ski clothing and
accessories that were stylish, similar to those that could be found in Germany.
Sport Obermeyer, ltds products differ from the other mainstays in the industry in that they are targeted to
a broad array of skiers within the target market. It is targeted towards five different gender markets
according to price, type of skier, and how fashion forward the potential customers are. Within each
gender, numerous styles are offered, each in several colors and range of sizes. Its target is the middle- to
high-end of the market and focuses strictly on skiers rather than a broader market like many of its
competitors. Through this strategy, Obermeyer competes by offering an excellent price/value relationship,
where value is defined as both functionality and style.

Product Transportation

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Retailers

Order Cycle

When determining how many units to order of each style in the initial phase of production, it is difficult to
be confident in the order quantities. There is little on which to base the estimates. At this juncture, Wally

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only has forecast information from his buying committee (six people, including Wally). He has noticed
though that the standard deviation of demand for a style parka can be approximated using the standard
deviation of the buying committees estimates. He has found that historically, the standard deviation of
demand for a style is approximately twice the standard deviation of the estimate provided by the buying
committee. Since we have the buying committee information, we can derive the approximate standard
deviation of demand for each style. The styles with higher standard deviation of demand are more risky to
order now due to uncertainty of the demand forecasts. Styles Anita and Daphne have the highest standard
deviation of demand and styles Gail and Entice have the lowest.
The next important aspect Wally needs to consider is the cost of overproduction for each style. At this
point, there is no under-order cost because this is only the initial production phase. Other orders will be
placed later, when more information is available to better predict demand. So for now we focus our
attention on the over-order costs. For Sport Obermeyers parkas, the over-order cost is equal to the
purchase price minus the salvage value for each parka. The estimated average loss on a parka left unsold
at the end of the season is approximately 8% of the wholesale price. The styles with the highest over-order
cost are Electra and Daphne and the lowest are Seduced and Entice. Considering both of these important
factors, Wally can determine the optimal order quantity. For purposes of this sample, we assume all first
phase production will be ordered from the Hong Kong factory. For the first phase of production at the
Hong Kong factory, the minimum order is 10,000 units and the minimum production quantity for a
particular style is 600 units. Because this is the first order of the season and Obermeyer is trying to
minimize over order cost, Wally should try to order as close to the minimum total order as possible
(10,000 units). When ignoring the 600 unit minimum per style, a variety of styles are ordered with only
the style, Stephanie, with zero units ordered. Even though at this point, it does not exclude the style, Isis
and Teri are below the 600-unit threshold. See Exhibit 1 for complete calculations. When we include the
limitation that the minimum order quantity for each style is 600 units, the order changes. Now we are
ordering seven styles, with no order for styles: Isis, Teri, and Stephanie. Seduced is still ordered the most,
but an even higher quantity is ordered. See
Exhibit 1 for complete calculations.
Table 1: Order Quantities

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!
It can be inferred that one of the most important factors in consideration of which style to order right now
is which styles had the highest average estimated demand. It is safer to order these styles, as long as they
are ordered at the lower end of the estimate (approximately one standard deviation below the mean). And
a higher quantity can be ordered of each of these styles, adding up to the minimum production of 10,000
units.

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Manufacturing Structure

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 & Sub cons Cut & Sew
Transport to Seattle (June July)
Retailers want full delivery prior to start of season (early September 93)

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Replenishment orders from Retailers

Production Process

Lead time reduction

Fabric dyer lead time of several months.

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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 cant predict fashion colors

Production Approaches
Production for Sport Obermeyer, Ltd starts with the design process. The design process for a particular
season actually starts in February, about a year and a half prior to when clothing and accessories should be
expected to be delivered to the stores for consumer purchase. Obermeyers design team and upper
management attend the international outdoors wear show in Munich, Germany. The European market is
much more fashion forward than the U.S. markets and is often a good indicator of the future American
fashions. The Las Vegas show in March also provides input into the design and design concepts are
finalized by May. Once the design concepts are finalized, Obersport begins production of sample
garments.
These small quantities of sample garments are made with the actual materials used for final production.
Sales representatives then start to show the products to the retailers. Concurrent with the sample
production process, Obersport begins to determine material requirements to place orders, as many of the
materials take months to obtain. Initial production begins in February of the current year. During the trade
show in Las Vegas (March), most retailers place their orders. Using the information from these orders,
Obermeyer can then forecast the total demand with the best possible accuracy. After completion of this
forecast, Obermeyer places its second and final production order.
In June and July, Obermeyers garments are shipped from Hong Kong to Seattle, and then trucked to the
Denver distribution center. In late August, Obermeyer ships orders to retailers for sales to begin in
September. Retailers may ask for replenishment of products if they are able to sell all they have in stock.
If Obermeyer has products available they will send the retailer the replenishments.

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Pros and Cons of the Production Process

With Obermeyers production process there are definitive advantages and disadvantages that must be
weighed before starting initial production. The largest advantage of the two-phased production process is
Obermeyers ability to meet demand and provided their products at the desirable time frame for retailers.
If Obermeyer was to wait until all of the data has been received from the Las Vegas show, there would be
no way to provide the high quality, unique product to their customers on time due to the long lead times
they face with many of the garments components. Another advantage to the two-phase production process
is that it allows Obermeyer time to confirm their research, and narrow the accuracy of the demand for each
of their products. This will allow them to be more profitable as they will not have as many unsold or
undersold garments when the season is over. The two-phase production process also allowed Obermeyer
to maximize the production of the cutting and sewing phase as their capacity was only 30,000 parkas a
month. With a maximum production order of 200,000 parkas, it would not be feasible to produce all the
parkas necessary if they were to wait on all of the pertinent feedback from the retailers before one
disadvantage is that Obermeyer relies heavily on the retailers input for the production of their products
and get no input from the consumers. If the customers do not agree with the retailers style choices, there
will be a large variance in the quantity of garments sold. Another disadvantage to the two-phase
production strategy is the longer Obermeyer waits to ship their products there is more of a likelihood that
they could be shipped back to China because a quota restriction is imposed on each product category.
Shipping their initial production order in June or July, Obermeyer would likely not have an issue with the
quota restrictions. There second and final production order shipping in August may run a larger risk. A
final disadvantage is held in the cutting and sewing phase. Due to the minimum order quantities per style,
1200 in China, and 600 in Hong Kong, and the final forecasted demand quantities, it is not likely that the
remaining production necessary in the final run will match these quantities exactly. There will likely be
instances where remaining production to meet the forecasted demand will be lower than the minimum
order quantity. This will cause management to have to make a decision based on the profitability of the
style in question.
At first glance, based on the information provided in this case, the styles which are the best candidates for
initial production include the following: Entice, Assault, Seduced and Anita. The common thread for these
styles is they all have a relatively high average forecast with a particularly low expected loss if unsold.

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The four styles chosen account for approximately 56% of the expected forecast for the ten styles. It would
be our recommendation to not order styles which have both a high standard deviation and a high expected
loss if unsold. We would also recommend that when ordering the initial phase, it would not be wise to
order more than the average expected sales less one standard deviation until we can be sure that the
retailers look upon our styles in initial production favorably. There are also disadvantages to consider with
these four styles. One disadvantage is that these four styles are the least profitable styles per unit. This
decision is perhaps made to lessen the risk taken by manufacturing other styles and not being able to sell
the entire stock. Another disadvantage includes a large standard deviation for a couple of the chosen
styles, specifically Seduced and Anita. Though these are two of the higher forecasted sellers, there is a
stronger possibility that the average forecasted demand for these items will not be met. The greatest risk
taken would be by producing Anita in the initial phase as it has the highest standard deviation across all
styles within our line.

The Supply Chain

Obermeyer sourced most of its products through Obersport

Obermeyer would contract with 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

Obersport: Joint venture between Sport Obermeyer and its Hong Kong partner.

P a g e | 28

Obersport is responsible for fabric and component sourcing for apparel production and monitoring
product quality at subcontractor factories.

Supply Chain Strategies

The supply chain in Sport Obermeyers world starts with its relationship with Obersport. Sport Obermeyer
contracts with Obersport who in turn purchases shell fabric and lining fabric from its vendors. Shell fabric
is typically purchased from many sources such as the United States, Japan, Korea, Germany, Taiwan,
Austria and Switzerland. The lining fabric is primarily sourced from Korea or Taiwan. Obersport has the
fabrics dyed as necessary and also works with printing companies to develop screens which would be used
as patterns on the outerwear. Other components such as snaps, buttons and zippers, to name a few, are
purchased from vendors and installed by Obersport. Many of these components are procured in Hong
Kong, however, snaps typically are procured from Germany and the zippers are purchased from a large
Japanese zipper manufacturer.
The product planning process is very critical to the overall success of this company; this is due to the lead
times of the materials and components, sensitivity of the timing of Obermeyers sample production, raw
material sourcing, and final production. Due to the lead times of the materials and the sensitivity of the
timing of Obermeyers sample production, then raw material sourcing and final production, the product
planning process is very critical to the overall success of this company. They are dealing with suppliers
from various countries, with varying lead times depending on the material. Early decisions for colors and
styles are a key to starting the process and reducing the risk of late production. One tactic Obersport uses
to limit their risk is to carry excess stock of the miscellaneous components required.

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

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Issues Faced By Wally

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

Differences between production in HK and China

Hong Kong

!
China

Recommendations
We support gathering diverse inputs from the managers so that there is not an imitation of ideas. It is
redundant when a group has a collective decision because their ideas are based on crowd-thoughts.
Although Wallys forecasting analytical technique is more structured, his fathers intuitive experience has

P a g e | 30

proven its effectiveness in the past. Therefore we suggest that their techniques need to be combined. For
example, if the managers continue to do their own forecasting, guidelines need to be in place to regulate
their forecasting and purchasing decisions. They should blend both styles for maximum effectiveness;
each manager should have to document what style of forecasting he or she chooses to do and list the
assumptions they used in preparation.

They need to communicate with their suppliers and especially retailers to make more accurate forecasts.
Retailers most likely use vigorous forecasting to push the product out the door and Obermeyer should
want to do the same thing. If they increase communication, they can use this information to their
advantage and in turn, pass it along to their suppliers. This would allow everybody to have the information
they need as soon as possible, production to begin earlier and the bullwhip effect to be greatly reduced. If
better communication is established earlier than the competitions, Obermeyer will have shorter leadtimes, less defective product, and cheaper shipping costs. There is a quota to meet and if Obermeyer can
maximize their output for specialty products, with high quality, functionality and style, they can create a
niche market and increase market share.

It will be easier to forecast to a particular niche market when the product style is custom for a particular
trend or activity. They need to adjust their design time-frame so that most, if not all of it is done
immediately after they observe the European trends in Munich, shortening the design process to one
month. If they had finished prototypes at the Vegas show, they would only need to make slight changes to
products after the show. This would allow more time for production and shipping.

If implemented, these changes would drastically impact the supply chain and improve the overall quality
and cost of the Obermeyer product line.

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Through a risk analysis it is recommended that:

The Assault, Seduced, Entice, and Electra lines are produced in China for both the first and second
production phase.
The Gail, Daphne, Isis, Anita, Teri, and Stephanie lines are produced in Hong Kong for both the
first and second production phase.
The following quantities be ordered of each style or he first order: Assault (2,020), Seduced
(3,213), Entice (1,200), Electra (1,720), Gail (813), Daphne (600), Isis (600), Anita (600), Teri
(600), and Stephanie (600).
The following quantities be ordered of each style or he first order: Assault (505), Seduced (804),
Entice (158), Electra (430), Gail (204), Daphne (1783), Isis (442), Anita (2,637), Teri (500), and
Stephanie (513). *See Assumptions.

Style

Adjusted
Qnty for
1st Order

Adjusted
Qnty for
2nd Order

Total Qnty
1st & 2nd
Order

Assault

2020

505

2525

Seduced

3213

804

4017

Entice

1200

158

1358

Electra

1720

430

2150

Gail

813

204

1017

Daphne

600

1783

2383

Isis

600

442

1042

Anita

659

2637

3296

Teri

600

500

1100

Stephanie

600

513

1113

12025

7976

20001

! Totals

Where To
Produce

China
China
China
China
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong

It is also recommended that short term and long term operational changes are implemented in order to
make production more fluid and productive. These changes include:

The maximum production should be increased (Short-Term).

Workers of the China plant should be trained to make products faster and of higher quality in order
to shorten the lead time of products (Long-Term).

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Conclusion
For parkas, the minimum production quantity for a style was 1,200 units in China and 600 units in Hong
Kong. Obermeyer produced about 200,000 parkas each year. The maximum capacity available to the
company for cutting and sewing was 30,000 units a month; this included the production capacity at all
factories available to make Sport Obermeyer products. Obermeyer could decrease the amount of risk
presented each year by reducing the amount produced for the Las Vegas Fashion Show. Obermeyer's fate
is always determined by the outcome of the show. Like most fashion apparel manufacturers, they faced a
fashion gamble each year. If Obermeyer were to produce 50,000-70,000 units, they would eliminate the
excess loss that has occurred in past years. Although Obermeyer invested in a new facility in China, there
were still concerns about the quality and reliability of Chinese operations. Chinas labor is also much lower
than Hong Kong. The price of producing a variety of styles in Hong Kong would be lesser then producing
in China. As mentioned earlier in the paper Hong Kong workers were trained in many different facets of
production whereas China's worker were trained in one specific area of production. The price of training
and increasing the amount of workers would far exceed Obermeyers input cost. The backbone of
Obermeyer's sales is the parkas. It would be in their best interest to produce all the parkas in China were
profit would be maximized. The Hong Kong factories should be used to produce the different styles of
Obermeyer Ltd. In conclusion, Obermeyer must strategize an effective method of calculating production
decisions. Obermeyers initial issues have been due to scant information about how the market would
react to the line. There is no indication of how consumers reacted to 1992-93 line of their skiwear.
Obermeyer must comply sample data from the buying committee's forecast and correlate it with
Obermeyer's top selling products. This would alleviate the amount of risk and loss executed every year
due to inaccurate information of the market's reaction

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References
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