Sport Obermeyer Case

Obermeyer Sport A Strategic Direction in Forecasting Introduction & Summary Klaus Obermeyer is an innovator in the high-end travelwear industry. The company began with gobble up filled tips and slowly began to diversify its output line with high-altitude suntan lotion, turtlenecks, nylon wind-shirts, mirrored sunglasses and more. In 1961, the starting time Sport Obermeyer factory wargonhouse opened in Aspen, and the innovations continued with soft-shell jackets, double lens goggles, and the first waterproof-breathable fabrics to be used in clo thing.Sport Obermeyer is a high-end fashion skiwear design and merchandising company with its headquarters regain in Aspen, Colorado. The company specializes in marketing its products in U. S. department stores and ski shops. Although the company has a global communicate network, most of its outerwear products atomic number 18 channeled by dint of Obersport. 1 In the fashion skiwear industry demand is precise dependent on several fa ctors that are difficult to predict. The inconsistent nature of the economy, fashion trends and weather fix a significant challenge for a firm such as Sport Obermeyer.By actively applying a selection of appropriate prodigy methods and go on to adapt to this fast-paced industry, Obersport would be able to remain competitive and retain or gain its 1992 high market share entering into the 1993/94 season. abstract A joint venture was established between Klaus Obermeyer and Raymond Tse in 1985. This company gained the title of Obersport Ltd. This joint venture allowed Obermeyer to manage supplement and fruit operations in Hong Kong and China. 2 Until the mid-1980s, Obermeyer followed a simple design-and-sales cycle The first coiffure was to design the product, then fabricate and showcase samples to sellers in March usually at fairs/shows ? The second stage was to place production commits with suppliers in March and April after receiving retail assigns from the fairs/shows. ? T he third stage was to receive goods at Sport Obermeyers distri exactlyion center in September and October and ship product immediately to retail outlets. During the mid-1980s, several factors rendered this approach obsolete ? As sales volume grew, the company hit manufacturing ceilings during the peak ski wear-production period. Being unable to order sufficient quantities during critical summer months trim down the supply for ongoing demanded volume, to be produced after it has received retail orders. Therefore, the company begins troth production the previous November, or about a year beforehand goods would be sold, based on speculation about what retailers would order. Processes and Strategies A ski jacket being distributed in the U. S. could be asembled in China from fabrics and findings (zippers, snaps, buckles, and thread) sourced from Japan, South Korea, and Germany.This global supply chain ( present 1. 0) created more product variety and improved production efficiency, but at the same sentence greatly increased lead quantify. Reaction to the lengthening supply chains, limited supplier capacity, and retailers demands for earlier delivery were all orotund obstacles. Obersport began cracking a variety of quick-response initiatives such as to shorten lead times to overcome them. First introduced were computerized systems to slash time in touch orders and reckon raw-material requirements.This technology would anticipate what raw materials it would require and pre-position them in warehouses in the Far East because lead time for obtaining raw materials proved difficult to shorten. To shorten this time Obersport used air freight for delivery from the Far East to the Denver distribution centre as delivery due dates quickly approached. In the 1990s, these changes had reduced delivery times by more than adept month. 3 Along with these changes, the Sport Obermeyer applied some other tactics in the 1990s.Obermeyer persuaded some of its important retail cu stomers to place their orders sooner, providing the company with valuable foreword information such as the favouriteity of certain styles. Invited were 25 of the companys largest retailer customers to Aspen each February offering them a preview of the new annual line and solicit early orders. This was called an Early Write which accounted for about 20 percent of the total sales. About half of production requests depended highly on demand forecasts still. An in-house buying committee approach was allocated to generate these forecasts. 4 Short life cycle Issues There are three topics in straighta focusings business environment that are especially relevant to this case ? Production planning for short-life-cycle fashion products ? Operational changes that reduce the cost of mismatched supply and demand ? Coordination issues in a global supply chain. The Bullwhip Effect (or Whiplash Effect) is an observed phenomenon in forecast-driven distribution channels. Since the oscillating demand magnification upstream a supply chain reminds someone of a cracking whip it became famous as the Bullwhip Effect.For seasonal goods such as winter sportswear, which has a short selling season and long lead times, a firm can do several things to better match supply and demand Additional events can be held before large trade fairs in order to secure orders further in advance. Supplier capacity can be reserved without specifying the exact product mix. This postponement of the final mix has benefits similar to those of postponing product customization until the distribution center. Common parts can be used in designs in order to consortium some of the variation between individual demands. 5 Demand ForecastingThe different types of foretelling include Economic forecasts address the business cycle. Ie inflation rate, notes supply, and housing starts Technological forecasts predict the rate of technology progress and impact the development of new products Demand Forecasts predict s sales of existing products and services. This is the type of forecasting relevant to the Obermeyer case. 6 The Importance of Forecasting pic Forecasts are based on statistics, and they are rarely perfectly accurate. Because forecast errors are a causen, companies often carry an inventory wing called safety stock.Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock. In periods of rising demand, down-stream participants increase orders. In periods of falling demand, orders fall or stop to reduce inventory. The gist is that variations are amplified as one moves upstream in the supply chain (further from the customer). The causes can further be divided into behavioral and operational causes Behavioral causes to forecasting Misuse of base-stock policies Misperceptions of feedback and time delays Panic ordering reactions after unmet demand Perceived risk of other players bounded rationality Operational causes Dependent demand processing Forecast Errors Adjustment of inventory control parameters with each demand observation Lead Time Variability (forecast error during replenishment lead time) Lot-sizing/order synchrony Consolidation of demands Transaction motive Quantity discount Trade promotion and forward buying Anticipation of shortages allocation rule of suppliers shortage gaming sway and JIT style management of inventories and a chase production strategy The information above (Importance of Forecasting) was provided by Wikipedia http//en. wikipedia. org/wiki/Bullwhip_effect Objectives Despite current forecasting strategies being used at Sport Obermeyer to satisfy the constantly changing consumer demands, goals and targets must be set in order to improve weak areas allowing the company to remain competitive for the coming(prenominal) season.The following objectives are used to further develop the companys forecast ing strategies for the 1993/94 season. 1. Find new ways to accurately estimate the standard of each style required in the initial phase of production. 2. Implement operational changes that will improve overall performance. 3. Properly align current supply chain sources subject to supply channels in Hong Kong and Greater China. Recommendations The following recommendations have been created to ensure the company meets its required objectives. 1.Wally Obermeyer reflects the results from the buying committee meeting that is held in November, annually. This year Wally strayed away from the usual system of having six key managers make production commitments based on the groups consensus, to having each member give a personal forecast retailer demand for each of the products sold at Sport Obermeyer. We recommend that he takes each managers forecasts and makes one forecast based on the other managers predictions. A good formula to use in order to accomplish this is ? i-k? i= 10,000 units. (refer to exhibit 3. 0)This formula takes both the mean of all of the other managers forecasts and the distribution of everyones forecast into consideration. By improving the internal forecasts by applying this forecasting model with the data used from past sales instead of a simple average made by the buying committee. 7 2. The main operational changes that Wally should pore on in order to increase productivity is to initially focus on transgressting the seasonal orders into two lotsSpeculative Order The first lot should be an order of 10,000 units placed approximately 10 months before the selling season. This order will be made through China, considering that they are slight expensive and need more time for production. This order will consist of the quantities produced from the data attained through a weighted average method as identified above. Reactive Order The second lot should be ordered closer to the selling season, approximately six months, and should also be 10,000 un its.The quantities in this order should be decided based on which items are popular in the Las Vegas fashion show. The Vegas fashion show should offer a better prediction of popular trends in the season. This order should be produced by Hong Kong manufacturers considering that they are faster, more efficient and more flexible. Although, it would be much less expensive to order through China, devoted the short time line for this second order it is essential to use Hong Kong. 8 3. Due to demean cost, but longer lead times, Sport Obermeyer should make a majority of its speculative order to China.With strict quota restrictions limiting the number of units that can be imported from China into the United States, it is necessary to ensure the orders brought into the US before the quota has hit a maximum. Sport Obermeyer forecasts an annual demand for its product and as a result supply channel partners need to undergo change to develop and deliver new product lines annually. Therefore, Ob ermeyer retroactive order should be manufactured in Hong Kong to avoid the risk of declined imports (Exhibit 2. 0). The Hong Kong manufacturer also provides higher quality and quick production times, but at a higher price.Conclusion pic Obermeyer did employ all of the recommended strategies (to some degree) to satisfy the three outlined objectives entering into the 1993/94 season. Although Obermeyer did increase their quality control functions to position themselves as one of the highest quality brands in the market, they continued to use essentially the same supply chain. The company has since evolved from its operations in the early 1990s to investing highly in research and development as this is the only way to remain competitive as a insurance premium brand supplier in the 21st century.Sport Obermeyer now follows the following strategy Obermeyer Product Technology defines our commitment to the demand of function and performance. Today, more than ever, we are designing garments that are pushing the boundaries of outerwear technologies. Introducing new systems of integrated synergistic components which create exceptional, high-performance winter gear The Advanced Technology Series is way of the future. Despite their fundamental changes in corporate strategy, effective operations management remains a critical part of the ongoing success of Sport Obermeyer Ltd.Exhibits Exhibit 1. 0 Supply Chain pic Exhibit 2. 0 Comparative Analysis Hong Kong Greater China Advantages Disadvantages Advantages Disadvantages Workers 50% faster than Chinese Shorter hours worked, less Significantly lower wage/hour Workers not as efficient counterparts overtime allowance (US$0. 6/hr) Narrower range of tasks Higher weekly output/worker Higher effort costs Ample supply of manufacturing Long production lines Trained in broader range of Shortage of younger workers human resources Much higher minimum order tasks Insufficient number of workers Lower landed cost quantity for sa me style Lower minimum order quantity forHigher landed costs Slow repair rate (10%) same style Fast repair rate (1-2%) Exhibit 3. 0 Speculative Production Quantities Assumptions ? All ten styles are made in Hong Kong, and Obermeyers initial production commitment is at least 10,000 units. Different unit costs of production are inapplicable Style total Forecast ()Standard 2x Standard Deviation Product Quantity Deviation (? i) Isis 357. 24 Entice 832. 24 Assault 1804. 2 Teri 292. 28 Electra 1293. 52 Stephanie 2. 12 Seduced 2838. 28 Anita 1076. 36 Daphne 905. 36 Exhibit 4. 0- Product Life Cycle pic9 Project Management Group Three Craig Brown, Evan Farquhar , Jay Maynard, Sarah-May Kilpatrick, Sean Vrooman The first step taken was to buck a Project Manager for our group. We decided to appoint Sean Vrooman due to his background in Human Resources and having a strong understanding of Project Management. The first thing put into place was we created a plan for how we would structure this assignment. First we analyzed what the objectives were and how we could meet them over a timeline. We then devolved a work break-down schedule to split up certain tasks to individuals in the group.Our first meeting was Tuesday November 3rd, 2009. We decided to meet every Tuesday but with limited resources we decided to start meeting twice a week for the last three weeks to help us move at a faster pace through the project. In total we met seven times with emails back and forth discussing and analyzing each others work. After implementing a schedule based on our working methods we had a very strong and able order of who was doing what part of the paper and how we were going to present our material to the class. No methods were required In genereal this group functioned very well together. Everyone contributed in a very equal and professional manor.We completed this project on time and did not need the assistance of any extra materials like Gannt charts o r critical paths. 1 Janice H. Hammond, Ananth Raman, Harvard pipeline School, Sport Obermeyer, Ltd. 2 Janice H. Hammond, Ananth Raman, Harvard Business School, Sport Obermeyer, Ltd. 3 www. personal. umd. umich. edu/drossin/class/gommo4 4 courses. washington. edu/smartman/Ass3. htm 5 http//www. quickmba. com/ops/scm/ 6 Heizer_9_ch4 7 pic678GOP? E? - = O f o iU? tcRcRcRcAcAc hUhz B*OJQJaJphy hUhI? www2. isye. gatech. edu/jvandeva/Classes/6203/ /12Obermeyer. ppt 8 www. utdallas. edu/metin/Or6366/Folios/scnewproduct. ppt 9 Heizer_9_ch4