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1.Case Study: Sport ObermeyerPrepared by: Shaheen SardarSCM Lab. Department of Industrial andManagement Engineering, Hanyang University,South Korea.
2.Company History:1947: Klaus Obermeyer, a Germanimmigrant began teaching at the Aspen(U.S.) Ski School“Skiing is a celebration of life”Klaus Obermeyer
3.Company History:1985: Obersport; a joint venture in Hong Kong, the company beganto increase productivity to meet their new demands.
5.CompetitorsThe Jacobs Corporationfounded by David L. Jacobs Biography
6.CompetitorsThe North Face, Inc.: subsidiary of VF Corporation
7.CompetitorsBurton Snowboardsfounded by Jake Burton CarpenterInnovative Burtonouterwear performance meetleading Motorola Bluetooth technology
8.Sport Obermeyer• Sport Obermeyer – a high end fashion skiwear designer andmerchandising company• Commitment for producing line of fashion skiwear for 1993-94Long lead times: Long lead times: It’s November 1992 and the company is starting to makefirm commitments for its 1993 – 1994 season.Based on experience, Intuition and sheer speculationNo feedback from retailers (Las Vegas trade show in March 1993)Inaccurate forecasts of retailer demand• Company’s inability to predict correctly (which product would becomebest seller) resulted in: Excess merchandise and sold at deep discountOr company ran out of most popular items (lost sales)
9.Problem Statement• How can Sport Obermeryer Ltd.: Improve its forecasting method Achieve a more dynamic manufacturingcapability in order to reduce final inventory Increase profits Become more competitive in the industry
10.Manufacturing Structure:Sport Obermeyer Ltd.Obersport Ltd.Alpine Ltd• Hong Kong• Macau• ChinaLo VillageOther subcontractors
11.COMPANYNETWORK:Recently, a number ofcontractual ventureswere added and a newcomplex in Lo VillageGuangdong China
12.Product and Segmentation:
14.Obermeyer ProductFashion Ski Apparel• Parkas, Vests, Sweater, ski suits, shells, ski pants, turtlenecks andaccessories• Parkas : Most critical design• Products offered in five different genders (Men, Women, Boys, Girls,Preschoolers)• Company segmented each gender market according to price, type ofskier and fashion forwardness.• U.S. Skiwear estimated sales in 1992: US 32.8 million• Obermeyer’s Share:•45% of children skiwear mkt.•11% of adult skiwear mkt.• Offering an excellent price/ value relationship to target group
15.Obermeyer Product• Example (Adult man)– Fred (conservative, basic)– Rex (rich, latest fabrics and technologies)– Beige (mountaineering type skier, high technical performance)– Klausie (showy, latest fashions)• Each Gender– Styles– Colors– Sizes• Total Number of SKU’s (stock-keeping units): 800• Deliver matching collections simultaneously• Deliver early in the season
16.The Supply Chain (Asia to Aspen (U.S.))• Obermeyer sourced most of its products through Obersport• Obermeyer would contract with fabric supplier for specified amount of fabric eachmonth• 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.• Obersport is responsible for fabric and component sourcing for apparelproduction and monitoring product quality at subcontractor factories.Textile andAccessories SuppliersApparelManufacturesObersportRetailers
17.The Supply ChainTextile andAccessoriesSuppliersProduce, dye and print shell and lining fabrics, supplyinsulation, zippers, thread, logo patches and snaps.ApparelManufacturersSubcontractors, receive production orders andmaterials from Obersport. Cut, sew and final assembly.ObersportSportObermeyerRetailersResponsible for material and production sourcing in theFar East. It also acts as a distribution centre formaterials and finished goods.Product design, production planning and sales.Purchase from Sport Obermeyer and sell products toconsumers.
18.Product Transportationproducts made in June andJuly were transported byshipsSeattleHong KongWarehousegoods produced inAugust were air-shippedthen transported by trucksObermeyer’s DenverWarehouseCost 5 per parkaorders were finally shipped viasmall-package carriers such asUPS (United Parcel Service) at theend of August 1993Retailers
19.RetailersDelivering products byearly SeptemberSportObermeyerSpecialty SkiRetail StoresDepartmentStoresDirect MailRetailersMost sales occur betweenSeptember and JanuaryConsumers
20.Production Options• Hong Kong– More expensive– Smaller lot sizes– Faster– More flexible• Mainland (Guangdong, Lo Village)– Cheaper– Larger lot sizes– Slower– Less flexible
21.Obersport LimitedObersport Ltd• To coordinate production of sport obermeyer’sproducts in Far East• Responsible for fabric and component sourcingJoint Venture formed in 1985 by• Klaus Obermeyer’s Son – Wally (HarvardEducated)• Raymond Tse – Owner of Alpine- 80% order ofSport obermeyer• Klaus entrusts Raymond Tse to make alldecisions regarding production and investment
22.Planning and Production Cycle:Feb 92Mar 92May 92Jul 92Sep 92Prototype, Sample ProductionDesign ProcessbeginsLas VegasShowNov 92ConceptFinaliseMar 93Sketches sentto ObersportDesignsFinalisedApr 93 - Jul 93Dec 93-Feb 94Full scale productionPlace 1st ProductionOrder with ObersportLas VegasShowAdditionalReplenishmentorders receivedorders received
23.The Effect of Minimum Order Quantities• Ideally, during Speculative Production, we want to ordera specific quantity of a parka style, and then, duringReactive Production, we want to “fine tune” the parka’sremaining supply by ordering as few or as many as theindicated by the revised forecast after Las Vegas.• However, a large minimum order quantity for aparticular style of parka forces us to order either manyparkas or none.• Thus, a minimum order quantity significantly reduces theability to “fine tune” during Reactive Production.
24.Sport Obermeyer’s Time Lineand“Speculative” versus “Reactive” Production"NOW"InitialForecast9 monthsFeb…Oct1992 … 1992Design of1993-94Line.Las VegasRevisedForecast5 monthsNov … Mar1992 … 19935 monthsApril … Aug1993 … 1993"Speculative"Production"Reactive"Productionof 1993-94 Lineof 1993-94 LineIn Feb 1993,start designof 1994-95line.“Speculative” Production27 MonthsSept1993Oct1993Nov19938 monthsDecJan19931994Selling ofFeb1994Mar19941993-94 Line(peak selling in Dec & Jan)In Feb 1994,start design of1995-96 line.“Reactive” ProductionApr1994
25.Production Process:AsiaFabricProducer6 weeksFabric DyerUn-dyed greige goodsCut/SewFactory6 weeksDenverWarehouseRetailer6 weeksComponentsProcurement lead timeGreige Shell Fabric45 – 90 daysFinishing of Shell Fabric (Dying & Printing)45 – 60 daysFinished Lining Fabric45 – 60 daysInsulation2 – 3 weeksZippersStandard (HK) 60 days, Custom (JP) 90 daysThread30 daysLogo Patches, Drawcords, Hang Tags, etc.15 – 30 daysSnaps (undyed)1 – 2 monthsDyeing of Snaps15 – 30 daysConsumer
26.Ordering and Shipment Process:6 weeksFactories inHong KongSeattlewarehouseDenverwarehouseOrder 80%in Mar 93Order 20%in Apr-Jun93ForecastsProductSketchesForecastCommittee800 SkiRetailers Retailersorder inApr-Jun 93
27.Sales and Replenishing Process:Aug 93Sep 93Oct 93Nov 93Dec 93Feb 94SalesPeak SalesRe-SalesStock outs ( 24 % of whole sale price)Market downs (-8% of wholesale price)
28.Parkas• Obermeyer produce 200,000parkas every year• Capacity: 3,60,000 each year• Earn 24% of wholesale price oneach• Unsold in season: sold at a lossof 8%• Profit of US 27 and loss ofUS 9 on each parkas• Buying committee forecasts for10 style of Parkas
29.Issue faced by Wally• How to make best use of forecasts by various members for productioncommitment• 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
30.ESTIMATED COST INFORMATION FORROCOCO PARKA (IF ASSEMBLED IN CHINA)Obermeyer Landed Cost:Cost FOB Obersport 42.68Agent’s fee (to Obersport, 7%) 2.98Freight (Ocean Carrier) 1.40Duty, insurance and miscellaneous 4.90Total landed cost 51.92Cost FOB Obersport:Material 30.00Labour 0.78Transportation within China andChina overhead 2.00China quota, obersport profit andoverhead 9.90Total 42.68
31.Parkas• Wally studied the committee forecasts• Estimated the early production of each style• Demand and forecasts for last year analyzed• Standard deviation of demand was twice the standarddeviation of buying committee forecasts• Forecast distribution for each style as a normal randomvariable With mean equal to average of committee forecasts Standard deviation twice of committee forecasts
32.COMMITTEE FORECAST- 10 STYLES OF WOMEN’SPARKA – Individual ForecastStylePriceLauraCarolynGregWendyTomWallyGail 1109001,0009001,3008001,200Isis 998007001,0001,6009501,200Entice 801,2001,6001,5001,5509501,350Assault 902,5001,9002,7002,4502,8002,800Teri 1238009001,0001,1009501,850Electra 1732,5001,9001,9002,8001,8002,000Stephanie 1336009001,0001,1009502,125Seduced 734,6004,3003,9004,0004,3003,000Anita 934,4003,3003,5001,5004,2002,875Daphne 1481,7003,5002,6002,6002,3001,60020,00020,00020,00020,00020,00020,000Totals
33.COMMITTEE FORECAST- 10 STYLES OF WOMEN’SPARKA – Individual ForecastStyleAverage ForecastStandard deviation2 x StandardDeviationGail1,017194388Isis1,042323646Entice1,358248496Assault2,525340680Teri1,100381762Electra2,150404807Stephanie1,1135241,048Seduced4,0175561,113Anita3,2961,0472,094Daphne2,3836971,349Totals20,000
34.Parkas• Wally also had to decide the location for production for eachstyle ( Hong Kong or China)• It was planned this year to produce 50% of products in China• There was risk of managing production and inventory inlonger term• The larger minimum order size of China limits the capacity ofcompany’s ability to increase the range of products• China trade relationship with USA - Risky
35.COMPARISON OF OPERATIONS INHONG KONG AND CHINATopicHong KongChinaHourly wageHK 30RMB 0.91Exchange rateHK 7.8 US 1RMB (Renminbi) 5.7 US 1Working hours8 hours/day, 6 days/week9 hours/day, 6.5days/weekTotal 48hours/weekTotal 58.5 hours/weekMaximum overtimeallowed 200hours/yearsDuring peak productionperiods, workers work13 hours/day, 6.5 days/week19 parkas12 parkasWeekly (non-peakoutput/worker)
36.COMPARISON OF OPERATIONS INHONG KONG AND CHINATopicActual labour contentper parka (incl repairwork)Paid labour time perparka (incl repairwork)Labour cost /garmentLine configurationTrainingHong Kong-2.35 hoursChina-3.6 hours-2.53 hours/parka-4.88 hours/parkaHK 75.610-12 people/lineCross-trainedMin order quantityRepair rate600 units in same style1-2%RMB 4.4540 people/lineTrained for singleoperation only1200 units in same style-10%Challenges Wage Workforcerate, Workforce Low unemployment Younger worker preferoffice job Lessquality andcleanliness conscious Training requirements
37.Sport Obermeyer’s Relationship withObersport• In this global supply chain,• Sport Obermeyer operates in the US and specializes inthe demand side by coordinating activities such as• monitoring fashion trends,• designing the parkas, and• selling the parkas by entering into relationships with retailers.• Obersport operates in Hong Kong and China andspecializes in the supply side by coordinating activitiessuch as• procuring fabric and components (e.g., zippers) and• arranging for production using either independentsubcontractors or factories of Alpine (a company owned byObersport’s managing director).
38.Sport Obermeyer’s Relationship withObersport (Continued)• Global supply chains are frequently composed ofdifferent companies, with each company having a• a different geographical location,• a different knowledge set• a different skill set, and/or• a different set of business relationships.• Sport Obermeyer should NOT eliminate its businessrelationship with Obersport. Instead, it should retainits relationship and seek to improve the coordinationbetween Sport Obermeyer’s demand-side activitiesand Obersport’s supply-side activities.
39.SWOT AnalysisStrengths:• History of product innovation• Buying committee forecasts balanceexpectations• Experienced leadership and focusedmanagement team• Deliver products to retailers early inthe selling season• Variety of SKUs, with color/sizeproduct diversity• Use of greige fabric delays productdifferentiationOpportunities:• Aggressive marketing campaign• Expanding sales to European/South American markets• Sponsorship of major wintersports eventsWeaknesses:• Excessively long lead times,though this is the nature of theindustry• Minimum order quantity atChinese manufacturers• Leftover unpopular merchandiseat end of selling period.• Stock outs on most popularitems during peak sellingThreats:• Competition from valueoriented sellers like Columbia.• Regulatory limits of goods thatcan be imported into US.
40.Case Discussion Questions1. Using the sample data given in Table 2-20, make arecommendation for how many units of each style Wallyshould make during the initial phase of production. Assumethat all of the 10 styles in the sample problem are made inHong Kong and that Wally’s initial production commitmentmust be at least 10,000 units. Ignore price differences amongstyles in your initial analysis.2. Can you come up with a measure of risk associated with yourordering policy? This measure should be quantifiable.
41.Case Discussion Questions3. Repeat your methodology and assume now that all 10 stylesare made in China. What is the difference (if any) between thetwo initial production commitments?4. What operational changes would you recommend to Wally toimprove performance?5. How should Wally think (both short-term and long-term) aboutsourcing in Hong Kong versus China? What kind of sourcingpolicy do you recommend?
42.Solving Wally’s Sample Problem (with k 0)DETERMINING SPECULATIVE PRODUCTION QUANTI