SportsObermeyerLtd.

CaseReportSubmittedto:Dr.RameezKhalid

FortheCourseofTechnologyandOperationsManagement

SummerSession2014

INSTITUTEOFBUSINESSADMINISTRATION,KARACHI

August12,2014Authoredby:

AHSANJALAL(07863)NAJIULLAHHABIB(06659)

YASEENJANALLAWALA(07850)ZEESHANJAWED(05042)

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Abstract

The case report assignment provided in this course is

meant for students to apply their theoretical knowledge of

technology and operations management so that they can

learn real world operation challenges. Our group decided to take Sports Obermeyer case due to

following reasons:

All members love sports so utmost the Sports Obermeyer case grasped the attention

It gave us variety of challenges This case covers overall topics which covered in the

academic course

It gives an opportunity to think as marketer, planner, financer and at best an operations manager

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Contents Abstract.........................................................................................................................................................1CompanyIntroduction..................................................................................................................................3PROBLEMSTATEMENTWITHSOLUTION......................................................................................................3PRODUCTIONPLANNINGPROBLEM.........................................................................................................3INACCURATEFORECAST:...........................................................................................................................5LONGMANUFACTURELEADTIME:...........................................................................................................6

ApplicationinPakistanIndustry...................................................................................................................8Annexure.......................................................................................................................................................9

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Company Introduction Sport Obermeyer's origins traced back to 1947, when Klaus Obermeyer commenced instructing

at the Aspen Ski School. During harsh winter Klaus found his students cold and miserable due to

the impractical clothing. Klaus began to find durable, high-performance ski clothing and

equipment for his students. In the early 1980s, he popularized the "ski brake," a simple device

replacing cumbersome "run-away straps"; the brake kept skis that had fallen off skiers from

plunging down the slopes. Over the years, Sport Obermeyer developed into a preeminent

competitor in the U.S. skiwear market: estimated sales in 1992 were $32.8 million. The company

held a commanding 45% share of the children's skiwear market and 11% share of the adult

skiwear market.

Product line: Obermeyer offered a broad line of fashion ski apparel, including parkas, vests, ski

suits, shells, ski pants, sweaters, turtlenecks, and accessories. Parkas were considered the most

critical design component of a collection; the other garments were fashioned to match the parkas'

style and color.

Obermeyer products were offered in five different "genders": men's, women's, boys', girls', and

preschoolers'. The company segmented each "gender" market according to price, type of skier,

and how "fashion-forward" the market was.

PROBLEM STATEMENT WITH SOLUTION PRODUCTION PLANNING PROBLEM In this case, we found that one of the biggest challenges which company faces was to decide

where to produce their products and in which quantity. This task becomes more challenging due

to little or no sales forecast. The risk associated with this involves:

1. Over production which leads to selling of products at a discount that is even below the

manufacturing cost

2. Stock Outs: high sale items stock out which result in the decline in customer trust in

company

The problems become critical due to difference in aspects of their production facilities. That is to

say that the China and Hong Kong facilities provide parkas with many limiting factors. Even if

production is decided the quantity for each production facility will remain a problem which can

lead to over production or stock out.

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ANALYSIS OF PRODUCTION PLANNING

The analysis of problem contains a comparison of production facilities. First thing to consider in

solution for production planning challenges is to compare production facilities. From Table 1 we

see that China production facility outruns Hong Kong due low labor cost and transportation

cost1. But we still cannot say that China is superior to Hong Kong due to uncertainty of sales2.

On basis of COV

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Kong to release the pressure as lead time is lower at Hong Kong. In certain cases, Air transport

can be utilized for faster delivery.

INACCURATE FORECAST: One of the problems faced by Obermeyer is inaccurate forecasting. They are unable to accurately

predict market response to its product lines in order to meet demand most efficiently. Since

Greater product variety and more intense competition have made accurate predictions

increasingly difficult. It needs to find a way to improve forecasting the demand in order to

avoid stock-outs and at the same time, avoid excess merchandise in its warehouse for those

products that retailers did not purchased. Considerable income is lost each year to Lost sales and

Deep discounts because of the company's inability to predict best-sellers products.

RECOMMENDATION

As Exhibit 5 from the case study4 suggests, Demand Forecasts Improves with Increasing

Information, Obermeyer usually receives 80% of the annual order volume the week after Las

Vegas show, long after its products entered production. If only Obermeyer gets the response

sooner, it can alter its forecast to match the demand for the upcoming season. Obermeyer can

arrange an early meeting with some of its largest retailer customers to give them a sneak preview

of the new annual line and to cash early orders. The data collected and gathered from early

orders and from the results of the existing buying-committee can together then be used to

improve demand forecasts just before the Trade show. To maximize the value of the market

feedback, Obermeyer could also include small retailers from both urban and resort retailers.

To deal with stock-outs, now that Obermeyer will be in a position to forecast more accurately the

predictable items or best-sellers, it can devote most of its production to these items, thus

limiting the production of unpredictable items and hence not resulting in excess merchandise of

the items not bought by the retailers. To incorporate Lost Sales due to stock-outs, Obermeyer can

ask its retailers to improve customer interaction by fulfilling customer requests for an

unavailable item at a later time through mail, if possible. The lost sales data can further benefit

Obermeyer in determining the true demand of its retailer which will allow Obermeyer to do a

better job of estimating lost sales and forecasting demand.

4PleaseseeExhibit5attachedforreference

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Early communication with its retailers can help Obermeyer pass the crucial information to its

suppliers, allowing the information (material management) they need as soon as possible,

production to begin earlier and the bullwhip effect to be greatly reduced. Further more, instead of

using just a simple average of the individual forecasts made by the buying-committee, using a

weighted average; with the weights reflecting past accuracy (calculated using MAPE or Mean

Absolute Percent Error) to enhance the accuracy of demand forecasts.

LONG MANUFACTURE LEAD TIME: Nearly two years of planning and production activity takes place prior to the actual sale of

products to consumers. To make matters worse strict quota restrictions by the U.S government in

certain product categories, results in individual companies rushing to get their products into the

country before other firms had "used up" the available quota. To overcome the highly volatile

demand, the Obermeyer has to bears huge transporation costs (air-shipping) to ensure timely

delivery to retailers.

RECOMMENDATION

Decrease lead times for both raw materials and finished goods, thereby allowing more time to

utilize existing capacity. Since the business strategy should emphasize dependability more than

cost, lead times can be reduced using some or all the following methods.

Chose suppliers of raw materials more on the basis of dependability rather than just cost Speed up orders through information sharing with suppliers Speed up shipments using faster (but more expensive) shippers. Establish some local (but

more expensive) production capacity for last minute production.

Other ways to reduce lead time includes:

For the items with long lead times increase the amount of safety stock inventory for those items that are inexpensive and/or shared by many parkas (e.g. black fabric, lining and

insulation fabrics).

Simplify the Parkas design so that they can share as many components as possible. Increase production capacity by using more sub-contractors who can deliver at a faster

rate to fill in gaps and employing more overtime in China.

Exploring an alliance with swimwear manufacturers who can supply excess capacity when Obermeyer needs it and consume capacity when Obermeyer has excess capacity

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Decrease minimum order quantities, thereby improving the ability to fine tune during reactive production.

Minimum order quantities occur because there are long setup times when switching from the production of one style of parka to another, thereby making it uneconomical to have

short runs. Obermeyer can decrease the minimum order quantities by providing

incentives to its suppliers to have more flexible production lines.

Increased flexibility can come from improved process design e.g. cellular production. Buy new technologically advanced equipment e.g. a flexible cutting machine and by

completely automating the sewing operations.

If implemented, these changes would drastically impact the supply chain, avoid income lost each

year, improve the overall quality and cost of the Obermeyer product line and help the companys

ability to predict future best-sellers.

FUTURE OF OBERMEYER

Obermeyer incorporated the following changes in order to shorten lead times and cope up with

Demand Uncertainty;

Operational Changes

Introduced computerized systems to reduce the time for order processing and computing raw material requirements

Pre-positioned anticipated raw materials in a warehouse in the Far East. With material in hand Sport Obermeyer could begin manufacturing as soon as it received orders

Began using air freight as delivery due dates approached

Production Planning Changes

Kept raw materials and production capacity undifferentiated as long as possible Booked production capacity well in advance without specifying exact styles until later

(assumed risk of supplying raw materials to factories)

Merged design and production departments to broaden strategy Encouraged designers to use same types of raw materials Recorded orders for out of stock products

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The Company Sports Obermeyer will be able to continue its operations and business as soon as it

increases its efficiency in its supply chain and planning process. It also will have to establish a

distribution channel to reduce lead times and cost of inland transportation from Seattle to

Denver. Some of its changes at the operational level include collecting and analyzing its past

data and being vigilant of any situation as observed in case where stock outs are occurring. In all,

the forecast needs to be as correct as possible.

In long term future the Company will be better off developing its production base in China as

that is where all the production of the majority of the worlds goods are coming from. The

company in future will focus on sustainable building and use environmental friendly materials.

The company can use solar panels at its factories to and use mountain supply water in the

summer. The solar panel array will be energy saving and exhaust reducing strategies.

Furthermore all factory lighting can be phased in to fluorescent lamps, furthering energy

efficiency. Sports Obermeyer should continually look for better ways to improve efficiencies and

to make sure to produce goods in environmentally friendly way. The company in future can

move from solvent based dyes to water based dye alternatives.5

Application in Pakistan Industry

Levis Pakistan has 240 SKUs.6 This was calculated when we researched about the new factory

which started its operation almost 10 years back. Levis is a clothing brand with a product mix of

240 SKUs (3 colors x 20 styles x 4 sizes). Levis produces several variants, including 2-4 colors,

of 4 different sizes, that make them hard to forecast the demand of each SKU. Levis has

developed an alliance with its upstream and downstream because they are already holding keen

interest in the development of their suppliers. Also Levis is selling its clothing line through its

own franchises and retail shops, including the factory outlets. After the first few years they

developed several issues with stocks left in there stores so they developed its factory outlets to

sell at a discount in order to gain minimum profits from left over merchandise. It also

streamlined its supply chain by introducing a customer feedback asking its customers which style

they prefer so Levis will make exactly what their customers want.

5See more at: http://www.obermeyer.com/stepping-lightly/production-and-manufacturing.html#sthash.6sns00JE.dpuf6http://levi.com.pk/pk/#

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Annexure Table 1

Score WtScore ScoreWtScoreExchangeRate 0.1 10 1 8 0.8 ExchangerateofHKDis37%higherthanRMBLaborCost 0.35 10 1 6 0.6 LaborcostofChinais90%lowerthanHongKongProductivity 0.25 8 0.8 10 1 Productivityofchinais40%lowerthanthatofHKRepairs 0.05 8 0.8 10 1 repairsofHKproductismorethan50%lowerminOrderQty 0.1 5 0.5 5 0.5 MinQtylimitsrestrictionTransportation 0.15 8 0.8 6 0.6 TransportaionCostfromchinais14%lowerTotal 1 49 4.9 45 4.5

CHINA HONGKONGDecVar Factor JustificationofValue

Table 2

Style Price AvgFC 2*StdDev COV Risk/SafeGail 110 1017 388 0.38 SafeIsis 99 1042 646 0.62 Risk

Entice 80 1358 496 0.37 SafeAssault 90 2525 680 0.27 SafeTeri 123 1100 762 0.69 Risk

Electra 173 2150 807 0.38 SafeStephanie 133 1113 1048 0.94 RiskSeduced 73 4017 1113 0.28 SafeAnita 93 3296 2094 0.64 RiskDaphne 148 2382 697 0.29 SafeTotal 20000

Table 3

Style Price Profit Loss DiffGail 110 26.4 8.8 17.6Isis 99 23.76 7.92 15.84

Entice 80 19.2 6.4 12.8Assault 90 21.6 7.2 14.4Teri 123 29.52 9.84 19.68

Electra 173 41.52 13.84 27.68Stephanie 133 31.92 10.64 21.28Seduced 73 17.52 5.84 11.68Anita 93 22.32 7.44 14.88Daphne 148 35.52 11.84 23.68Total 269.28 89.76

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Table 4

Table 5

Style Price Minorder China ExcessqtyRiskonExcessQty$

LaborCostUSD

Gail 110 605 1200 595 5,232 937Isis 99 357 1200 843 6,678 937

Entice 80 832 1200 368 2,356 937Assault 90 1,804 1804 0 2 1,408Teri 123 292 1200 908 8,937 937

Electra 173 1,294 1294 0 0 1,010Stephanie 133 1 1200 1,199 12,753 937Seduced 73 2,836 2836 0 0 2,214Anita 93 1,075 1200 125 930 937Daphne 148 903 1200 297 3,511 937Total 10,000 14,334 4,334 40,399 11,191

Table 6

Style Price Minorder HongKong

ExcessqtyRiskonExcessQty$

LaborcostUSD

Gail 110 605 605 0 0 5,864Isis 99 357 600 243 1,925 5,815

Entice 80 832 832 0 0 8,064Assault 90 1,804 1804 0 0 17,485Teri 123 292 600 308 3,031 5,815

Electra 173 1,294 1294 0 0 12,542Stephanie 133 1 600 599 6,373 5,815Seduced 73 2,836 2836 0 0 27,487Anita 93 1,075 1075 0 0 10,419Daphne 148 903 903 0 0 8,752Total 9,999 11,149 1,150 11,329 108,060

K= 1.06Style Price AvgFC StdDev MinorderGail 110 1,017 388 605Isis 99 1,042 646 357

Entice 80 1,358 496 832Assault 90 2,525 680 1,804Teri 123 1,100 762 292

Electra 173 2,150 807 1,294Stephanie 133 1,113 1,048 1Seduced 73 4,017 1,113 2,836Anita 93 3,296 2,094 1,075Daphne 148 2,382 1,394 903Total 20,000 10,000

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Exhibit 5