Assignment #1: Case Study on Sport Obermeyer
Due 3/6/06
You need to have a group of four people to write this assignment.
The case describes operations at a skiwear design and merchandising company and its
supply partner. It introduces production planning for short-life-cycle products with
uncertain demand and allows students to analyze a reduced version of the company's
production planning problem. In addition, it provides details about information and
material flows that allow students to make recommendations for operational
improvements, including comparisons between sourcing products in Hong Kong and
China.
Reference: Making supply meet demand in an uncertain world, HBR Article
Carefully read the Sport Obermeyer case and write an analysis report (no more than 4
pages).
1. (45%) Using the sample data given in Exhibit 10, make a recommendation for
how many units of each style Wally Obermeyer should order during the initial
phase of production. Assume that all ten styles in the sample problem are made in
Hong Kong, and that Obermeyer’s initial production commitment must be at least
10,000 units. (Ignore price differences among styles in your initial analysis.)
(a) (25%) Answer the question without considering minimum order lot size.
(b) (20%) Answer the question considering minimum order size of 600 for each
style.
2. (30%) What operational changes would you recommend to Wally to improve
performance?
(a) (5%) What do you think the impact of reducing minimum order size?
(b) (5%) What are the benefits of increasing reactive production capacity?
(c) (20%) How can you increase the reactive production capacity?
3. (15%) What are the important functions performed by Obermeyer and Obersport
individually? Can Obermeyer perform all the functions by themselves?
4. (10%) How should Obermeyer management think about sourcing in Hong Kong
versus China?
Case Supplement
1.
This is an ambitious case and covers three general topics: a) production planning
for short-life-cycle fashion products; b) operational changes that reduce costs of
mismatched supply and demand; c) coordination issues in a global supply chain.
2.
It is strongly recommended to read the reference HBR article, “Making supply
meet demand in an uncertain world,” very carefully because of its rich relevance
with the case. In order to help you understand better the key issues of the case
and the connection between the article and case, I am giving you more specific
hints.
3.
The production planning problem that Obermeyer faces is a mathematically
complex stochastic optimization problem. You don’t need to formally structure
and solve the problem, but you should be able to devise a heuristic rule for
solving the planning problem. The “risk-based producing sequencing” as
described in the article provides you some guidelines in devising your heuristic
rule. Here are some hints:
(i) Obermeyer should follow a strategy that minimizes the expected cost of
stockouts and markdowns.
(ii) Obermeyer should fill nonreactive capacity (the initial phase of
production) with those styles with low risks based on information from
predicted sales and fill reactive capacity with those styles with high risks
based on information from actual sales.
(iii) When there is no constraint of minimum order size, try to produce styles
with higher expected demand and lower demand uncertainty in the initial
phase of production.
Style
Initial
production
1
2
3
4
5
6
7
8
9
10
Total
Roughly
10000
(iv) When there is a constraint of minimum order size of 600, try to produce
styles with higher “safety factor” in the initial phase of production.
Definitions of safety factor are as follows:
Type 1 parka (µi > 1200 ), safety factor = (µi – 1200)/σi
Type 2 parka (µi < 600 ), safety factor = (600–µi )/σi
Type 3 parka (600< µi < 1200 ), safety factor = 0
Notice that Type 1 products are safe to produce in the initial production
stage since we are not likely to be overly constrained by the minimum
order size. However, Type 3 products are the riskiest products to make in
the initial production period. Why? If commit to producing some amount
during the initial production period, we will likely not be able to adjust
the total production of this style after receiving early demand
information in Las Vegas.
Style
µi
σi
Seduced
Assault
Electra
Anita
Daphne
Entice
Gail
Isis
Teri
Stephanie
4017
2525
2150
3296
2383
1358
1017
1042
1100
1113
1113
680
807
2094
1394
496
388
646
762
1048
Total
20001
Safety
factor
2.53
1.95
1.18
1.00
0.85
0.32
0.00
0.00
0.00
0.00
Initial
production
Roughly
10000
4.
The operational changes question has been updated as:
(a) What do you think the impact of reducing minimum order size?
(b) What are the benefits of increasing reactive production capacity?
(c) How can you increase the reactive production capacity?
5.
The coordination question has been updated as:
What are the important functions performed by Obermeyer and Obersport
individually? Can Obermeyer perform all the functions by themselves? How
should Obermeyer management think about sourcing in Hong Kong versus
China?