Supply Chain Management
Assignment #2: Case: Sport Obermeyer
1) Using the sample data of Exhibit 10 make recommendations for how many units of each style
Wally Obermeyer should order during the initial phase of production? Assume all ten styles are made
in Hong Kong, and that Obermeyer’s initial commitment must be at least 10,000 units.(Ignore the
price difference between units in your initial analysis.)
Wally had estimated that the forecast accuracy was the highest for those styles that the Buying committee
had the highest level of agreement. He found that the Standard Deviation of the Buying Committee for a
style was twice the actual demand for the style. Therefore he manipulated the equation accordingly.
We assume that the data is normally distributed. Now if we take into the equation for standard normal
distribution is µ - kσ, where µ is the average value and σ is the standard deviation. Now value of k is
generally 0,1, 2, 3 and so on, showing the level of standard deviation. Now for k = 1, 68% of the data will
lie between µ±σ, for k = 2, 95% of the data will lie in between µ±2σ. Now we test for value of k does the
total production sum up to around 10000.
i)
Style
Case 1: k = 0
Mean (µ)
Standard Dev. (σ)
Production Units (µ - kσ)
Gail
1017
388
1017
Isis
1042
646
1042
Entice
1358
496
1358
Assault
2525
680
2525
Teri
1100
762
1100
Electra
2150
807
2150
Stephanie
1113
1048
1113
Seduced
4017
1113
4017
Anita
3296
2094
3296
Daphne
2383
1394
2383
Total
20000
20000
Therefore we see taht this is much more than 10000. Therefore not accepted.
ii)
Case 2: k = 1
Style
Mean (µ)
Standard Dev. (σ)
Production Units (µ - kσ)
Gail
1017
388
629
Isis
1042
646
396
Entice
1358
496
862
Assault
2525
680
1845
Teri
1100
762
338
Electra
2150
807
1343
Stephanie
1113
1048
65
Seduced
4017
1113
2094
Anita
3296
2094
1202
Daphne
2383
1394
989
Total
20000
10573
Now we can see that this value is acceptable. If we test for k = 2, the value will fall below 10000.
Therefore, the company should approximately produce the above mentioned units.
2) Can you come up with a measure of risk associated with your ordering policy? This measure
should be quantifiable.
• In the first production period, we are primarily concerned with markdown risk:
– If we under-produce during the initial production period, we have a second production opportunity.
• What is the relationship between risk and
– Product price
– Demand uncertainty
– Expected demand
3) Repeat your methodology and assume now that all 10 styles are made in China. What is the
difference between the two initial production commitments?

The differences between production in HK and China
4) What operational changes would you recommend to Wally to improve performance?
Reduce lead times
– Computerize processes
– Reduce minimum production lot-sizes
– Do not commit initial production orders to unproven factory (rework, ramp-up)
– Look for subcontractors who can delivery at a faster rate to fill in gaps
– Use standardized products
5) How should Wally think (both short term and long term) about sourcing in Hong Kong versus
sourcing in China?
This year, Wally was expecting to produce about half its products in China. However in the short run
run, the company should source its materials from Honk Kong and in the long run from China. Now, the
reasons for sourcing from Hong Kong in the short run are:
1) China had the constraint of large minimum order sizes which could limit the company’s ability to
increase the range of products it offered or manage the inventory risks. In China, the minimum
order size was 1200, where as in Hong Kong it was 600.
2) The workforce in Hong Kong was twice as productive as compared to the Chinese. Therefore, a
parka line in Hong Kong that required 10 workers to complete all operations would typically require
40 workers in China.
3) Also, the workers in Hong Kong were able to ramp up their production faster than the Chinese
workers. Therefore, this ability, coupled with shorter production lines, enabled the Hong Kong
factory to produce smaller orders more efficiently.
4) Also, the company could procure the YKK zippers from the Hong Kong factory faster than from
Chin, because the factory of standard YKK zippers was located in Hong Kong. Therefore, on a
short term basis, it would be easier for the company to source the products from Hong Kong itself.
However, to source materials in the long run, the company should look towards China, because long term
will involve large orders. The wages in China were $.16 per hour as compared to $3.84 per hour in Hong
Kong. Therefore, if the company wanted to process large orders, it should look towards China rather than
Hong Kong dispite the lower productivity of the Chinese workers.