SCM: Accurate Response at Sport Obermeyer
Sport Obermeyer
 Ravi Anupindi
SCM: Accurate Response
Sport Obermeyer
Annual production = 200,000
u Maximum monthly capacity available = 30,000
u Production horizon = 7 months
u November commitment (before observing demand) =
50%
u Limited Opportunity for Postponement
u
– except for greige fabric
 Ravi Anupindi
Anupindi
SCM: Accurate Response
1
SCM: Accurate Response at Sport Obermeyer
Planning and Production Cycle
(1993-1994 Line): Exhibit 4
Month
Design
Activities
Feb. ‘92
Design
Begins
July ‘92
Sketches
sent to
Obersport
Order Receipt and
Production Planning
Materials
Management
Retail Activities
Production
Order Greige
fabric
First production order
placed with Obsersport
Place
component
orders
Sample production
Mar. 93
Las Vegas Show (80% of
retailers orders received).
Place second order
Place
component
orders
Full scale production
Apr.-May
93
Additional retailer orders
received
Full scale production
June 93
Additional retailer orders
received
Full scale production;
ship finished goods by sea
Nov. 92
Feb. 93
Full scale production
Full scale production;
Air freight finished
goods
Aug 93
Dec. 93
93-94 line delivered
to retail
Peak retail selling
period
Retailer replenishment
orders
 Ravi Anupindi
SCM: Accurate Response
Forecast Accuracy
Actual total sales
4000
4000
4000
3500
3500
3500
3000
3000
3000
2500
2500
2500
2000
2000
2000
1500
1500
1500
1000
1000
1000
500
500
500
0
0
0
500
1000 1500 2000 2500 3000 3500 4000
Initial Forecast
0
0
500
1000 1500 2000 2500 3000 3500 4000
Updated Forecast after observing 20% of sales
0
500 1000 1500 2000 2500 3000 3500 4000
after 80%
Each data point represents the forecast and the actual
season sales for a particular item (at the style-color level).
 Ravi Anupindi
Anupindi
SCM: Accurate Response
2
SCM: Accurate Response at Sport Obermeyer
Measuring Risk
Probability Demand
is below Production
Probability Demand
Exceeds Production
Mean
Forecast
 Ravi Anupindi
Production
Quantity
SCM: Accurate Response
Measuring Risk
Minimum Production = 600
Probability Distribution of Sales of Pamela
Mean = 2,017
Standard Deviation = 243
0.34
0.005
0.34
0.135
0.02
1228 1531
1774
0.135
2017
0.005
0.02
2260 2503 2746
Is it safe to produce Pamela using Speculative Capacity?
 Ravi Anupindi
Anupindi
SCM: Accurate Response
3
SCM: Accurate Response at Sport Obermeyer
Measuring Risk
Minimum Production = 600
Probability Distribution of Sales of Cirque
Mean = 400
Standard Deviation = 100
Probability
= 0.023
400
600
Is it safe to produce Cirque using Speculative Capacity?
 Ravi Anupindi
SCM: Accurate Response
Measuring Risk
Minimum Production = 600
Probability Distribution of Sales of Zebra
Mean = 600
Standard Deviation = 200
Probability (Demand >
900) = 0.07
600
900
1200
Is it safe to produce Zebra using Speculative Capacity? What risks do we face?
 Ravi Anupindi
Anupindi
SCM: Accurate Response
4
SCM: Accurate Response at Sport Obermeyer
Tailored Sourcing: Sport Obermeyer
Fact: Demand can be forecast with great accuracy
after Las Vegas Show
u Proposed Tailoring
u
– Speculative Capacity used for low “risk” products
– Reactive Capacity used for high “risk” products
u
An additional wrinkle: Manufacturing facilities have
minimum production quantities
– Hong Kong: 600
– China: 1200
 Ravi Anupindi
SCM: Accurate Response
Simulation Results
Minimum Expected SD of Profit Expected
Order
Profit
Total Order
Size
0
$478,863 68,252
20,533
600
$472,439 71,229
21,336
1200
$456,177 75,102
23,369
 Ravi Anupindi
Anupindi
SCM: Accurate Response
5
SCM: Accurate Response at Sport Obermeyer
Results at Sport Obermeyer
Total Prodn. (units)
Over-Prodn. (units)
Under Prodn. (units)
Over-Prodn. (% sales)
Under-Prodn. (% sales)
Total Cost (% sales)
 Ravi Anupindi
Model’s S. Obermeyer’s
Decisions
Decisions
124,805
121,432
22,306
25,094
792
7,493
1.30%
1.74%
0.18%
1.56%
1.48%
3.30%
SCM: Accurate Response
Sourcing Flexibility Issues
How can Wally increase flexibility in the long-term?
u How much reactive capacity is necessary?
u Value of (Early-Write) Information
u
 Ravi Anupindi
Anupindi
SCM: Accurate Response
6
SCM: Accurate Response at Sport Obermeyer
Stockout and Markdown Costs as a
function of Reactive Capacity
Stockout and Markdown Costs as
% of Sales
600,000
500,000
400,000
300,000
200,000
100,000
0
0
12.5
25
37.5
50
62.5
75
87.5
100
% Reactive Capacity
 Ravi Anupindi
SCM: Accurate Response
Stockouts and Mardow ns as % of
Sale s
Value of Early Information
10
9
8
7
6
5
4
3
2
1
0
0
25
50
80
100
% of Early Write Orders
 Ravi Anupindi
Anupindi
SCM: Accurate Response
7
SCM: Accurate Response at Sport Obermeyer
Tailored Sourcing:
Multiple Sourcing Sites
Characteristic
Manufacturing
Cost
Flexibility
(Volume/Mix)
Responsiveness
Engineering
Support
 Ravi Anupindi
Responsive
Site
High
Efficient
Site
Low
High
Low
High
Low
High
Low
SCM: Accurate Response
Tailored Sourcing Strategies
Strategy
Responsive
Site
Fluctuation
Volume based
dual sourcing
Product based Unpredictable
dual sourcing
products,
Small batch
Model based
Newer
dual sourcing
products
 Ravi Anupindi
Anupindi
Efficient
Site
Stable demand
Predictable,
large batch
products
Older stable
products
SCM: Accurate Response
8
SCM: Accurate Response at Sport Obermeyer
Key Learning Points
u
Managing Risk
– Risk based sourcing
u
Methods to increase sourcing flexibility
–
–
–
–
u
reduce minimum order quantities
increase reactive capacity
decrease leadtimes
get early information
Tailored sourcing
 Ravi Anupindi
Anupindi
SCM: Accurate Response
9