1. Case Study: Sport Obermeyer
Prepared by: Shaheen Sardar
SCM Lab. Department of Industrial and Management Engineering, Hanyang University, South Korea.

2. “Skiing is a celebration of life”
Company History:
1947: Klaus Obermeyer, a German immigrant 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 began to increase productivity to meet their new demands.

4. Women’s Collection

6. Competitors The Jacobs Corporation
founded by David L. Jacobs Biography

7. Competitors
The North Face, Inc.
: subsidiary of VF Corporation

8. Competitors Burton Snowboards founded by Jake Burton Carpenter
Innovative Burton
outerwear performance meets
leading Motorola Bluetooth ®
technology

9. Sport Obermeyer
Sport Obermeyer – a high end fashion skiwear designer and merchandising company
Commitment for producing line of fashion skiwear for
Long lead times:
Long lead times: It’s November 1992 and the company is starting to make firm commitments for its 1993 – 1994 season.
Based on experience, Intuition and sheer speculation
No feedback from retailers (Las Vegas trade show in March 1993)
Inaccurate forecasts of retailer demand
Company’s inability to predict correctly (which product would become best seller) resulted in:
Excess merchandise and sold at deep discount
Or company ran out of most popular items (lost sales)

10. Problem Statement How can Sport Obermeryer Ltd.:
Improve its forecasting method
Achieve a more dynamic manufacturing capability in order to reduce final inventory
Increase profits
Become more competitive in the industry

11. Manufacturing Structure:
Sport Obermeyer Ltd.
Obersport Ltd.
Alpine Ltd
Hong Kong
Macau
China
Lo Village
Other subcontractors

12. COMPANY NETWORK:
Recently, a number of contractual ventures were added and a new complex in Lo Village Guangdong China

13. Product and Segmentation:
Products

14. Product Variety:

15. Obermeyer Product Fashion Ski Apparel
Parkas, Vests, Sweater, ski suits, shells, ski pants, turtlenecks and accessories
Parkas : Most critical design
Products offered in five different genders (Men, Women, Boys, Girls, Preschoolers)
Company segmented each gender market according to price, type of skier 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

16. Obermeyer Product Example (Adult man) Each Gender
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

17. 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 each month
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 apparel production and monitoring product quality at subcontractor factories.
Textile and Accessories Suppliers
Apparel
Manufactures
Obersport
Retailers

18. Textile and Accessories Suppliers Apparel Manufacturers
The Supply Chain
Textile and Accessories Suppliers
Apparel Manufacturers
Sport Obermeyer
Retailers
Obersport
Produce, dye and print shell and lining fabrics, supply insulation, zippers, thread, logo patches and snaps.
Subcontractors, receive production orders and materials from Obersport. Cut, sew and final assembly.
Responsible for material and production sourcing in the Far East. It also acts as a distribution centre for materials and finished goods.
Product design, production planning and sales.
Purchase from Sport Obermeyer and sell products to consumers.

19. Product Transportation
Hong Kong Warehouse
Seattle
Obermeyer’s Denver Warehouse
then transported by trucks
goods produced in August were air-shipped
Retailers
orders were finally shipped via small-package carriers such as UPS (United Parcel Service) at the end of August 1993
Cost $5 per parka
products made in June and July were transported by ships

20. Retailers Specialty Ski-Retail Stores Department Stores
Direct Mail Retailers
Consumers
Most sales occur between September and January
Delivering products by early September
Sport Obermeyer

21. Production Options Hong Kong Mainland (Guangdong, Lo Village)
More expensive
Smaller lot sizes
Faster
More flexible
Mainland (Guangdong, Lo Village)
Cheaper
Larger lot sizes
Slower
Less flexible

22. Obersport Limited Obersport Ltd
To coordinate production of sport obermeyer’s products in Far East
Responsible for fabric and component sourcing
Joint Venture formed in 1985 by
Klaus Obermeyer’s Son – Wally (Harvard Educated)
Raymond Tse – Owner of Alpine- 80% order of Sport obermeyer
Klaus entrusts Raymond Tse to make all decisions regarding production and investment 22

23. Planning and Production Cycle:
Feb Mar May Jul Sep 92
Prototype, Sample Production
Design Process Las Vegas Concept Sketches sent Designs
begins Show Finalise to Obersport Finalised
Nov Mar Apr 93 - Jul Dec 93-Feb 94
Full scale production
แก้ Scale of time line
Place 1st Production Las Vegas Additional Replenishment
Order with Obersport Show orders received orders received

24. The Effect of Minimum Order Quantities
Ideally, during Speculative Production, we want to order a specific quantity of a parka style, and then, during Reactive Production, we want to “fine tune” the parka’s remaining supply by ordering as few or as many as the indicated by the revised forecast after Las Vegas.
However, a large minimum order quantity for a particular style of parka forces us to order either many parkas or none.
Thus, a minimum order quantity significantly reduces the ability to “fine tune” during Reactive Production.

25. “Speculative” Production “Reactive” Production
Sport Obermeyer’s Time Line and “Speculative” versus “Reactive” Production
“Speculative” Production
“Reactive” Production

26. Production Process: Asia 6 weeks Un-dyed greige goods Consumer
Fabric Producer
Fabric Dyer
Cut/Sew Factory
Denver Warehouse
Retailer
Un-dyed greige goods
Consumer
Components
Greige Shell Fabric
Finishing of Shell Fabric (Dying & Printing)
Finished Lining Fabric
Insulation
Zippers
Thread
Logo Patches, Drawcords, Hang Tags, etc.
Snaps (undyed)
Dyeing of Snaps
Procurement lead time
45 – 90 days
45 – 60 days
2 – 3 weeks
Standard (HK) 60 days, Custom (JP) 90+ days
30 days
15 – 30 days
1 – 2 months

27. Retailers order in Apr-Jun 93
Ordering and Shipment Process:
6 weeks
Factories in Hong Kong
Seattle warehouse
Denver warehouse
Order 20% in Apr-Jun 93
Order 80% in Mar 93
Forecasts
800 Ski Retailers
Retailers order in Apr-Jun 93
Product Sketches
Forecast Committee

28. Peak Sales Stock outs (+24 % of whole sale price)
Sales and Replenishing Process:
Aug Sep Oct Nov Dec Feb 94
Sales
Peak Sales
Re-Sales
Stock outs (+24 % of whole sale price)
Market downs (-8% of wholesale price)

29. Parkas Obermeyer produce 200,000 parkas every year
Capacity: 3,60,000 each year
Earn 24% of wholesale price on each
Unsold in season: sold at a loss of 8%
Profit of US$ 27 and loss of US$9 on each parkas
Buying committee forecasts for 10 style of Parkas

30. Issue faced by Wally
How to make best use of forecasts by various members for production commitment
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

31. ESTIMATED COST INFORMATION FOR ROCOCO PARKA (IF ASSEMBLED IN CHINA)
Obermeyer Landed Cost:
Cost FOB Obersport
$42.68
Agent’s fee (to Obersport, 7%)
$2.98
Freight (Ocean Carrier)
$1.40
Duty, insurance and miscellaneous
$4.90
Total landed cost
$51.92
Cost FOB Obersport:
Material
$30.00
Labour
$0.78
Transportation within China and China overhead
$2.00
China quota, obersport profit and overhead
$9.90
Total

32. 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 standard deviation of buying committee forecasts
Forecast distribution for each style as a normal random variable
With mean equal to average of committee forecasts
Standard deviation twice of committee forecasts

33. COMMITTEE FORECAST- 10 STYLES OF WOMEN’S PARKA – Individual Forecast
Price
Laura
Carolyn
Greg
Wendy
Tom
Wally
Gail
$110
900
1,000
1,300
800
1,200
Isis
$99
700
1,600
950
Entice
$80
1,500
1,550
1,350
Assault
$90
2,500
1,900
2,700
2,450
2,800
Teri
$123
1,100
1,850
Electra
$173
1,800
2,000
Stephanie
$133
600
2,125
Seduced
$73
4,600
4,300
3,900
4,000
3,000
Anita
$93
4,400
3,300
3,500
4,200
2,875
Daphne
$148
1,700
2,600
2,300
Totals
20,000

34. COMMITTEE FORECAST- 10 STYLES OF WOMEN’S PARKA – Individual Forecast
Average Forecast
Standard deviation
2 x Standard Deviation
Gail
1,017
194
388
Isis
1,042
323
646
Entice
1,358
248
496
Assault
2,525
340
680
Teri
1,100
381
762
Electra
2,150
404
807
Stephanie
1,113
524
1,048
Seduced
4,017
556
Anita
3,296
1,047
2,094
Daphne
2,383
697
1,349
Totals
20,000

35. Parkas
Wally also had to decide the location for production for each style ( Hong Kong or China)
It was planned this year to produce 50% of products in China
There was risk of managing production and inventory in longer term
The larger minimum order size of China limits the capacity of company’s ability to increase the range of products
China trade relationship with USA - Risky

36. COMPARISON OF OPERATIONS IN HONG KONG AND CHINA
Topic
Hong Kong
China
Hourly wage
HK$30
RMB 0.91
Exchange rate
HK$7.8 = US$1
RMB (Renminbi) 5.7 = US$1
Working hours
8 hours/day, 6 days/week
9 hours/day, 6.5 days/week
Total = 48 hours/week
Total = 58.5 hours/week
Maximum overtime allowed = 200 hours/years
During peak production periods, workers work 13 hours/day, 6.5 days/week
Weekly (non-peak output/worker)
19 parkas
12 parkas

37. COMPARISON OF OPERATIONS IN HONG KONG AND CHINA
Topic
Hong Kong
China
Actual labour content per parka (incl repair work)
-2.35 hours
-3.6 hours
Paid labour time per parka (incl repair work)
-2.53 hours/parka
-4.88 hours/parka
Labour cost /garment
HK$75.6
RMB 4.45
Line configuration
10-12 people/line
40 people/line
Training
Cross-trained
Trained for single operation only
Min order quantity
600 units in same style
1200 units in same style
Repair rate
1-2%
-10%
Challenges
Wage rate, Workforce
Low unemployment
Younger worker prefer office job
Workforce
Less quality and cleanliness conscious
Training requirements

38. Sport Obermeyer’s Relationship with Obersport
In this global supply chain,
Sport Obermeyer operates in the US and specializes in the 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 and specializes in the supply side by coordinating activities such as
procuring fabric and components (e.g., zippers) and
arranging for production using either independent subcontractors or factories of Alpine (a company owned by Obersport’s managing director).

39. Sport Obermeyer’s Relationship with Obersport (Continued)
Global supply chains are frequently composed of different 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 business relationship with Obersport. Instead, it should retain its relationship and seek to improve the coordination between Sport Obermeyer’s demand-side activities and Obersport’s supply-side activities.

40. SWOT Analysis Strengths: History of product innovation
Buying committee forecasts balance
expectations
Experienced leadership and focused
management team
Deliver products to retailers early in
the selling season
Variety of SKUs, with color/size
product diversity
Use of greige fabric delays product differentiation
Weaknesses:
Excessively long lead times, though this is the nature of the industry
Minimum order quantity at Chinese manufacturers
Leftover unpopular merchandise at end of selling period.
Stock outs on most popular items during peak selling
Opportunities:
Aggressive marketing campaign
Expanding sales to European/ South American markets
Sponsorship of major winter sports events
Threats:
Competition from value-oriented sellers like Columbia.
Regulatory limits of goods that can be imported into US.

41. Case Discussion Questions
Using the sample data given in Table 2-20, make a recommendation for how many units of each style Wally should make during the initial phase of production. Assume that all of the 10 styles in the sample problem are made in Hong Kong and that Wally’s initial production commitment must be at least 10,000 units. Ignore price differences among styles in your initial analysis.
Can you come up with a measure of risk associated with your ordering policy? This measure should be quantifiable. 41

42. Case Discussion Questions
Repeat your methodology and assume now that all 10 styles are made in China. What is the difference (if any) between the two initial production commitments?
What operational changes would you recommend to Wally to improve performance?
How should Wally think (both short-term and long-term) about sourcing in Hong Kong versus China? What kind of sourcing policy do you recommend? 42

43. Solving Wally’s Sample Problem (with k=0)
Too much!

44. Solving Wally’s Sample Problem (with k=2)
Too little!

45. Solving Wally’s Sample Problem (with k=1)
Too much!

46. Solving Wally’s Sample Problem (with k=1.0608)
Just right!

47. Question 1. and 3. Comparison units of each style when produced in HK and China

48. Differences between production in HK and China
Inventory
Total Cost
Operation Time
Quality (% Repair)

49. Question 1. and 3. The differences between production in HK and China

50. Question 1 (Alternative approach)
We have three types of products: -Low risk: risk % between 0 and 40 -Medium risk: risk % between 41 and 59 -High risk: risk % above 60
To minimize the risk, we decided to order the following quantity: -Low risk items: 75% of the average forecast -Medium risk items: 50% of the average forecast -High risk items: 25% of the average forecast

51. Question 1 (Alternative approach)

52. 2. Can you come up a measure of risk associated with an your ordering policy? This measure should be quantifiable.

53. What’s the result if there is demand forecasting uncertainty?
Stock outs (-24 % whole sale price)
Market downs( -8% of wholesale price)
(Old) designs
High inventory holding cost
-Unable to fully profit from hit products

54. Why does risk happen? Forecasts are always uncertain Demand Average
Standard deviation
Standard deviation
Demand Average

55. How we assess forecast certainty? 1 . Based on historical data
- Past forecast error
- Variability of demand

56. 2. Rather than producing one joint forecast, each member of the purchasing committee produces his/her own forecast .
Obermeyer’s Buying committee

57. 3. The deviation in views (of Buying committee) is good estimator of forecast reliability
Table of standard deviation vs. Coefficient of variation
C.V. = Standard Deviation / Mean

58. 4. How is this information helpful?
“Risk –based
production planning”
- Using Early production Capacity (Speculative capacity) for Assault and Seduced
- Reserve later production Capacity (reactive capacity) for Daphne and Anita as demand become more apparent

59. 4. What operational changes would you recommend to Wally to improve performance?

60. KEY Problems:
Ski Clothes is fashionable product, Its life cycle is short
Long time of planning and production activities
Uncertain forecasting due to customer demand
Fashion taker >> No R&D

61. OPERATIONAL Changes:
Reducing number of styles handled and to predict customer demand for individual style.
To create promotion strategy to persuade retailers to order.

62. OPERATIONAL Changes: PRODUCTION SYSTEM
Increasing production Quality of China to be closed to Hong Kong.
To reduce lead time of production especially the preparation of raw materials.

63. Lead time reduction Fabric dyer lead time of several months
Fabric Producer
Fabric Dyer
Cut/Sew Factory
Denver Warehouse
Retailer
undyed greige goods
Sport Obermeyer
Asia
Consumer
Fabric dyer lead time of several months
Dyer has long lead time on greige goods and needed to keep their capacity utilized year round but can change colors overnight
Obermeyer can predict total annual sales and sales of basic colors, but can’t predict fashion colors
ตัดปัญหา show แต่ solution

64. Offer dyer one year commitment on greige goods and capacity
Solution:
Offer dyer one year commitment on greige goods and capacity
Dye basic colors early in year and fashion colors late in season on few days notice
ตัดปัญหา show แต่ solution

65. OPERATIONAL Changes: SUPPLY CHAIN SYSTEM
Increase bargaining power with suppliers by ordering via big supplier that can commit on timeline
Collect stock raw materials which is base on Ski cloth production

66. OPERATIONAL Changes:
Increase distribution channel to a country that have different period of product usage
Increase services level requirements
Establish DC in Seattle to reduce lead time and cost from inland transportation from Seattle to Denver

67. Original distribution process
Seattle
Establish Distribution
Center in Seattle without
through Denver
Hong Kong

68. OPERATIONAL Changes: INFORMATION SYSTEM
Collect the data backward and analyze the demand of the show in Vegas and compare with actual purchase.
Speedup data/information analysis and utilize historical data / Committee forecasting / Research and Trend & Market Movement.

69. 5. How should Wally think (both short term and long term) about sourcing in Hong Kong versus China?
What kind of sourcing policy do you recommend?

70. Production Options China Hong Kong Concern Concern Faster
(Guangdong, Lo Village)
Lower labor cost
Larger lot sizes
Better for lower risk designs
Concern
Quality & Reliability
Slower
Less flexible
Hong Kong
Faster
More flexible
High / Reliable Quality
Better for higher risk designs
Concern
Smaller lot sizes
Higher labor cost

71. Where is better? Short term Long term China Hong Kong
เพิ่มลูกเล่น ให้ดาวใหญ่ขึ้นและกระพริบในแต่ละที่

72. Recommendations to Wally
RECOMMENDATION #1. Improve the demand forecasts made internally by the Buying Committee in November (1992) just before Speculative Production.
Instead of using just a simple average of the individual forecasts made by Laura, Carolyn, Greg, Wendy, Tom and Wally use a weighted average, with the weights reflecting past accuracy.

73. Recommendations to Wally (continued)
RECOMMENDATION #2. Obtain market feedback earlier than Las Vegas, thereby converting some Speculative Production to Reactive Production.
Sport Obermeyer can invite selected retailers to come in January to Aspen for an all-expenses-paid “Early Order Weekend”, where there is time for a “sneak preview” of the new line, some recreational skiing and socializing, and then the early placement of orders at a discount.
To maximize the value of the market feedback, Sport Obermeyer’s “guest list” should include both large and small retailers and both urban and resort retailers.

74. Recommendations to Wally (continued)
RECOMMENDATION #3. 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 of the following methods:
Choose suppliers of raw materials more on the basis of D than C.
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.

75. Recommendations to Wally (continued)
RECOMMENDATION #3 (continued)
Other ways to reduce lead times include:
From the items with long lead times, increase the amount of “safety stock” inventory for those items that are inexpensive (e.g., buttons) and/or shared by many parkas (e.g., black fabric).
Simplify the parkas’ designs so that they can share as many components as possible. For example, are 100,000 varieties of zippers really necessary?

76. Recommendations to Wally (continued)
RECOMMENDATION #4. Increase production capacity by:
Using more subcontractors,
Using more overtime in China, and/or
Exploring an alliance with a swimwear manufacturer who can “supply” excess capacity when Sport Obermeyer needs it and “consume” capacity when Sport Obermeyer has excess capacity.

77. Recommendations to Wally (continued)
RECOMMENDATION #5. Decrease minimum order quantities, thereby improving the ability to “fine tune” during Reactive Production.
Minimum order quantities occur because there are long “set-up times” when switching from the production of one style of parka to another, thereby making it uneconomical to have “short runs”.

78. Recommendations to Wally (continued)
RECOMMENDATION #5 (continued)
Sport Obermeyer can decrease the minimum order quantities by providing incentives to its suppliers to have more flexible production lines.
This increased flexibility can come from:
Improved process design (e.g., a cellular production system).
Improved equipment (e.g., more flexible cutting machines).

79. Thank You