SPORT OBERMEYER CASE Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

SPORT OBERMEYER Case Study Solutuion

Problem Diagnosis

This case described the operations at the merchandising and Skiwear Company and for its supply partner. It allows for the production planning of the short life cycle products with the uncertain demand in the market. This case also allows us to analyze the reduced version of the production-planning problem of the company. The main concern of Wally Obermeyer was to determine an appropriate production commitment for the first half of the projected demand of Obermeyer during the 1993-1994 seasons.

Along with this, Wally also had to make a complete production decision by deciding that which styles should be made in Hong Kong and which styles would be better to be made in China. In addition, the material flows and the information provided in the case will also guide us to make recommendations to the company regarding the operational improvements and the decision of the sourcing of the products between China and Hong Kong.

Case Analysis

The main analysis needs to be performed on the forecast methods of the company to detect the inaccurate forecast mechanisms and then the after effects need to be analyzed such as the excess merchandise had to be sold at deep discounts and the company might not be able to sell the most popular items during the full season and thus it would result in huge losses for the company. Therefore, we first need to determine the production plan for Sport Obermeyer during the initial phase of production, measure the risk of ordering policy and implement ordering policy in China to make reasonable comparison and recommendations.

Question 1

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.

The average forecast value and the standard deviation of the different styles of the Parkas of Women have been provided in Table 2-20. The above question asks us to compute the economic order quantity for each of the individual type of the parkas. Economic order quantity is the optimum order quantity, which is required to be held at a minimum by a company so that it could reduce its inventory costs to a minimum level. This quantity model would target the variable costs and determine the optimum quantity for us at which the total variable cost would be minimized for the company’s production. However, in this case the EOQ for the company would be the production order quantity for each individual type of the Parka, given that the total of all of these EOQs should be 10,000 units.

For computing the EOQ, we need to find out the corresponding service level for the sample provided. This ratio has been found by the difference of retail price and cost divided by the difference of cost and salvage value of a unit if not sold. These computations are shown in the excel spreadsheet and in the appendices in exhibit 1. The service level has been calculated to be 0.75 or 75%. Based on this service level, the z value has been determined from the z table, which is 0.645. The formula which we have used here to compute the EOQ is mean+ (z-value*SD). Using this formula, the individual EOQs have been computed and the total EOQ for the fore casted sample of 20,000 units. The price differences between different styles have been ignored for this calculation.

Question 2

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

One of the best measures of the risk associated with the ordering policy in this case would be Coefficient of Variation (CV). CV is the ratio of the standard deviation to the expected mean. It shows us the volatility and the variation in the data per unit of mean. However, in the context of this case the CV would be defined as the volatility of each of the types of different styles of Parkas per unit of that style. It would determine the variability of the demand or the ordering policy risk. The higher the volatility, the more certain and accurate the company would have to be to determine the demand for the coming seasons of 1993-1994.

The case states that around 80% of the retailers of the company would be placing their orders in the second phase of the Las Vegas trade show. The CV has been computed for all the different parkas as shown in exhibit 2 and we can see that Isis, Teri, Stephanie, Anita and Daphne are those styles that have the maximum volatility (risk) within their fore casted demand. Therefore, the future capacity for all of these products should be reserved by the company because they have higher degree of deviation. If the demand increases in future years, which is more likely to happen, then the company will have safety stock to meet that demand.

SPORT OBERMEYER CASE Harvard Case Solution & Analysis

Question 3

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?

The minimum production quantity for the different types of the Parkas is 1200 units in China and 600 units in Hong Kong. Therefore, to analyze the above scenario we have adjusted the EOQs for each style of the parka produced in Hong Kong for all such orders, which have a value of less than 600 units. Similarly, for the China factory the company has adjusted all the EOQ’s of each product to increase their size to minimum 1200 units. We can now see that there is a difference in the EOQ of the two countries as shown in exhibit 3 in appendices and there are a number of reasons for this difference...............

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