Sport Obermeyer

Sport Obermeyer, Ltd

Case Report

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Couse: BUS 474 – D1

Instructor: Sudheer Gupta

Prepared by

Angela (WeiXin Qiu)   301112950  

Eva (Yi-Wen Kung)     301094406  

Joy (Jiayi Wang)        301104418  

Question 1

According to the article “Sport Obermeyer, Ltd”, the profit of each parka was 24% of wholesale price and the loss of each parka unsold due to price markdowns was 8% of wholesale price. Therefore, Cost of understocking = Cu= Wholesale price of a parka – Cost of a parka = Profit of a parka. Suppose each parka’s wholesale price is P, then Cu = 24%P. On the other hand, Cost of overstocking = Co = Cost of a parka – Price for sale = Loss of each parka unsold, so Co = 8%P. CSL = Cu/Cu+Co = 24%P/(24%P+8%P) = 0.75. The table in Exhibit 10 (in the original material) shows the standard deviations and average forecast demands of 10 styles of Women’s Parkas. We use “2×standard deviation” data in the table instead of “standard deviation” to calculate the optimal quantity of each style, because it says that Wally noticed that the ten styles’ expected standard deviations were about as twice as the Buying Committee’s. We use Q = NORMINV(CSL, average forecast demand, 2×standard deviation) in Excel to calculate the quantities of all ten styles. The detailed result is shown in Exhibit 1.

The total quantity is 26,359 which are more than 10,000, so we have to adjust it to no more than 10,000. Equalizing the risk for each style is the way to solve the problem. Overstocking rather than understocking parkas is risky during the first production process, because there will be a second production opportunity to replenish products, if there is a stockout during the first period. So the probability of overstocking can imply the risk level of a style of parka. We can equalize the risk for each style by equalizing the probabilities of overstocking...