Sport Obermeyer Case

Sport Obermeyer Case

Notes

Sport Obermeyer Ltd.

High end fashion skiwear design and merchandising company headquatered in Aspen, Colorado It sources from Obersport. Obersport manages supply / production operations in Hong Kong and China. It deals with fashion products (innovative products – short life cycle products and unpredictable demand)

Sport Obermeyer Ltd.

Issue of stock outs and mark downs If we produce more than needed, we incur a direct cost of manufacturing that yields no revenue and we are wasting our production capacity; eventually should be marked down If we produce less, we have a stock out situation; we lose on profit margins

Accurate Response Method

Use buying committee to develop demand forecast -> Demand distribution Assess costs of overstocking and markdown Assess risk profiles Have a speculative capacity for less risky ones and reactive capacity for more risky ones Read early demand indicators Update forecast Determine final production quantities

Demand Distribution

Average of individual forecasts of the buying committee = Mean of demand distribution 2 * Standard Dev = Std Deviation of the demand distribution

Risk based Production Scheduling

Assess the risk profile for each style And produce less risky styles by using the speculative production capacity (prior to getting more information on market demand and trends (i.e.) prior to Las Vegas show) – 11/ 93 Produce the more risky styles by using the reactive capacity (after the Las Vegas show) – 03/ 94

Mark down risk (for utilizing speculative capacity)

Three aspects – 1. Product Price – Higher the price, higher the markdown risk 2. Demand Uncertainty – Higher the uncertainty, higher the markdown risk 3. Expected Demand – It is safer to produce those that have a higher expected demand (lesser markdown risk) We have to factor in the minimum production quantity for each style

Safety factor = Inverse of Risk

(µ - 2 * min order size) / ϭ is a measure of safety...