Submitted by: Submitted by vimassive90
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Date Submitted: 07/20/2014 04:09 PM
Risk Assessment
In order to determine what items should be produced where, a risk assessment was conducted for all lines per the average forecast for each line. The Coefficient of Variation (COV) was determined in order to analyze the risk associated with each line.
A benchmark of 0.2 COV was used to determine the associated risk. Any item with a COV below 0.2 is considered a low risk item while any item with a COV higher than 0.2 is considered a high risk item.
When sourcing from China, four styles need to be ordered in excess of the average forecast in order to reach minimum production amounts. To determine how many of each style to order in the first round, preference was given to the lower risk items. 80% of the lower risk items should be ordered initially because it is more certain that the amounts forecasted will be accurate. For items with a COV above 0.2 only 20% of the average forecast will be ordered so that Sport Obermeyer can wait until after the Las Vegas show to verify with 80% certainty the success of each style.
It is recommended that any high risk item be produced in Hong Kong because they are more flexible, produce higher quality items, and the minimum production requirements for an order is only 600 units versus the 1,200 units required in China. [Please refer to Exhibit 1]
Likewise, if an item requires less than 1,200 units, it should be required that it be produced in Hong Kong due to production requirements and to keep from overproducing. It must also be noted that the maximum production for Sport Obermeyer is 20,000 units (on a 10% scale) and therefore this should be met but not exceeded within both orders combined.
Assessment of Producing All Products in Hong Kong
At the Hong Kong plant, there is a minimum of 600 units required per line produced. For this reason, the initial quantity for the Daphne, Isis, Teri, and Stephanie lines would need to be increased to meet this requirement for the first order. The...