Cut and Sew

Cut and Sew

A typical Obermeyer product required many cutting and sewing steps. (Exhibit 7 shows the sequence of sewing operations for the Rococo parka.) The allocation of operations to workers differed from one factory to another depending on the workers' level of skill and the degree of worker cross-training. Workers in Hong Kong worked about 50% faster than their Chinese counterparts. In addition to being more highly skilled, Hong Kong workers were typically trained in a broader range of tasks. Thus, a parka line in Hong Kong that required 10 workers to complete all operations might require 40 workers in China. Longer production lines in China led to greater imbalance in these lines; hence, a Hong Kong sewer's actual output during a given period of time was nearly twice that of a Chinese worker. (See Exhibit 8 for a comparison of Hong Kong and China operations. The cost components of the Rococo parka, which was produced in Hong Kong, are shown in Exhibit 9A. Exhibit 9B shows the estimated cost of producing the Rococo in China. Obermeyer sold the Rococo parka to retailers at a wholesale price of $112.50; retailers then priced the parka at $225.)

Workers were paid on a piece-rate basis in both China and Hong Kong: the piece rate was calculated to be consistent with competitive wage rates in the respective communities. Wages in China were much lower than in Hong Kong; an average sewer in a Guangdong sewing factory earned US$0.16 per hour compared with US$3.84 per hour in the Alpine factory in Hong Kong.

Workers in Hong Kong were also able to ramp up production faster than the Chinese workers. This ability, coupled with shorter production lines, enabled the Hong Kong factory to produce smaller order quantities efficiently. For parkas, the minimum production quantity for a style was 1,200 units in China and 600 units in Hong Kong.

Obermeyer produced about 200,000 parkas each year. The maximum capacity available to the company for cutting and sewing was 30,000...