Sport Obermeyer

3. Suppose Sport Obermeyer, Ltd now has the opportunity to make two production runs. The first must be decided before the Las Vegas show, and the second is decided after the show. How many units of each style in Exhibit 10 should Sport Obermeyer order in the first production run if the first order must meet the minimum of 15,000 units across all styles, but then there is no capacity restriction on the second production run?

Even Obermeyer has the opportunity to make two production runs, its challenge, “fashion gamble”, still remains. Obermeyer has to make order well in advance before the Las Vegas show, where it would be able to learn more accurately about retailers’ demand through their placed orders. However, the second order opportunity would enable Obermeyer to reduce its mismatch cost because of the uncertainty of demand before demand is observed.

We already have data calculated in section 1 for the optimal order quantity and expected profit of $ 410,020.00 if Obermeyer has only single order opportunity. In this case, Obermeyer would have to order 26,412 units of all styles at one time and before the show in March.

When Obersport Ltd. is willing to offer Obermeyer the second order at no premium after the show if the first order of Obermeyer must total at least of 15,000 units across all units and an item is placed either in the first order or the second order but not both orders, Obermeyer now has to determine what styles and how many units of each style should be included in the first order. If an item is not included in the first order, then it is in the second order, and the advantage of the second order is that demand is now observed. Thus, the items in the first order earn the expected profit but items in the second order earn the maximum profit. Candidates for the first order should be items with low mismatch cost, and high newsvendor quantity.

Mismatch Cost = Maximum Profit – Expected Profit

Maximum Profit = (Price – Cost) * Expected...