Sport Obermeyer Case

Prof Mellie Pullman

Objectives

Supply Chain Choices & Operations

Strategy

Product Category challenges

Operational changes that reduce costs

of mismatched supply and demand

Coordination Issues in a global supply

chain
2

Type of Product

Typical Operational & Supply Chain

Strategies

Cost
Quality
Time (delivery, lead time, etc)
Flexibility (multiple choices,
customization)
Sustainability

Sport Obermeyer ?
3

Challenge of delivering on
the strategy?

Challenges of matching
supply to demand

Supply Side

Demand Side

Costs & Risks of Overstock versus Under-stock

Over-stock

Under-stock

China
November
Pre year

November

Colorado

US Retailer

Design
clothes
Make
forecasts
Take Orders

Order textiles &

styles

Make Fabric

March

August

September

February

Assemble
Clothes

Deliver to
Colorado

Las Vegas show

Make orders
to Sport O.

Warehouse

Distribute to
retailers
Retail
Season

Two Order Periods

How are they different?

Risk-Based Production
Sequencing Strategy
New Info.

Material Lead time

Lead Time to Store

Speculative Production
Capacity
Reactive Production
Capacity

Planning Approach

How many of each style to

product?
When to produce each style?

10

Style

Buying Committee
Forecasts
Price

Job

Laura

Caroly
n

Greg

Wend
y

Tom

Wally

Market
Director

CS
Mgr

Produc
t-ion
mgr

Produc
t-ion
coord

Sales
Rep

VP

Ave
Forecas
t

Stan
d
Dev

2x
Stand
Dev

Gail

$110

900

1000

900

1300

800

1200

1017

194

388

Isis

$ 99

800

700

1000

1600

950

1200

1042

323

646

Entice

$ 80

1200

1600

1500

1550

950

1350

1358

248

496

Assault

$ 90

2500

1900

2700

2450

2800

2800

2525

340

680

Teri

$123

800

900

1000

1100

950

1850

1100

381

762

Electra

$173

2500

1900

1900

2800

1800

2000

2150

404

807

Stephan
i

$133

600

900

1000

1100

950

2125

1113

524

1048

Seduced

$ 73

4600

4300

3900

4000

4300

3000

4017

556

1113

Anita

$ 93

4400

3300

3500

1500

4200

2875

3296

104
7

2094

Daphne

$148

1700

3500

2600

2600

2300

1600

2383

697

1394

Totals

Standard

20000

2000
2000
2000
2000
2000
20000
0
02x Standard
0
0Deviation Forecast
Deviation 0of demand=

11

Team Break out 1

Using the available data, assess

the risk of each suit and come up
with a system to determine:

How many of each to style to produce

When to produce each style
Where to make it

12

Low Risk Styles

We under-produce during initial

production so we want:

Least expensive products

Low demand uncertainty

Highest expected demand

13

Standard Normal
Distribution
- produce z

14

Production Strategy A
Account for production
minimum

If we assume same wholesale price, we want to

produce the mean of a styles forecast minus the
same number of standard deviations of that
forecast
i.e., i-ki (k is same for all).

Approach: produce up to the same demand percentile

(k) for all suits.

Sum (-k)each style = 10,000 (meet production minimum)

Determine k for all styles

15

Solve for k with total close to

10000 (k=1.06)

16

But what about the batch

size minimums?

Large production minimums force

us to make either many parkas of
a given style or none.

How do we consider the batch size

minimums for the second order
cycle?
17

Strategy B:
Categories for Risk
Assessment

m= minimum order quantity (600 here)

SAFE: Styles where demand is more than

2X the minimum order quantity (well have
a second order commitment)

SOS: Sort of Safe=expected demand is

less than minimum order quantity. If
we make em at all, make em first (have to
make minimum)

RISKY: demand is between C1 & C2.

18

Approach

Compute risk for each style

Rank styles by risk

Figure out the amount of non-risk

suits

to produce in the first run

19

Assign Risk

20

Modified Approach

Determine how many styles to make to

give total first period production
quantity.

Assess each case by determining the

optimal quantities for non-risk suits using
Production Quantity = Max(600, i-600-k*i)

Same approach as before (determine the

appropriate k so that lot size <10,000)
21

Example:

Production Quantity = Max(600, i-600-k*i) ; k

=.33

22

Should we make more

suits?

Production minimum order

is 10,000?

Pros?

Cons?
23

Sport Obermeyer Savings

from using this risk
adjustment
Models Decisions
Sport O Decisions
Total Production
(units)

124,805

121,432

Over-production
(units)

22,036

25,094

Under-production
(units)

792

7493

Over-production
(% of sales)

1.3%

1.73%

Under-production
(% of sales)

.18%

1.56%

Total Cost (% of
sales)

1.48%

3.30%

24

Team Breakout 2

What supply chain & operations

changes can be implemented to
reduce stock-outs and markdowns?

Design, production, forecasting, etc.?

Specific: How are you going to do it,
Actions?
25

Operational Changes to
Reduce Markdown and Stockout Costs

Reducing minimum production lotsize constraints

How ?

26

Effect of Minimum Order

Quantity on Cost

27

Capacity Changes

Increase reactive production capacity

How? Pros and cons?

Increase total capacity

How? Pros and Cons?

28

Stock-out & Mark-down Costs

as a Function of Reactive
Capacity

29

Lead Times

Decrease raw material and/or

manufacturing lead times

Which ones?
How?

30

Lead Times

Reduce findings leads times (labels,

button, zippers)

inventory more findings

standardize findings between product
groups

more commonality reduced zipper variety 5

fold.

31

Where does it make sense

to inventory product?
Griege Fabric

Dye Solid Colors

Size 8 Black Electra

Printed

SKU

SKU

SKU

32

Obtain market information

earlier

33

Accurate Response
Program

Using buying committee to develop

probabilistic forecast of demand and variance
(fashion risk)
Assess overage and underage costs to develop
relative costs of stocking too little or too much
Use Model to determine appropriate initial
production quantities (low risk first)
Read early demand indicators
Update demand forecast
Determine final production quantities
34