Sport Obermeyer Case

1. How many items should Wally Obermeyer order during initial phase of
production?

The main problem of Obermeyer company is that they have to deal with
unpredictable demand to some point in time (before the trade show in Las Vegas)
and limited production capacity after that point. We can see how difficult is to
predict demand from the data in given in the exb.5: the initial forecast for parka A
was 2500 units, while the actual season sales consist only 510 units. It means that
the mistake in the initial estimation made up for 490%! But updated forecast,
incorporating 20% of demand was improved to 575 units. That is why Wally
Obermeyer should very carefully think about the initial order. He should take into
consideration several reasons, two most important of them are the following:

– risk of overestimating/underestimating demand for each model;

– relationship between order size and average forecast for each model.
He may use the formula for single-period inventory model to estimate how
many units of each item Obermeyer should produce.
P<= Cu/(Cu+Co)
We know that expected profit for each parka is 24% and expected loss is 8%
from the wholesale price. For Rococo parka the profit is 27$ and lost is 9$.
P<=27/(27+9)
P<=0,75
Z(0,75)=0,7734
Order=Average Forecast + z X 2st.dev.
Style Average 2 Standard Order Recommend
Forecast Deviation ed Initial
Order

Gail 1,017 388

Isis 1,042 646

Entice 1,358 496

Assault 2,525 680

Teri 1,100 762

Electra 2,150 807

Stephanie 1,113 1,048

Seduced 4,017 1,113

Anita 3,296 2,094

Daphne 2,383 1,394

Total
1. The main purposes of operational changes are to switch from speculative to
reactive production and decrease lead time on all stages of production. I can
recommend following operational changes:
– produce items with less variable demand during the initial stage of
production (products for boys, girls and preschoolers; products for segments
oriented toward clients with less sophisticated tastes, less fashion-oriented,
such as “Fred” type from adult male customers segment (It is described as
“The most conservative, had a tendency to buy basic styles and colors”);
– change relationship with retailers - propose them a discount for early order;
– use subcontractors for production during the time after Las-Vegas show: the
purpose is to increase the production capacity temporarily then the demand
is known, on the stage of reactive production;
– produce .
1. From the short-term point of view Obermeyer management should use both
production facilities in China and in Hong-Kong. It is