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Supply Chain Management Assignment #2: Case: Sport Obermeyer

Wally Obermeyer should order the following initial units for each style based on a k value of 1: Gail: 629 units Isis: 396 units Entice: 862 units Assault: 1845 units Teri: 338 units Electra: 1343 units Stephanie: 65 units Seduced: 2094 units Anita: 1202 units Daphne: 989 units The risk associated with the ordering policy can be quantified as a function of product price, demand uncertainty, and expected demand. For initial production, under-production poses a markdown risk while a second production opportunity exists

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65 views4 pages

Supply Chain Management Assignment #2: Case: Sport Obermeyer

Wally Obermeyer should order the following initial units for each style based on a k value of 1: Gail: 629 units Isis: 396 units Entice: 862 units Assault: 1845 units Teri: 338 units Electra: 1343 units Stephanie: 65 units Seduced: 2094 units Anita: 1202 units Daphne: 989 units The risk associated with the ordering policy can be quantified as a function of product price, demand uncertainty, and expected demand. For initial production, under-production poses a markdown risk while a second production opportunity exists

Uploaded by

SHREYASI SAHA
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Supply Chain Management

Assignment #2: Case: Sport Obermeyer

1) Using the sample data of Exhibit 10 make recommendations for how many units of each style
Wally Obermeyer should order during the initial phase of production? Assume all ten styles are made
in Hong K ong, and that Obermeyer’ s initial commitment must be at least 10,000 units.(Ignore the
price difference between units in your initial analysis.)
Wally had estimated that the forecast accuracy was the highest for those styles that the Buying committee
had the highest level of agreement. He found that the Standard Deviation of the Buying Committee for a
style was twice the actual demand for the style. Therefore he manipulated the equation accordingly.
We assume that the data is normally distributed. Now if we take into the equation for standard normal
distribution is µ - kσ, where µ is the average value and σ is the standard deviation. Now value of k is
generally 0,1, 2, 3 and so on, showing the level of standard deviation. Now for k = 1, 68% of the data will
lie between µ±σ, for k = 2, 95% of the data will lie in between µ±2σ. Now we test for value of k does the
total production sum up to around 10000.
i) Case 1: k = 0

Style Mean (µ) Standar d Dev. (σ) Production Units (µ - kσ)

Gail 1017 388 1017

Isis 1042 646 1042

Entice 1358 496 1358

Assault 2525 680 2525

Teri 1100 762 1100

Electra 2150 807 2150

Stephanie 1113 1048 1113

Seduced 4017 1113 4017

Anita 3296 2094 3296

Daphne 2383 1394 2383

Total 20000 20000


Therefore we see taht this is much more than 10000. Therefore not accepted.
ii) Case 2: k = 1

Style Mean (µ) Standar d Dev. (σ) Production Units (µ - kσ)

Gail 1017 388 629

Isis 1042 646 396

Entice 1358 496 862

Assault 2525 680 1845

Teri 1100 762 338

Electra 2150 807 1343

Stephanie 1113 1048 65

Seduced 4017 1113 2094

Anita 3296 2094 1202

Daphne 2383 1394 989

Total 20000 10573

Now we can see that this value is acceptable. If we test for k = 2, the value will fall below 10000.
Therefore, the company should approximately produce the above mentioned units.
2) Can you come up with a measure of risk associated with your ordering policy? This measure
should be quantifiable.
• In the first production period, we are primarily concerned with markdown risk:
– If we under-produce during the initial production period, we have a second production opportunity.
• What is the relationship between risk and
– Product price
– Demand uncertainty
– Expected demand
2) The workforce in Hong Kong was twice as productive as compared to the Chinese. Therefore, a
parka line in Hong Kong that required 10 workers to complete all operations would typically require
40 workers in China.
3) Also, the workers in Hong Kong were able to ramp up their production faster than the Chinese
workers. Therefore, this ability, coupled with shorter production lines, enabled the Hong Kong
factory to produce smaller orders more efficiently.
4) Also, the company could procure the YKK zippers from the Hong Kong factory faster than from
Chin, because the factory of standard YKK zippers was located in Hong Kong. Therefore, on a
short term basis, it would be easier for the company to source the products from Hong Kong itself.

However, to source materials in the long run, the company should look towards China, because long term
will involve large orders. The wages in China were $.16 per hour as compared to $3.84 per hour in Hong
Kong. Therefore, if the company wanted to process large orders, it should look towards China rather than
Hong Kong dispite the lower productivity of the Chinese workers.

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