Wally Obermeyer, the internal operations manager of Sport Obermeyer, a mid-to-high fashion ski apparel company with headquarters out of Aspen, Colorado, and son of company founder Klaus Obermeyer, has two dilemmas at hand.
1) How to forecast demand for specific skiwear items for the 1993-1994 fashion line? 2) Once quantity per item is determined, how should production be allocated between factories in Hong Kong and China?
Although the case mentions the company has a two year period for planning and production before reaching consumers, Sport Obermeyer really has only one year to plan and design before production begins right before the Las Vegas Show, where 80% of the company’s annual volume for the line are received shortly after.
As the case states, “… the ultimate success of the line was highly dependent on how well the company was able to predict market response to different styles and colors.” This meant that predicting the future was the key to a successful year. Wally is already heading in the right direction by having his Buying Committee, comprised of six Obermeyer managers, independently forecast demand for each product. This allowed the forecasts to be free of any bias or pressure between the managers. Wally could also calculate the mean production forecast for each product and compare it to his own mean. This mean he calculates would also be an average of the product forecasts, but have him throw out the high and low forecasts in it. The closer his mean is to the Buying Committee would indicate an accurate forecast for the upcoming line as it has shown in the past. For conservatism’s sake, production for the most correlated, large forecasted product (assuming popularity is directly correlated with forecasted production) should add the standard deviation amount Wally calculates for the products. For the less popular styles, production forecasts should be whichever of the two averages is lower. This allows for more earnings per popular style, and less loss per less popular style.
The Global Product Company concept means ”to concentrate manufacturing – and ultimately other activities – wherever in the world it could be carried out to GE’s exacting standards most cost-effectively”. That means that the production is moving to countries where people are mostly underutilized (the example given in the case study tells about engineers from Eastern Europe, who cost only $1,5/h). ...
Although “Where to Produce?” is not as important as “Predicting the Future,” “Preparing for the Future” (as I call it) should not be overlooked. Prototype and Sample Production, which is about the last half of the first production year, should all be done by the Hong Kong plant. My reasoning behind this is that the workers in Hong Kong are 50% faster, trained in a broader range of tasks, require ¼ the amount of workers than China per operation, can ramp up production faster than China, and are better suited for smaller production orders. Once full-scale production is in place, this is where the China factory begins production of the lines that have the most forecasted demand greater than 1,200 units. Forecasts less than 1,200 should go to the Hong Kong plant because of their ability to produce the smaller quantities faster, and if needed, can complement the China plant’s production. This could help lower the seven months of overall production time before shipping to the retailer. Also, by producing the forecasted popular brands in China, the costs associated with the product will be 15% cheaper than producing in Hong Kong
The main alternative I had for forecasting production was in-store surveys for each customer purchasing a product. Other than helping Sport Obermeyer design its future line for the consumer, an incentive would be to offer a discount or prize on randomly selected surveys. But a problem here is developing another committee to create, distribute, collect, and calculate these surveys from all the retailers. There already is an expected time table for each year’s production line, and adding another step to the process would increase complexity and add costs that may outweigh the benefits gained by direct customer input.
Hong Kong, British dependency in eastern Asia, on the South China Sea, bordered by China on the north. It is made up of many islands, a portion of the mainland, and a considerable expanse of water surface. It has a land area of 1076 sq km (415 sq mi). Despite its small size, Hong Kong plays an important role in the world economy. The dependency can be divided into three main regions-Hong Kong ...
The most obvious, best cost-saving alternative to production would be to have all production be done in China due to the lower costs. But the huge problem that exists is the China plant’s ability to finish the entire product line in time for the retail selling periods. It has already been stated that China workers are slower, less versatile, and ill-prepared to produce the smaller quantity lines. Decreased costs does not mean anything if the products are not available for sale to the consumer.
The biggest limitation I have for my recommended forecasting method is counting each Buying Committee member’s forecasts equally. Sales representatives and customer service managers have the most direct contact with the consumer and should have more pull than say a marketing director who really markets towards the retailer first, then the consumer. A resolution for this could be to do a weighted average based on the person’s job to determine an even more accurate production forecast.
The main flaw with my production recommendation is the piece-rate basis of pay. Hong Kong employees, although paid more per product produced, will protest the fact their China counterparts will be getting the larger orders. My resolution for this is to pay the Hong Kong employees a little more per sample/prototype product they produce to balance out the loss in volume (assuming they get paid the same rate for the sample/prototype periods).