Course Name:

Logistics and Supply Chain Management

Assignment Title:

Sport Obermeyer, Ltd.

Submitted by:
Group Member Name
Lakshmi Dharmarajan
Pankhuri Chakraverti
Piyush
Ashutosh Walia

PG ID
61510280
61510524
61510241
61510682

Introduction
Sport Obermeyer is a fashion skiwear manufacturer which provided strong new designs every year.
Obermeyer had great designs, but the ultimate success depended on the prediction of market demand for
styles and colors. It is facing the newsvendor problem.
Challenges
1. Committing to production quantities for each item with minimum information. This depends on a
combination of analysis, experience, intuition and speculation. The commitment had to be made
despite the fact that market response data for the previous year was not available. Any delays in
the ordering will result in negative impact on the supply and ultimately the customers.
2. Accurate forecast of demand was becoming increasing difficult over the years due to greater
product variety and higher market competition. Higher forecasts meant selling the excess
production at high discounts. Lower forecasts will result in lost sales in best sellers.
3. Allocation of production between factories in Hong Kong and China. Though labor cost was low
in China, but quality and reliability of operations was questionable. China required larger
minimum order quantity than Hong Kong. In addition, there were quota restrictions for goods
produced in China by the US government.
Production process
Both qualitative and quantitative analyses are used to decide the order quantity and location of production
for various styles:
1. Marginal contribution is used to decide the order quantities and the plant where production will
happen, which in turn is determined is by minimum order quantity and costs.
2. In addition, there are qualitative and business risks associated with production in China:
a. Though China provides extremely cheap labor and thus contributes to cost benefits, there
are no guarantees about quality and reliability of Chinese operations systems. This adds
to production and inventory risks.

b. There is quota on the amount of Chinese goods that will be imported in the United States.
This leads to the risk that produced goods will not be sold in the US market.
c. The uncertainty in the trade relationship between US and China results in business risk of
products produced in the Chinese plant not being sold in the US.
3. Forecast: Current European demand predicts the US market since the US market lags behind by
one year. Accuracy in demand forecast is necessary to maximize profits.
Analysis and Methodology
The order size of an item can be increased as long as its marginal contribution is more than any other
product. The initial production commitment by Obermeyer is 10,000. To calculate the optimal order
quantity, we use Large Marginal Contribution (LMC). We set initial quantity for all the products as zero.
After computing the marginal contribution of all the items as shown in the Exhibit 1, we select the item
with the largest positive marginal contribution. Then increase the quantity of Electra Parka till it matches
the next highest contribution margin of the item i.e Daphne parka. Then follow the process until sum of
quantity of all the items is equal to 10,000. So in case of no minimum order quantity the quantity for all
the items has been shown in the Exhibit 1.
Order during initial phase without minimum order quantity: In case Sports Obermeyer orders 10,000
from Hong Kong, the capacity constraint is 600 and 1200 for China.
CASE 1 : The 1st order quantity is after the Las Vegas show(80%) followed by the 2nd order
quantity(20%) from the same plant location. For the 1st order quantity, the order has been catered as per
three prevailing conditions (1) Order < 600 to be served from the Hong Kong plant with a tradeoff
between serving the customer (responsiveness) and cost of overstocking (2) Orders between 600 and 1200
to be served by the China plant (3) Orders above 1200 to be served by the China plant.
Measure of Risk : We have used the concept of Coefficient of Variability (COV) to identify and quantify
risk with the assumption that styles with COV > 0.257 are high risk and COV > 0.257 are low risk. High

risk style lines are ordered 20% in the 1st order with an order revision ahead. Also, with higher variability
and higher risk it is safe to order from locations with low minimum order quantity requirement.
CASE 2 : The 1st order quantity has been catered to when near to the 600 / 1200 minimum order quantity
with Hong Kong and China plant respectively. We again use LMC and compute the quantities for all the
items.

RECOMMENDATIONS

Obermeyer should try to focus on improving its operational efficiencies and accuracy of demand
forecasts. This can be achieved by the following
1. Improvement in demand forecast to reduce variability : Presently average of all the individual
lines are being taken into account, to reduce the variability it is recommended that depending on
past historic data of forecasting, weights should be assigned to the various lines and a weighted
average calculation of demand should be used for forecasting.
2. Lead time reduction : Vertical integration with the suppliers for reducing lead time both on RM
and FG side so that the utilization is increased by reducing the waiting time.
3. Increase in Production capacity : More subcontractors can be used to increase the production
capacity. Also the number of hours could be increased in the China plant.
4. Usage of Griege Fabric System in place so that we can integrate the concept of last moment
customization in order to decrease the set up time.

5. Long Term Changes : Improve the production efficiency specially in the China plant by
integrating principles of six sigma and JIT and by providing training to the unskilled labours.
Exhibit 1

Exhibit 2

Exhibit 3

Exhibit 4
Capacity
Left
10,000
-70
-726
-3,053
104
Exhibit 5

Exhibit 6

Gail
0
600
600
813.6
600

Isis
0
600
600
600
600

Entice
0
630
728
1086
600

Order Quantity (Recommended)

Assault Teri Electra Stephanie Seduced
0
0
0
0
0
1227
600 1200
600
1853
1298
600 1200
600
2163.67
2020
600 1720
600
3213.33
1200
600 1200
600
1200

Anita
0
1560
1735.8
1200
2095.8

Daphne
0
1200
1200
1200
1200

Exhibit 7
CASE 1 :

1st
STYLE

Order
Gail
1017
515
Isis
1042
510
Entice
1358
630
Assault
2525
1227
Teri
1100
585
Electra
2150
1175
Stephanie 1113
625
Seduced
4017
1853
Anita
3296
1560
Daphne
2383
1320
TOTAL 20000

Basis - Concept - 1
1st Order
2nd Order
2nd Order
Revised
Revised
502
600
600
532
600
600
728
630
728
1298
1227
1298
515
600
600
975
1200
1200
487.5
600
600
2163.666667
1853
2163.666667
1735.833333
1560
1735.833333
1063.333333
1200
1200
10070
10725.5

Location
H
H
H
C
H
C
H
C
C
C

sigma
388
646
496
680
762
808
1048
1112
2094
1394

CASE 2 :
Basis - Concept-2
STYLE
mu
Gail
Isis
Entice
Assault
Teri
Electra
Stephanie
Seduced
Anita
Daphne
TOTAL

1017
1042
1358
2525
1100
2150
1112.5
4016.7
3295.8
2383.3

COV
0.19076
0.30998
0.18262
0.13465
0.34636
0.18791
0.47101
0.13842
0.31767
0.29245

1st
Order
813.6
208.4
1086.4
2020
220
1720
222.5
3213.333
659.1667
476.6667
10640.07

1st Order
Revised
813.6
600
1086.4
2020
600
1720
600
3213.33
1200
1200
13053.33

2nd Order
203.4
442
271.6
505
500
430
512.5
803.33667
2095.8333
1183.3333
6947.0033

2nd Order
Revised
600
600
600
1200
600
1200
600
1200
2095.83
1200
9895.83

Location TOTAL
H
H
H
C
H
C
H
C
C
C

1413.6
1200
1686.4
3220
1200
2920
1200
4413.33
3295.83
2400
22949.16

Exhibit 8

Exhibit 9

Exhibit 10

Exhibit 11

Exhibit 12