Professional Documents
Culture Documents
) , 0 ( k Max
Solving Wallys Sample Problem (with k=2)
DETERMINING SPECULATIVE PRODUCTION QUANTITIES
k = 2 <---Find value of k that makes last column sum to about 10,000
STANDARD FIRST-PERIOD
MEAN OF DEVIATION PRODUCTION QUANTITY
DEMAND OF DEMAND
STYLE
Gail 1017 388 241
Isis 1042 646 0
Entice 1358 496 366
Assault 2525 680 1165
Teri 1100 762 0
Electra 2150 807 536
Stephanie 1113 1048 0
Seduced 4017 1113 1791
Anita 3296 2094 0
Daphne 2383 1394 0
Sum---> 20,001 4,099 <---Sum
) , 0 ( k Max
Too little!
Solving Wallys Sample Problem (with k=1)
DETERMINING SPECULATIVE PRODUCTION QUANTITIES
k = 1 <---Find value of k that makes last column sum to about 10,000
STANDARD FIRST-PERIOD
MEAN OF DEVIATION PRODUCTION QUANTITY
DEMAND OF DEMAND
STYLE
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 2904
Anita 3296 2094 1202
Daphne 2383 1394 989
Sum---> 20,001 10,573 <---Sum
) , 0 ( k Max
Too much!
Solving Wallys Sample Problem (with k=1.0608)
DETERMINING SPECULATIVE PRODUCTION QUANTITIES
k = 1.0608 <---Find value of k that makes last column sum to about 10,000
STANDARD FIRST-PERIOD
MEAN OF DEVIATION PRODUCTION QUANTITY
DEMAND OF DEMAND
STYLE
Gail 1017 388 605
Isis 1042 646 357
Entice 1358 496 832
Assault 2525 680 1804
Teri 1100 762 292
Electra 2150 807 1294
Stephanie 1113 1048 1
Seduced 4017 1113 2836
Anita 3296 2094 1075
Daphne 2383 1394 904
Sum---> 20,001 10,000 <---Sum
) , 0 ( k Max
Just right!
Question 1. and 3. Comparison units of each style
when produced in HK and China
Differences between production in HK and China
Inventory
Total Cost
Operation Time
Quality (% Repair)
Question 1. and 3. The differences between
production in HK and China
Question 1 (Alternative approach)
We have three types of products:
-Low risk: risk % between 0 and 40
-Medium risk: risk % between 41 and 59
-High risk: risk % above 60
To minimize the risk, we decided to order the
following quantity:
-Low risk items: 75% of the average forecast
-Medium risk items: 50% of the average forecast
-High risk items: 25% of the average forecast
Question 1 (Alternative approach)
2. Can you come up a measure of risk
associated with an your ordering
policy? This measure should be
quantifiable.
-Stock outs (-24 % whole sale price)
-Market downs( -8% of wholesale price)
-(Old) designs
-High inventory holding cost
-Unable to fully profit from hit products
Whats the result if there is
demand forecasting uncertainty?
Forecasts are always uncertain
Why does risk happen?
Demand Average
Standard
deviation
Standard
deviation
How we assess
forecast certainty?
1 . Based on historical data
- Past forecast error
- Variability of demand
2. Rather than producing one joint
forecast, each member of the purchasing
committee produces his/her own forecast .
Obermeyers Buying committee
3. The deviation in views (of Buying committee) is
good estimator of forecast reliability
Table of standard deviation vs. Coefficient of variation
C.V. = Standard Deviation / Mean
4. How is this information helpful?
- Using Early production Capacity (Speculative capacity)
for Assault and Seduced
- Reserve later production Capacity (reactive capacity) for
Daphne and Anita as demand become more apparent
Risk based
production planning
4. What operational changes would
you recommend to Wally to improve
performance?
Ski Clothes is fashionable product, Its life cycle
is short
Long time of planning and production activities
Uncertain forecasting due to customer demand
Fashion taker >> No R&D
KEY Problems:
Reducing number of styles handled and to
predict customer demand for individual style.
To create promotion strategy to persuade
retailers to order.
OPERATIONAL Changes:
PRODUCTION SYSTEM
Increasing production Quality of China to be
closed to Hong Kong.
To reduce lead time of production especially
the preparation of raw materials.
OPERATIONAL Changes:
Lead time reduction
Fabric dyer lead time of several months
Dyer has long lead time on greige goods and needed to keep their
capacity utilized year round but can change colors overnight
Obermeyer can predict total annual sales and sales of basic colors,
but cant predict fashion colors
Fabric
Producer
Fabric Dyer
Cut/Sew
Factory
Denver
Warehouse
Retailer
undyed greige goods
Sport Obermeyer
Asia
Consumer
Solution:
Offer dyer one year commitment on greige goods
and capacity
Dye basic colors early in year and fashion colors
late in season on few days notice
SUPPLY CHAIN SYSTEM
Increase bargaining power with suppliers by
ordering via big supplier that can commit on
timeline
Collect stock raw materials which is base on
Ski cloth production
OPERATIONAL Changes:
Increase distribution channel to a country
that have different period of product usage
Increase services level requirements
Establish DC in Seattle to reduce lead time
and cost from inland transportation from
Seattle to Denver
OPERATIONAL Changes:
Hong Kong
Seattle
Original distribution process
Establish Distribution
Center in Seattle without
through Denver
INFORMATION SYSTEM
Collect the data backward and analyze the
demand of the show in Vegas and compare
with actual purchase.
Speedup data/information analysis and
utilize historical data / Committee forecasting
/ Research and Trend & Market Movement.
OPERATIONAL Changes:
5. How should Wally think (both
short term and long term) about
sourcing in Hong Kong versus China?
What kind of sourcing policy do
you recommend?
Production Options
Hong Kong
Faster
More flexible
High / Reliable
Quality
Better for higher
risk designs
Concern
Smaller lot sizes
Higher labor cost
China
(Guangdong, Lo Village)
Lower labor cost
Larger lot sizes
Better for lower risk
designs
Concern
Quality & Reliability
Slower
Less flexible
Where is better?
Short term Long term
Hong Kong
China
Recommendations to Wally
RECOMMENDATION #1. Improve the demand forecasts made
internally by the Buying Committee in November (1992) just
before Speculative Production.
Instead of using just a simple average of the individual
forecasts made by Laura, Carolyn, Greg, Wendy, Tom and Wally
use a weighted average, with the weights reflecting past
accuracy.
Recommendations to Wally
(continued)
RECOMMENDATION #2. Obtain market feedback earlier than Las
Vegas, thereby converting some Speculative Production to
Reactive Production.
Sport Obermeyer can invite selected retailers to come in January
to Aspen for an all-expenses-paid Early Order Weekend, where
there is time for a sneak preview of the new line, some
recreational skiing and socializing, and then the early placement
of orders at a discount.
To maximize the value of the market feedback, Sport Obermeyers
guest list should include both large and small retailers and both
urban and resort retailers.
Recommendations to Wally
(continued)
RECOMMENDATION #3. Decrease lead times for both raw
materials and finished goods, thereby allowing more time to
utilize existing capacity.
Since the business strategy should emphasize
Dependability more than Cost, lead-times can be reduced
using some or all of the following methods:
Choose suppliers of raw materials more on the basis of D
than C.
Speed up orders through information sharing with
suppliers.
Speed up shipments using faster (but more expensive)
shippers.
Establish some local (but more expensive) production
capacity for last minute production.
RECOMMENDATION #3 (continued)
Other ways to reduce lead times include:
From the items with long lead times, increase the amount of
safety stock inventory for those items that are inexpensive
(e.g., buttons) and/or shared by many parkas (e.g., black fabric).
Simplify the parkas designs so that they can share as many
components as possible. For example, are 100,000 varieties of
zippers really necessary?
Recommendations to Wally
(continued)
Recommendations to Wally
(continued)
RECOMMENDATION #4. Increase production capacity by:
Using more subcontractors,
Using more overtime in China, and/or
Exploring an alliance with a swimwear
manufacturer who can supply excess
capacity when Sport Obermeyer needs it
and consume capacity when Sport
Obermeyer has excess capacity.
Recommendations to Wally
(continued)
RECOMMENDATION #5. Decrease minimum order quantities,
thereby improving the ability to fine tune during Reactive
Production.
Minimum order quantities occur because there are long set-up
times when switching from the production of one style of parka
to another, thereby making it uneconomical to have short runs.
Recommendations to Wally
(continued)
Sport Obermeyer can decrease the minimum order quantities
by providing incentives to its suppliers to have more flexible
production lines.
This increased flexibility can come from:
Improved process design (e.g., a cellular production
system).
Improved equipment (e.g., more flexible cutting
machines).
RECOMMENDATION #5 (continued)
Thank You