Sport Obermeyer Is a Strong Competitor in the U.S. Skiwear Market

Introduction

Sport Obermeyer is a strong competitor in the U.S. skiwear market, offering a broad range of ski apparel and accessories. The company focuses on the mid to high-end market, which is greatly affected by both fashion trends and functions, and it is targeted towards five different gender markets according to price, type of skier, and how “fashion forward” of the potential customers. The company’s products strategy rests on offering fully matching collections and delivering to retailers early in the season to ensure good product placement and ample floor space.

Sport Obermeyer now is facing a dilemma in ordering production of its products. The company has high costs for both over-ordering and under-ordering in a single season. Due to supplier capacity constraints, they suffer from long lead times, which lead to a heavy burden on forecasting. In this fast-changing market, forecasting is significant challenging because inaccurate forecasts will result in lost profits. Besides, the other driving issue in this case is the allocation of production between factories in Hong Kong and Mainland China (Lo Village, Guangdong).

Operational Changes That Lead to Performance Improvement

The first solution to improve forecast is to produce predictable products first and then make fashion products after the company has more accurate estimated demands. As Sport Obermeyer’s first production starts from November of previous year and second production is on March, there are more possibilities for the formal products to be waste if it produces trendy one on the first order. On the second order, Sport Obermeyer can predict the demand more accurately because it reflects the fashion trend of this year from the information of Las Vegas trade show, there will be lower chance to be wasted for the products of second order. Therefore, we suggest producing safer ski-wear on the first production period which has lower forecast standard deviation, steady selling products (signature products of Sport Obermeyer), normal color products, such as black or white, and so on. By doing this, it could buy more time to predict trendy products which are difficult to predict.

Secondly, we suggest the company to improve supplier’s capacity to reduce lead time. Sport Obermeyer produces about 200,000 parkas each year while the maximum capacity available to the company for cutting and sewing is 30,000 units a month. This means that if one unit of cutting and sewing is needed for one parkas, it takes at least 7 months to meet the needs of Sport Obermeyer’s annual production. If the unit of cutting and sewing needed for one parka is more than one, it will take more than 7 months for annual requirement of it. Sport Obermeyer has only 4 months to produce most of orders from retailers (from March to June) while it needs to predict total demand 7 months earlier than the first shipping because of the 7-month lead time for cutting and sewing. And the first cutting and sewing order is placed on February, so it has only about 4 months before the first shipment of full-scale products which starts from June. Thus, if Sport Obermeyer can reduce the lead time, it will have more flexibility on responding the demand. Therefore, we suggest them to improve cutting and sewing capacity by placing more machines and employees, or by outsourcing the works. But for placing more machines and employees, it will be costlier to maintain on off-peak seasons. So, outsourcing the works on peak season will be more reasonable. By improving its capacity, it can reduce the lead time of cutting and sewing and can delay producing until the Las Vegas trade show from which the company could have more accurate total demands.

The last solution is to take the first order earlier than March. According to Exhibit 5, after observing 20% of demand, the revised forecast for parka A was more accurate. As Sport Obermeyer needs about 4 months from the initial order from retailers to shipment of the final products, it will be safer if it can get 20% of the order on November of previous year, which is the time when the company orders the first production to Obersport. But one problem is that no one wants to take risks of the uncertainty of demands. Retailers will not take this risk if there are no incentives to do this. Hence, we offer a discount for the early orders. Even if the company lose some profits from the discount, it can reduce scrap costs (lost profits from selling in deep discount for excess inventories) and lost sales costs (lost potential sales by lack of inventories) by predicting the sale more accurately.

Sourcing in Hong Kong or China for Short-term and Long-term

After that, Sport Obermeyer must decide whether to source in Hong Kong or China. In fact, it will be more flexible if sourcing in Hong Kong because its minimum order quantity is low, which is 600 units compared to 1,200 units in China. Lower minimum order quantities allow the company to order lower amounts of more products. However, this difference in minimum order quantity cannot be attributed to mechanical advantages because the factories in the two areas use similar equipment as described in the case.

In addition, workers in Hong Kong were about 50% faster than workers in China. As the workers in Hong Kong are cross-trained, meaning that they are better trained than the workers in China and they can perform a much wider variety of operations. This most likely explains why a typical production line in Hong Kong can have fewer workers and thus produces fewer units per day. However, the average Hong Kong worker is more productive (more units produced per day) and their lead time is lesser than China. However, the average Chinese production line produces more units because it contains more workers.