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Sport Obermeyer: matching supply with demand, over and under-stocking, and operational/forecasting changes

I have 4 questions on Sport Obermeyer case study that I need help with. I have attached the questions and the case study (questions can also be seen below - note: one question has 3 parts).

** The case study is in 3 zip files, titled by their page numbers. **

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Sport Obermeyer Case Questions

1. What makes it difficult for Sport Obermeyer to match supply with demand? What factors and trends are aggravating the situation? You should be sure to look at both sides of the equation - supply and demand.

2. Identify the elements of over and under-stocking costs and risks in this case. What are the key factors that contribute to these costs and risks

3. What operational and forecasting changes would you recommend to Wally to improve performance? There is only so much that can be done with respect to improving forecasting accuracy - so focus on the operational side of things. Please be specific with respect to the problems of matching supply with demand. That is, what can you recommend that will either improve Sport Obermeyer's ability to match supply with demand or reduce the costs associated with mismatches. Please note that:

a) It is not sufficient to merely list a set of recommendations (although this is a good starting point). You must clarify how recommendations address the major issues/concerns you listed in question one and two.

b) Recommendations must be reasonable, practical, and viable. In addition, the value of your recommendation will be measured in terms of its likelihood for success. Consider your recommendation from the perspective of employees and management of Sport Obermeyer, as well as the other supply chain partners.

c) Often a recommendation (decision) will have some negative consequences or involve some compromise (e.g. improve service, but at a higher cost). Solid recommendations will address both positive and negative consequences and support/justify your recommendation with case facts, course concepts, and good old logic.

4. Assume that you are Wally, create the initial order (November) for the 10 ski suits and explain your reasoning. That is, what factors are you considering when you place your production order in November (e.g. why make more of some and less of others?). Note that you are also making a timing decision - half of the 20,000 units need to be produced in the period between November and March, the remaining 50% after the Las Vegas Show.

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Sport Obermeyer Case Questions

1. What makes it difficult for Sport Obermeyer to match supply with demand? What factors and trends are aggravating the situation? You should be sure to look at both sides of the equation - supply and demand.
It became difficult to know how end customers were responding to the 1992-1993 line, the company's ability to match demand and supply was dependent on the company's ability to predict which design would be in high demand and then appropriately responding with a shift in supply. The feed back from the current year's production would not surface till the next year's trade show in Las Vegas that was slated to be in March. The factors and trends that are aggravating the situation are the increasing variety that needed to be manufactured and the increasing competition. There were starkly different forecasts about the next years demand. The supply side problems were that the company needed to manufacture at one of the facilities either at Hong Kong or in China. Even though the Chinese manufacturing was cheaper because of low cost labor, it was of an indifferent quality and was inflexible in changing over from one line to another. On the other hand the Hong Kong facility was flexible and was manned by skilled workers, the cost of labor pushed up the prices. The sum total of these problems was that it was difficult to match demand with supply.
2. Identify the elements of over and under-stocking costs and risks in this case. What are the key factors that contribute to these costs and risks
The elements of over and under-stocking costs and risks arise from the ineffective forecasting of demand for the year. This leads to under stocking of those designs that are in high demand and the company is not able to meet the orders of the retailers. On the other hand those designs that are overstocked are left behind from the previous year and have to be sold at deep discounts, far below the manufacturing cost. Both these situations lead to increase in costs, in case of under stocking there is a huge opportunity cost and in case of over stocking there is a loss incurred because of the deep discounts which need to be given, according to one estimate a loss of $9 per unit is incurred because of overstocking. In case of under stocking the opportunity cost per unit comes to $27.

This apart, the need to place orders early with the vendors, increased pressure on the relationships with the company's vendors, the danger of paying overtime at Obersport's its subcontractor's factories or even late deliveries forced Obersport to make early forecasts about the next years sales leading to inexactitude. The key factors that contributed to this cost include a very long order cycle, a design process that was time consuming; the sample approval process that was took time, and the long suppliers lead-time that sometimes ran to 90 days. In contrast the retailer's orders were received at one time that is after the March Las Vegas show. The delay in supply was further aggravated because of the six weeks shipment time before the goods could be air shipped to ...

Solution Summary

Here is just a sample of what you will find in the solution:

"Both these situations lead to increase in costs, in case of under stocking there is a huge opportunity cost and in case of over stocking there is a loss incurred because of the deep discounts which need to be given, according to one estimate a loss of $9 per unit is incurred because of overstocking."

$2.19