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

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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 ...