Sport Obermeyer Case Analysis

2069 words - 8 pages

There were two main driving issues behind our analysis of this Sport Obermeyer case: the measurement and understanding of demand from uncertain and disparate forecasts, and the allocation of production between factories in Hong Kong and Mainland China (Lo Village, Guangdong). The main challenges facing the company were long lead times, little to no feedback from the market before the first production decision (the first real demand signal is at the Las Vegas trade show in March) and inaccurate forecasts along with the lost profits that can result.The first part of our analysis involved deriving an order policy from the forecasts provided in the sample problem. We solved this problem using simplifying assumptions and then relaxing some of those assumptions. Our initial assumption was that there was no minimum order quantity. We decided that risk would be minimized by producing the smallest allowable amount during the first production run due to the lack of information. Thus, we calibrated our order quantity formulas to sum to 10,000 units.We wanted to use a formula that took into account the average forecast as well as the standard deviation - in other words, we wanted to account for both the expected demand and the uncertainty. We began with the formula Q = Average Forecast - 2* Standard Deviation of the forecasts, since twice the standard deviation was said to approximate the standard deviation of the actual sales. Since this number did not sum to 10,000, we multiplied the standard deviation by a scaling factor, k, and solved for order quantity 10,000 units across all designs. We found k = 1.0607, which gives a quantity of 10,000 with no minimum order quantity.Next, we had to modify this order policy because designs Stephanie, Isis, and Teri had initial orders below the minimum order (for Hong Kong) of 600. Since we could not compare profitably analyses without using the wholesale prices (which we were explicitly told to ignore in the problem), we "rounded up or down" depending on whether the order quantity without the minimum was 2/3rds of the minimum or not and adjusted our k value so that the quantities summed to 10,000 units. Thus, we removed those three and calibrated again, and found that k = .9675. So we are exposed to slightly higher risk due to the other designs having to be ordered in larger quantities, but no design is being ordered in a quantity above 75% of the average forecast or higher than the lowest committee estimate, and so risk is still relatively low. We trust our committee to be at least fairly accurate in their predictions, especially since Wally took steps to gather many separate estimates from a panel experts in a manner that prevented groupthink. The appendix shows the resulting orders.Finally, when considering ordering from China instead of Hong Kong, the higher minimum order of 1200 units becomes a major obstacle. As the appendix shows, Gail cannot now be ordered, and Daphne and Entice must be increased to 1200 to...

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