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Sport Obermeyer Ltd. To: Wally Obermeyer From: 341 Consulting Group Date: Re: Production Process Problem Sport Obermeyer Ltd has quite a few problems at the moment that stem from a lack of streamlining of its operations. One of the problems that the skiwear manufacturer currently faces is demand uncertainty and how to measure it considering the disparate forecasts the buying committee members have come up with. In addition, the long lead-times for the production process makes forecasting even more difficult. The second issue for Sport Obermeyer is determining how to allocate production between the factories in Hong Kong and China. Conclusion and Recommendation Inaccurate forecasting is a major problem facing Sport Obermeyer, which has been addressed in Appendices A and B. Appendix A shows how much should be produced in Hong Kong given the assumption that there is no limit to the capacity; however, we have been asked to comment only on the initial order quantity, and not the reorder quantity. In keeping with this constraint, and using the forecasts given by all the committee members, we believe that Appendix B is an accurate representation of the amount of each style that should be produced in Hong Kong. It should be noted that this is only a short-term solution to the problem and the model itself must be looked at. For more consistent, accurate forecasts, a weighted average method should be used to give those committee members who have been most accurate in the past more importance, instead of using a simple moving average. As long lead times contribute to the difficulty in forecasting demand, Sport Obermeyer should attempt to reduce lead times for its production. One of the root issues causing the length of lead time is the number of SKUs, as well as the variety of components used in their production. Simplifying the product line would involve stopping production of those products with the least demand, reducing suppliers as well as altering designs so that they share as many of the same components as possible. Using the demand forecast for the 10 women’s parkas in Appendix B, there are three products, which have forecasted demands of less than 357, after which the demand spikes up. By removing the bottommost products, Stephanie, Teri, Isis would be deleted, which would allow for a shorter lead time. Sport Obermeyer should also introduce an integrated computerized system connecting all the different supply chain links. This would help reduce the time spent processing orders and make more efficient use of the raw materials. A combination of actions mentioned above can help make a significant change in the forecasting process and will allow Sport Obermeyer to make full use of its existing capacity. The company plans to source products roughly 50% from China and the other 50% from Hong Kong factories this year is attainable. However, our recommendation is to assign products to Hong Kong and China factories based on quality and design. According to Appendix C, the cost difference when comparing 19 parkas produced at both factories is not significant; but the Hong Kong factory is much more efficient. The products in Hong Kong are of a higher quality, require lower repair rates, and are produced twice as fast as those produced in the Chinese factory. Another advantage to the factory in Hong Kong is the minimum order quantity of 600 units, which provides the management with more flexibility in terms of determining their initial production requests. Lower quality products should be produced in the Chinese factory to take advantage of their low labor costs. Evaluation Criteria The main goal of the recommendations is to streamline Sport Obermeyer’s business processes. One of the most important criteria is the speed of the planning and production cycle. Any alternative that can reduce this time, from its current threshold of approximately two years, should be strongly considered. With regards to market share, Columbia Sportswear is gaining market share by providing lower-priced, higher-volume-per-style products. Sport Obermeyer needs to try and cut costs, and streamline its number of SKUs to achieve market dominance. It positions itself as a middle to high end producer, and the quality level should continue to be taken into consideration when looking to cut costs. Alternatives With regards to the inaccurate forecasts, Obermeyer could analyze the demand for its products based on an advanced showing prior to the one in Vegas and compare it with actual purchases. While this alternative can potentially be implemented, its effectiveness and reliability would be unknown. Simplifying the product lines would have a more direct and immediate impact on the lead times. Another possible alternative would be to start producing the products with the most predictable demand in advance. However, before implementing this change, Sport Obermeyer should focus on making overall accurate demand forecasts based on the newly recommended weighted average method. Implementation. Our implementation process will begin immediately with Wendy Hemphill researching the specifications for an integrated computerized system that match the supply chain structure of the company. Because of the complex nature of such a project, Sport Obermeyer would have to invest in such a project in November 1992, to begin use in February of the year of completion. In January 1993, the Buying Committee should implement the weighted-average forecasting method to analyze product demand. Since this is not a large change form the simple moving average, it should be used to find the forecasted demand for 1993. The following month, the SKUs should be reviewed based on the forecast created to consider which product lines to drop. This will be a gradual process, beginning with the deletion of a minimum number of products. In May 1993, the Buying Committee should allocate different product styles between Hong Kong and China based on quality. This can be seen in Appendix D.