SPORT OBERMEYER
WRITTEN ANALYSIS OF CASE
MASHHOOD AHMAD
18467 | OPERATIONS & PRODUCTION MANAGEMENT
Table of Contents
Company Background:.........................................................................................2
Current Challenges/ Problem Statement:............................................................2
Analysis:..............................................................................................................3
Competitive Priorities:.....................................................................................3
Product-Process Matrix:..................................................................................4
Process Order Cycle:........................................................................................4
Operating System Design:................................................................................5
Supply Chain:...................................................................................................6
Production Facility Analysis:............................................................................7
Production Planning Analysis:..........................................................................7
Recommendations:.............................................................................................8
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Company Background:
Sport Obermeyer, a fashion skiwear manufacturer, was established in 1947 by a German
emigrant Klaus Obermeyer. By 1992, it has grown to a $32.8 million ski apparel business in the
US and has a prominent market share of 45 % in the children`s market and approximately 11%
in the adult market. It has been famous for providing compelling innovative ideas each year, in
the skiwear industry. A broad line of fashion ski wear was offered by Sport Obermeyer, that
includes ski suits, shells, ski pants, sweater, turtlenecks, parkas, vests, and other accessories.
Sport Obermeyer is credited with filling the gap that emerged with the US market lagging
behind the European fashion trends.
Current Challenges/ Problem Statement:
A major issue faced by Sport Obermeyer is in the prediction of market demand. Even though,
the company offers new strong ideas and designs each year, it is unable to forecast the market
demand in terms of style and color. The company is, in other words, not sure about the
acceptability of its products in the market. This has hindered the management to predict the
accurate demand of the product line before Sport Obermeyer could commence with its
production. The company is in a dilemma of which product SKUs and variants to produce or not
to produce. Due to increasing competition in the market and offering a broad line/ variety of
products to the customers, it was becoming difficult to make accurate forecasts. Inaccurate
forecasts meant selling excess inventory at great discounts in case of higher forecast and losing
sales or selling at below manufacturing costs in case of lower forecasts.
Moreover, another challenge faced was the commitment to the quantity of output for each
item with minimum details. This relied on a mixture of analysis, experience, intuition, and
imagination. The decision had to be made in the lack of consumer response data for the
preceding year. Any delays in shipping would cancel the supply and eventually the customers.
Sport Obermeyer also had to decide in between its Hong Kong and China Mainland factories
when it came to the allocation of production. China was known for its low-cost labor, but its
operations were uncertain. Moreover, the US had imbedded a quota restriction on imported
products from China, so Obermeyer had to take this aspect into its consideration too when
making decisions. Hong Kong offered more fast and trained labor as compared to China and
took smaller minimum order quantities than China.
Wally Obermeyer had to cope up with this “Fashion Gamble” and had to take decisions
regarding appropriate production commitments and allocation to respective factories well on
time.
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Analysis:
Competitive Priorities:
To see whether Sport Obermeyers` operations strategy was internally consistent and
strategically consistent, we start the analysis with its two core competencies, namely, Flexibility
and Delivery.
The prime focus of Sport Obermeyer is the timely delivery of orders to the respective retailers.
Provision of maximum product exposure to the end customer is another aim of the company,
and this is ensured by the timely delivery of products. Delivering the product to the retailers
was a time sensitive activity. Sport Obermeyer would lose out on sales if the products were
under-produced and incur losses on inventory write-downs and discounted sales if it is
overproduced. Timely replenishment of the desired SKU by any retailer at any time was
ensured by air mail services or UPS throughout the US.
In terms of Flexibility, Obermeyer served 5 different market segments, known as “Genders”,
offering 700 SKUs. The company was flexible enough in making changes and adjustments to its
production order and plans, once the Fashion Gamble`s result unfold at the Las Vegas show,
every March.
Cost
Quality Flexibility
Sport Obermeyer
Delivery
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Product-Process Matrix:
The product-process matrix clearly shows that Sport Obermeyer`s suppliers produce the
planned skiwear in batches. There are longer production lines in China then Hong Kong, that is
why the minimum order quantity for China is 1200 units and 600 units for Hong Kong. The
Chinese labor is cheap but less flexible, so at both the factories Batch production is followed.
The Product-Process Matrix shows Sport Obermeyer`s current positioning.
HIGH
Volume
Batch
LOW
LOW Standardization HIGH
Process Order Cycle:
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Operating System Design:
To be sure of the Product-Process matrix and Competitive priorities to be internally consistent
and strategically aligned to its operations strategy, now we look at the Operating system design
of Sport Obermeyer. I will be looking at both infrastructural and structural levels of the
Operating System Design.
Structural:
In terms of Scope, Sport Obermeyer has outsourced its production to independent
subcontractors in the Far East with the help of Obersport, a joint venture established by Klaus
Obermeyer and Raymond Tse. Other products like the lining and shell fabrics were procured
from vendors in the US, Taiwan, Germany, and Japan.
In terms of Capacity, Sport Obermeyer produced 200,000 Parkas annually and had a maximum
of 30,000 units capacity for cutting and sewing, per month. This included the production
capacity of all the factories which Sport Obermeyer had on board.
Technologically speaking, Sport Obermeyer relied heavily on the productivity of the labor as
the production of its products was mostly labor intensive.
Infrastructural:
Organization:
Klaus Obermeyer was strongly involved in the management of the company and believed in
achieving harmony. He had placed his faith in the management team, be collaborative instead
of just having top-down policy and decide based on judgments and intuitions. He always relied
on Raymond to make decisions on production and investment. Whereas, Wally, Vice President,
had a distinct management style and focused more heavily on systematic data analysis and
strategic decision-making techniques.
Workforce:
Allotment of operations to employees varied in between the two factories, based on the level
of competence of the staff and the extent of cross-training. Laborers at Honk Kong were around
50 percent quicker than their Chinese equivalents, highly skilled and often trained in a wider
variety of tasks.
Product & Process Design:
Obermeyer served 5 different market segments, known as “Genders”, namely, men, women,
boys, girls, and preschoolers. Each gender was further segmented by price, type of skier and
how fashion forward the market was, and within each 'class,' various models were offered,
each in many colors and in a variety of sizes.
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Quality:
Obersport was responsible for regulating production and quality across all subcontractor plants.
Staff at Obersport would spontaneously check selected pieces of each subcontractor's output
before even the units were transported to the US.
Planning:
Production was dependent on the predicted level of demand for various product types, but
production began well ahead of the sales period, based on the limited information present.
Since now on, 'Buying Committee,' consisting of six main managers, will make production
commitments based on the consensus of the committee, leveraging upon blending analysis,
experience, instinct, and pure speculation. Planning started approximately, 2 years ahead of the
sales season.
Supply Chain:
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Production Facility Analysis:
As mentioned before, Sport Obermeyer also had to decide in between its Hong Kong and China
Mainland factories when it came to the allocation of production. China was known for its low-
cost labor, but its operations were uncertain. Their counterparts in Hong Kong were quicker
and were more highly trained. As per the case, the sewers at the Hong Kong plant had twice the
output of a sewer at the Chinese factory. So, to investigate the efficiency of the labor at both
the plant, its better to calculate labor utilization for both the locations.
Labor Utilization Hong Kong
Output (Parkas) per worker per week (A) 19 12
Labor Content per Parka in hours (B) 2.35 3.6
Workers per line (C) 11 40
Hours per week (D) 48 58.5
Direct Labor (A*B*C) 491.2 1728
Available time (D*C) 528 2340
Labor Utilization (Direct labor/available time) 93.02% 73.85%
Based on hours worked per week and hours available, the above calculations were made. It is
evident from the calculated numbers that the Hong Kong factory`s labor is more efficient as
compared to that in China.
Production Planning Analysis:
As we approach the production planning analysis, we first need to compare the two production
facilities. We know that the facility in China may have outrun the facility in Hong Kong in terms
of labor and transportation cost, but we cannot deny the fact that China facility is uncertain in
terms of sales. So, China plant cannot be relied for timely deliveries if any short-timed order
arrives. I assumed that a COV<= 0.2 is less risky or is a safe product. Therefore, Styles; Isis, Teri,
Stephanie, Anita, and Dephne are risky products (Calculations in the Table on the next page)
If we look at the minimum order calculated using normal distribution, it can be observed that
all the orders will increase in capacity if the production is allotted to the Chinese facility. This
would be problematic as the Chinese facility is uncertain when it comes to sales. On the other
hand, if all the order were placed with the Hong Kong Factory, the result would be heavy losses
as the increasing labor cost would lead to negative profit margins. So, as shown in the table
below, I would recommend placing risky orders with less quantity to Hong Kong facility and the
rest bigger orders to Chinese facility to leverage upon lower labor cost. But, while placing
orders we need to make sure that minimum order quantity restrictions are being met for both
the plants.
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Recommendations:
Reducing the number of SKUs or designs offered to the 5 different “Genders”, may help
Sport Obermeyer to predict better numbers.
Conduct market research to accurately gauge customer demand. With respect to the
reception of the designs and models by the customers, these forecasts can help Sport
Obermeyer to predict the right number of SKUs to be sold in the coming year. If Sport
Obermeyer receives these responses sooner, it can help Wally to forecast the numbers
to suit the demand for the coming season as Obermeyer normally receives 80 per cent
of the annual order volume the week after the Las Vegas show.
Negotiate with suppliers regarding the minimum ordering quantity, share the
information and reduce the Bullwhip Effect by reducing lead times for various processes.
Company can reduce lead time by partially implementing delayed differentiations. This
will help in. Inventories for undifferentiated items will be stored and differentiated
products can be manufactured once forecast is optimized.
For non-standard zippers from Japan, the lead time is more than 90 days, that is too
lengthy. The organization needs to constantly find a way to reduce that. (Solution can be
sharing more benefit with zipper manufacturers in order to maximize output efficiency.)
However, there is so much variation available in zippers and the lead time can be
minimized by using a limited number of standardized zippers.
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