Part 1: Executive Summary
Sport Obermeyer, Ltd, a fashion skiwear manufacturer is facing some challenges in forecasting demand for next year’s line of fashion. Delayed market information and long lead time are the major reasons that could cause inaccurate forecast, which would make the company suffer from financial consequence such as loss of sale and price cut down. Production allocation between China and Hong Kong with respect to their capacity, strength and weakness is also crucial to the company. Later in the analysis will lead to a discussion of different techniques to assess risk of inaccurate forecasts associated with different style in the sample problem. Therefore determine ...view middle of the document...
5 years. This exaggerated time line makes it very difficult to produce accurate sales forecasts, which are not available until after the Las Vegas trade show in March 1993. I need to commit to the initial order production of 10,000 units by November 1992. The second production order of 10,000 units can be placed after the Las Vegas fashion show. After the show, we will have received about 80% of our retailer’s orders. The immediate issues we are having are caused by a number of systematic issues as outlined below.
Part 4: Systemic Issues
1 Inaccurate Forecasting
Nature: Strategic Timing: Short Term and Long Term
We receive delayed sales info as we have to wait until after the Las Vegas show. Overproduction of a bad selling product result in losses and underproduction of fast moving SKU results in lost sales.
2 Where to produce the product
Nature: Tactical and Strategic Timing: Short term & Long Term
Hong Kong and China plants have different operating behaviors and where to produce the product will depend on the accuracy of our sales info. Hong Kong is expensive but flexible where as China is cheap but un-flexible. We must also keep in mind of the Quota set forth on Chinese products coming into the US.
Part 5: Qualitative Analysis
In November 1992, the most urgent task for Wally Obermeyer is forecasting the production quantities for 1993-1994 line of fashion skiwear. The risk of procrastination includes delayed delivery to retailers and loss of sales. Therefore, the first production order has to be placed with very limited information and customer response. Let’s take a look at the Chinese facility. Although the Chinese facility is not completed developed, it is directly owned by Obersport limited. This could offer some advantage and flexibility in supporting the production. Chinese workforce is sufficient, but productivity and skills level needs to be improved. Hong Kong, on the other hand, has a high level skilled and productive workforce, but the challenge is insufficient workforce and high labor cost. The large minimum order quantity required in China increases the risk of first production order. Chinese government quota restrictions also increase the risk of production in China. Sport Obermeyer serves a seasonal and fast changing fashion market. But long lead time for both supplies and production has reduced its capabilities to coordinating global activities.
Part 6: Quantitative Analysis
To avoid the risk of inaccurate forecasts most importantly is to estimate the risk associated with early production of 10 different fashion styles. From a pricing perspective, Seduced is the safest style as the price is the lowest. Risk increases as price increases so Electra is considered as the riskiest one. From the standard deviation of 6 individual forecasts from the buying committee, Gail seems to be the safest one and Anita with a greater level of uncertainty is considered as the riskiest one....