1- What makes supply chain management at Sport Obermeyer so challenging?
The biggest challenge Sport Obermeyer is facing is uncertainty. The demand for each of the styles is completely un-deterministic and is very hard to predict. At the same time, Obermeyer production cycle is very long which is making it nearly impossible to adapt to the market. On one hand, if the produced items do not sell, Obermeyer incurs the loss of manufacturing cost. On the other hand, if we do not produce enough of the product to meet all of the demand for it, we lose the unattained revenue and lost demand that will shift to another product. Thus in both cases, the uncertain demand is costing Obermeyer a lot. Coupling this with their inflexibility to meet unexpected or unplanned demand puts a big challenge to Obermeyer. The large batch sizes required by manufacturers for Obermeyer further highly restricts Obermeyer ability to respond to uncertain demand.
Not only how many to produce from each item is the big decision for Obermeyer, but also when to produce each as not all style can be made for the beginning of the season. Thus such timing of when to introduce each product further complicates the supply chain management for Obermeyer.
Further, another big complexity which I see in Obermeyer is how their products are positioned in the market versus their operating model. Obermeyer is positioned in the market as targeting the middle to higher class. However, in their operating model, they are always trying to go the cheapest options with no other considerations given to any other factor. Such contradiction between the market positioning and their operating model is putting great complexities on their supply chain management.
2- Describe the factors that you would use in determining which and how much of the styles that Wally should make during the initial phase of production.
With such uncertain demand being faced by Obermeyer, it is important for Obermeyer to firstly produce “safe” styles and then later move into producing the “risky” styles. Thus a number of factors to consider while deciding which styles to produce first would include:
o It is much safer to start with products that have the lowest variance in demand. Styles that are more uncertain in their demand are better to be delayed till more info is available. As we move along the season, more info will be available and seeing the market reaction will allow us to minimize the variance we have in the forecasted demand for the style thus improving our forecasting levels. Further, you would like to make the most out of the styles for which the demand is more certain.
o Styles for which higher demand are expected should be produced first. Having these styles with higher expected demands in the market as early as possible will benefit Obermeyer in making the most of these styles. These items are the ones most likely to sell.
o It’s cheaper to start producing the less expensive products and delaying the more expensive ones until further information is available. By starting with the cheaper products, Obermeyer is minimizing their costs and risks of the more expensive style being not accepted by the market.
3- What operational changes would you recommend to Wally to improve Obermeyer’s performance?
Our recommendations to Wally are as following:
Reducing the lot-size:
o Reducing the lot-size will highly increase Obermeyer flexibility in meeting the uncertain demand. This will further allow Obermeyer to produce part of the demand in the beginning and then later produce the rest needed to satisfy the demand when more info is available. This reduction can happen by investing in workers training as it appears from the comparison between China and Hong Kong plants that the main difference between the two is in the skills level of the workers.
Decreasing the lead time for the material:
o Such lead times of 45-90 days are not acceptable in the fashion industry. Obermeyer should look for ways to decrease these lead times. A decreased lead time is crucial to improve Obermeyer ability to respond to the market needs and increase their re-active capacity.
Increasing the re-active capacity:
o It would be best for Obermeyer to produce as much as possible from their production after they see the market reaction. Thus increasing their reactive capacity will allow Obermeyer to invest more heavily in styles that are in demand and minimize their loss in styles where the demand is lower than expected.
Increase Market insight:
o Obermeyer performance highly depends on the market reaction. Thus it is crucial for Obermeyer to be in touch with the consumer. Obermeyer needs to have more ways to get more information as early as possible. This can be achieved by having more market research done with lead users and more Obermeyer retail stores to have direct interaction with the real customers.