Forecasting Challenges in Supply Chain Management

Founded by Klaus Obermeyer, Sport Obermeyer, Ltd. aims to offer American skiers the fashionable and protective gear found in Germany. Renowned for its innovative products and leading styles, Sport Obermeyer has emerged as a key player in the U.S. skiwear market, with distribution in department stores and specialty ski shops. Based in Aspen, Colorado, Obermeyer provides a diverse selection of stylish ski apparel including parkas, vests, ski suits, shells, ski pants, sweaters, turtlenecks, and accessories.

Despite having a global supply chain, Sport Obermeyer mainly depends on its partner, Obersport Limited in Hong Kong and China for production.

Established in 1985 by Klaus Obermeyer and Raymond Tse, Obersport manages the sourcing of fabrics and components for all of Sport Obermeyer's manufacturing in the Far East. These materials are then processed either at Raymond Tse's "Alpine" facilities or by external subcontractors. Alpine's annual production is heavily influenced by Sport Obermeyer's orders, making up around 80 percent of its overall output.

Forecasting is arguably the most difficult and also most important part of the supply chain management process

When predicting future sales, several factors are taken into account including historical sales data, competitor information, estimated demand, economic conditions, and statistical averages.

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While forecasts may not be entirely precise, supply chain managers aim to create the most accurate predictions possible to effectively manage inventory, logistics costs, and production expenses for a profitable business endeavor. The textbook categorizes forecasting into four groups: Judgment Methods, Market Research Methods, Time-Series Methods, and Casual Methods. Judgment Methods involve systematically collecting expert opinions to forecast future sales accurately.

In the Obermeyer case study (Figure 2-20), a six-person projection committee offers sales projections for ten women's parkas.

Each committee member provides a sales estimate and standard deviation for each of the 10 different parkas to estimate variance in production. To ensure accuracy, we aim to minimize risk for Obermyer by considering demand uncertainty and expected demand. Our projections are detailed in the attached excel sheet. The method involved averaging demand from committee members, subtracting standard deviation, and using a variable (k) to reach the target production of 10,000 units.

A quantifiable measure of risk that we will use with our ordering system is coefficient of variation

The coefficient of variation is determined by dividing the standard deviation by the average demand. Standard deviation indicates the extent to which demand typically fluctuates around the mean, while the coefficient of variation represents variability in relation to average demand. You can examine the coefficient of variation computations in the provided excel file, illustrating various levels of risk linked to each forecast.

There are five operational changes we would recommend to Wally to improve performance

It is suggested that the Buying Committee improve their internal demand forecasts before Speculative Production in November. Instead of relying solely on a basic average of forecasts from Laura, Carolyn, Greg, Wendy, Tom, and Wally, a weighted average based on past accuracy should be utilized.

One suggestion is to gather market feedback before Las Vegas, shifting some Speculative Production to Reactive Production. Sport Obermeyer can host an "Early Order Weekend" in Aspen in January for selected retailers, offering a sneak peek of the new line, skiing, socializing, and early order discounts.

The third recommendation suggests reducing lead times for both raw materials and finished goods to increase capacity utilization. To achieve this, Obermeyer should implement measures such as computerizing processes, selecting dependable suppliers regardless of cost, and expediting orders through information sharing. Utilizing faster but more costly shippers or establishing local production capabilities can also help with last-minute production needs. Increasing safety stock inventory for items with long lead times and simplifying parka designs to share components can further optimize operations.

One way to increase production capacity would be to utilize more subcontractors, increase overtime in China, and possibly form an alliance with a swimwear manufacturer. Through this partnership, the manufacturer could provide additional capacity when needed by Sport Obermeyer, and vice versa.

Sport Obermeyer can improve its ability to "fine tune" during Reactive Production by decreasing minimum order quantities. These quantities are necessary due to long "set-up times" when switching production styles, making short runs economically inefficient. To decrease minimum order quantities, Sport Obermeyer can incentivize suppliers to have more flexible production lines through improved process design and equipment such as more flexible cutting machines.

For short-term, it is important for Obermeyer management to consider several factors when determining sourcing from either Hong Kong or China

Hong Kong offers shorter production time and allows smaller orders, making it better for initial forecasts and high risk designs. On the other hand, China provides lower overall costs and is more suitable for lower risk designs. In the long term, Hong Kong offers higher quality products but may result in higher wage expenses due to low unemployment levels. Conversely, China's unstable political environment, import quotas, high minimum order quantity levels, and the need to enhance worker efficiency and skills should be considered for the long term.

Our policy recommendation is for Sport Obermeyer to maintain its relationship with Obersport and enhance coordination between the demand and supply side activities. Additionally, Obersport should collaborate with its Chinese facilities to negotiate reduced minimum orders and implement a skills improvement program for workers. This would address key issues with Chinese suppliers such as high minimum order quantities and low quality work. Wally should utilize Hong Kong facilities for small orders and Chinese facilities for larger orders.