Supply Chain Management in Sports Obermeyer - Case Study Example

Supply chain Management Wally has to contend with these four important factors of supply chain management in order to improve the operations of Sports Obermeyer: to provide parka products quicker, provide them with greater added value, provide it to the correct location such as the retail stores and to do so with no relevant inventory position. The past experience of selling the remaining inventory to the retail stores at a great loss is not a viable option anymore. Factors which are influencing the logistics function are early supplier involvement in product design, global sourcing, supply chain management, strategic alliances, outsourcing and quality assessment systems. He has to deal with the flexibility of response, the demand for cost reduction, and the increased complexity of product design. This dilemma gives Wally a significant opportunity not only reduce cost, but also to add value to his customers - both key factors for developing competitive advantage. In this case, the price per style can no longer be the determining factor for production. The four major factors which were identified are more important. Given the ten styles of Women's Parkas, I recommend that Wally focuses on the three women's styles which are within one standard deviation from the mean of the normal distribution based on the individual sales forecasts of the Sample Buying Committee as shown in Exhibit 10. These styles are the Electra, the Daphne and the Assault. About 68% of the population of the normal distribution are within one standard deviation from the mean. Wally can ask China to produce 10,000 units of any of these three styles only. Another option would be for him to choose to produce only one style for the China operations which requires a minimum order of l0,000 units. He can ask the marketing staff to do check the actual demand and to revise the sales forecasts of the three chosen styles. The style with the highest sales forecast will be prioritized for production in China. The two other women's styles can be produced in HK if they have a lower sales forecasts. Given that the other styles are within 2 standard deviation from the mean of the normal distribution of the average sales forecasts, I will not recommend Wally to order 10,000 units of these women's styles: Call, Isis, Entice, Teri, Seduced, Stephanie and Anita. The choice of the three styles is a logical one because the individual forecasts already assumes the level of the previous year's sales of the women's parkas. In order for forecasts to be reliable, they have to be based on the sales of previous years. If Wally chooses any of the seven other women's styles, then that would not be efficient since those styles already constitute within two standard deviation of the mean. There is a higher probability that he will be choosing the styles which would be harder to dispose of in the retail stores. 2. Based on a labor cost per unit basis, the Hong Kong operations is cheaper, of higher quality and more efficient that the China operations. However, minimum production levels in HK are smaller compared to China. The minimum order one can place in China is at least 10,000 units per style. Hence, Wally must choose which units to produce in HK and in China that will maximize the resources of Sports Obermeyer. I converted the respective currency costs of production in HK and China in US dollars in order to facilitate comparison of the operations cost in both areas. For instance, a Hong Kong worker finishes 19 parkas at a labor cost of US$77 dollars per parka plus the US$1.54 dollars repair cost for a total of US$78.54 dollars. That same worker uses 44.65 hours to produce a total of 19 units of parka. A HK worker is able to produce a parka faster than a China worker by at least one hour and twenty-five minutes. Moreover, the cost of one production line of workers in HK is US$17,712 dollars which can easily produce up to 600 units. This figure is cheaper than the China operations. A fact of significant advantage is that the HK workers are cross-trained and they can produce other styles easily. Other added advantages of Hong Kong are that it has a stable wage rate and low unemployment levels. The only disadvantage there is that young HK workers prefer office work rather than manufacturing work at this point in time. Moreover, HK has a labor policy which sets the maximum allowed hours for overtime work for the workers at only 200 hours per year. In comparison, the China worker finishes 12 parkas at US$76 dollars per parka plus the US$ 7.6 dollars repair cost which amounts to a total of US$83.60 dollars per parka. This same worker uses at least 43.2 hours to produce 12 parkas. The cost of one production line of workers composed of forty workers is US$36,520 which can produce a total of 1,200 units. In contrast to the HK worker, the China worker is trained to do one style only. Sports Obermeyer will have to set aside training expenses if it will require the workers to do another style. The disadvantage of the China labor pool is that they have less quality and cleanliness consciousness and they require more training before production. An advantage of the labor pool is that they are able to work longer on a per week basis and the Chinese government has lax labor laws. There is also no labor policy on overtime work. Given the state of the operations in Hong Kong and China, I recommend that the Sports Obermeyer implement improvements in supply chain management in six areas: sales forecasting, fashion design, procurement lead time, regular production schedule, distribution of manufacturing operations between Hong Kong and China and distribution time to the retail stores based on the first placement of order. First, the company must have an accurate sales forecasting system. The initial forecast of parka A was 2,500 units but the final forecast was only 500 units. The initial forecast was way off the mark since the company would take in huge losses for the overproduction of 2,000 units of parka. So the marketing people need to know a more accurate sales demand from the existing retail stores on the local level well. Second, the finalization of the design for women's styles takes too long. For example, it takes the company eight months to finalize the design based on the feedback from the first Las Vegas show. The design team will have to do this phase faster perhaps by shortening the period to at least two months for faster production of styles which are still in high demand by the public. This can be done by hiring more designers or by hiring better and more experienced fashion designers who are more attuned to the international fashion market for ski wear. Then by the following month, the design can be forwarded to the manufacturing division for production. Third, there is a need to shorten the procurement lead time for the purchase of raw materials for production to one month from the present level of three months. For example, the procurement lead time for the purchase of greig shell fabric takes 90 days. The manufacturing group must cut this down to 30 days to have a faster turn-over. This can be done in two ways: one can find other sources for the raw materials from other suppliers and one can also demand a shorter delivery time from the existing company suppliers. Fourth, the production time must also be improved. The existing production time is almost one year away from the initial Las Vegas Show. For instance, the full production of the first order place in the company occurs on the 11th month from the Las Vegas Show. This very long production schedule will pose some marketing problems for the company in the future. This can be solved by buying more machines to speed up production or by increasing the number of factories for production. There is a strong possibility that the fashion style for the parkas might have changed a year after the last fashion show. Hence, the manufactured parkas by the company will not be sold by the retail stores. Fifth, Wally must already determine which styles will be produced by China operations and which style must be produced by the HK operations. The volume and cost differences between the two hub of operations must be taken into consideration in order to finalize the distribution of manufacturing operations. Finally, the delivery of the parkas to the retail stores is done on the 16th and 17th month from the Las Vegas show. There might be changes in the fashion styles of the parkas since the previous year. Once the fashion changes, the demand for the existing parkas may be diminished already. Thus, the retail stores might be forced again to sell the inventory at a loss in order to regain the shipping and freight costs. My over-all recommendation to Wally is that there is a need to shorten the design phase, the procurement time for the materials, the full production schedule and the delivery time for the retail stores. Finally, to shift its purchasing and manufacturing organization from the traditional tactical buying to strategic sourcing, Sports Obermeyer has to identify the mix of people and skills it had and the mix of people and skills it needed. It has to change job titles, descriptions, and compensation of its personnel to match the desired organizational structure. 3. The Sports Obermeyer production operations between China and Hong Kong have to be distributed well. It makes sense to channel 90% of the production demand for parkas requiring less than 10,000 units to the Hong Kong operations. Labor cost per unit is cheaper in China for bulk orders. This is mainly because the Chinese currency has lesser value than Hong Kong dollars. The China operations cost US $0.780 cents per worker compared to US$9.69 dollars per HK worker. Labor productivity per worker is higher in HK compared to China. The Hong Kong operations are faster on a per worker basis (19 parkas a week) compared to the China operations (12 parkas a week). There is also fewer rate of repair at 1 to 2 percent only. The Hong Kong operations takes less time to do each unit of production (2.35 hours) compared to China's 3.6 hours. It also takes less line production people (10-12 persons) to produce an output compared to China's 40 people per production line. The bulk orders can be assigned to China operations. The advantages of China operations are cheaper labor cost per unit, freight and landed costs. The landed cost of China operations is estimated at just US $51.92 dollars and the F.O.B. at US $42.68 dollars. This figure is much cheaper than Hong Kong's rate of landed cost at US$ 60.08 dollars and the F.O.B. at US$ 49.90 dollars. Read More