IBA- Karachi

Sports
Obermeyer-
WAC
To: Dr. Kamran Mumtaz

Ali Abdullah Khan

Company Background:
Sports Obermeyer was founded in 1950 by German born aeronautical engineer cum ski instructor, Klaus
Obermeyer.

The company is a leading supplier in the US fashion ski apparel market. The products it offers are
manufactured by a joint venture in the Far East and by independent manufacturers located in the Far
East, Europe, the Caribbean, and the US. With sales of around $30 million in 1992, the company had a
market dominance of 45% share of the children’s market and 11% of the adult market. Almost all
products of Sports Obermeyer are newly designed every year incorporating changes in styles, fabric and
color keeping up with the latest trends of fashion. Up until the mid-1980s, the design and sales cycle of
the company was relatively straightforward i.e. it was centered on designing the product, showing the
samples to retailers in March, placing production orders in March and April with the suppliers after the
receipt of orders from retailers, receiving goods at the company distribution centers in September and
October and subsequently shipping them immediately to retail outlets.

Problem Identification:
The company struggled each year with committing to specific production quantities for each skiwear
item the company was to offer in their upcoming line for the year. Despite their product offerings being
strong on paper, the actual success of the line was heavily reliant on the company’s ability to predict
market response to styles and colors. The company was shooting arrows in the dark manufacturing well
in advance of the selling season fully aware of the fact that market trends may change at any time.
There were two major drawbacks of inaccurate forecasts, the first being, markdown rates resulting from
the excess merchandise for styles and colors that retailers had not purchased, ultimately being sold at
deep discounts well below manufactured costs at a loss. The second drawback was stock outs that the
company regularly faced, running out of its most popular items. These factors made the company lose
out on a sizeable amount of income due to their inability to predict which products would become best
sellers.

The company was also planning on shifting its focus from Hong Kong to China. They had yet to
determine how to allocate production between the plants in Hong Kong and China. Last year almost a
third of the Obermeyer Parkas had been made in China, all by independent subcontractors in Shenzhen.
This year the company planned to product half of its parkas in China, continuing production by
subcontractors and starting production in a new plant in Lo village, Guandong. Despite labors costs
being extremely low, the management had their concerns about the quality and reliability of Chinese
operations. The Chinese plants also typically required larger minimum order quantities than those in
Hong Kong and were subject to stringent quote restrictions by the US government.

Analysis:

Competitive Priorities:
The competitive priorities of the company was focused on quality and delivery. They offered a price/
value relationship where value was defined as style and functionality. Through their quality products
they targeted the middle to high end of the skiwear market. The management had a firm belief that
their effective implementation of product strategy had a heavy reliance on logistics which included
delivering matching collection of products to retailers at the same time and delivering products to retail
stores early in the selling season.

Cost

Quality Flexibility

Delivery

PP Matrix
According to the volume and variety matrix the Sports Obemeyer are producing in batches. There is a
mismatch in the requirement of Sports Obermeyer requirement and the production happening in China.
The batch size are comparatively smaller.

HIGH

Volume
BATCH

LOW
Variety HIGH
Supply Chain:

Textile and
Apparel Sport
Accessories Obersport Retailers
Manufacturers Obermeyer
Suppliers

Operation Design:
In order to analyze the competitive edge that the company enjoyed, we need to delve deeper into the
operation system design.

Structural Infrastructural
Scope: Organization:
Outsourcing products through Obersport; Global Klaus Obermeyer was involved actively in the
Sourcing of product components and materials company management; He relied on Raymond to
from the US, Korea, Japan, Germany, Austria, take the production and investment decisions. His
Taiwan and Switzerland. son wally however had a different management
approach which relied on analytics and data
collection.
Capacity: Workforce:
The company was capable of producing 200000 Workforce in Hong Kong was 50% faster than
units of parkas each year. The capacity for sewing their Chinese counterparts, were highly skilled
and cutting was 30000 units every month which and cross trained to handle a broad range of tasks.
included the production capacity at the numerous Workers were paid on a per piece rate basis in
factories under the umbrella of Obermeyer. both countries keeping in view the compensation
rates in the two countries.
Technology: Product and Process Design:
The process was not automated to a large extent Parkas were offered as per different criteria
and required greater productivity due to its heavy namely, gender which was further divided into
reliance on labor. categories based on age and further segmented
based on price, type of skier and how forward the
market was in fashion. Numerous styles were
offered, each in color and size variants.
Quality:
Obermeyer held Obersport accountable for
monitoring production and quality at all the
subcontractor facilities. The products produced by
the subcontractors production were tested on the
basis of random sampling by workers at Obersport
Planning:
Production was based around forecasted demand
levels of different product varieties however,
manufacturing starts well in advance of the selling
season, based on scant available information.
Henceforth, ‘Buying committee’, comprised of 6
 key managers, make production commitments
based on the group’s consensus, using blending
analysis, experience, intuition and sheer
speculation.

Planning starts 2 years before the actual sale of

products to the consumers.

Labor Utilization:
In order to quantitatively determine which plant is more efficient as far as labor productivity is
concerned, the following calculations for determine labor utilization have done for both Hong
Kong and China facilities.

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%

It is evident from the data above that Hong Kong is far more efficient in terms of labor
utilization, since its labor utilization is 93% as compared to 74% of the Chinese facility. The
analysis has been performed based on hours available and hours worked per week.

Order Allocation and Facility Allocation:

The company is currently fighting on two fronts in order to produce Parkas in two different tranches.
The first order is to be placed before the Las Vegas show keeping in view demand uncertainty. The
second order is to be placed after the event when more information about demand is acquired. The
second issue is facility allocation since the company wishes to shift its capacity partly from Hong Kong to
China mainly due to the low cost labor it provides. The management came up with a sample problem
focusing on 10% of the total demand to simplify their problem. The management needs to keep in mind
the minimum order quantity of 600 units per style at the HK plant and 1200 units/ style at the China
plant. The first order is supposed to be around 10000 units while the second order is supposed to
complete the total order quantity of 20000 units.

In our process we basically found the Co-efficient of variance using the 2SD and hence calculated the
minimum order quantity using the covariance and applying a self- imposed safety factor of 2%. This way
we came to the minimum order % ages. We altered our data based on the MOQ only for Stephanie and
Teri styles of Parkas. For the 2nd order we ordered the remaining quantity out of the 20000 units
capacity.

Recommendations:
 The company needs to take into account Linear Programming in order to effectively predict the
exact order amount after which producing any further would translate into losses. It would also
incorporate the exact quantity after which we had to switch our facility from Hong Kong to
China or vice versa.

 The company needs to redesign its Parka line to reduce the variety of zippers used. This would
greatly alleviate the hassle Obermeyer goes through matching the color of both the zipper and
its tape to the color of the garment. Instead they should introduce black zippers in several lines
as a fashion element, adding contrast to the style.

 They must encourage their designers to use same kinds of raw materials in their patterns
reducing the trouble the company has to go through having to work with five or six different
shades. Instead, they should make designers settle on two or three shades for any given design
cycle.

 Obermeyer should change its order entry system to capture orders that can’t be filled because
of insufficient inventory.

 The company should have as many items produced in China as possible, particularly the largest
volume items because the costs would be lowest even if there were errors in production that
need remedies.

 Obermeyer needs to use “Griege Fabric System” in place in order to integrate the concepts of
delayed differentiation to decrease the set up time.
  Vertical integration with suppliers can be done to reduce the lead times both on the finished
goods and the raw materials affecting the downstream and the upstream.

 The number of hours in the China plant should be increased and more subcontractors should be
used to increase the production capacity.

 In the distant future, the company needs to improve production efficiency in China by
integrating principles of six sigma, JIT and Kaizen and by training unskilled labour.

Exhibit 1:
 Raw
Material Retailer Shipment
Design Sample Shipement
Sourcing Ordering to
Process Production to Retail
and Process Warehouse
Production

Figure 1: Process Flow Diagram

Exhibit 2:

Shipment
Prototyp Beginnin Remainin to Retail
e g of first g order (End of
Develop producti received August
ment on order (April via small
(July (Feburar and May package
1992) y 1993) 1993) carriers)

Design Las Vegas Shipment Replenis

Finalizati show to hment
on (March warehou orders
(Septem 1993; se (June (Feburar
ber 1992; 80% and July y 1994)
Sample order 1993)
produced received)
)

Figure 2: Process Order Cycle Diagram