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Chinas Reform

.. Sport Obermeyer Sport Obermeyer is a high-end fashion skiwear design and merchandising company headquartered in Aspen, Colorado. Over the years, Sports Obermeyer has developed into a dominant competitor. Sports Obermeyer’s estimated sales in 1992 were $32.8 million. The company holds 45% share of children’s skiwear and 11% of adult Skiwear market.

Sport Obermeyer produces merchandise ranging from: parkas, vests, ski suits, shells, ski pants, turtlenecks, and accessories. These products are sold throughout U.S. department stores in urban areas and ski shops. With increasing demands and rising competition, Sport Obermeyer needs to have and edge on the market. Starting in 1985 with a joint venture in Hong Kong called Obersport, the company began to increase productivity to meet their new demands.

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Recently, a number of contractual ventures were added and a new complex in Lo Village Guangdong China have enhance production but increase the level of difficulty on the planning and production stages. The Sport Obermeyer case describes the forecasting, planning and production processes of a global skiwear supply channel. The case provides an in-depth description of the planning and production processes Sport Obermeyer and its supply channel partners undergo each year to develop and deliver Obermeyer’s product line. The case will emphasis on the nature of the information that flows among the members of the supply chain and the timing of key decisions and events in order to have a successful inventory line. Sport Obermeyer, was founded in 1947 by Klaus Obermeyer.

Klaus Obermeyer, a German immigrant began teaching at the Aspen Ski School in 1947. During his time teaching, he observed his students being unprotected by impractical clothing during frigid weather. The clothing worn by his students were less stylish and provided little shielding than clothes made in his native Germany. These experiences led Klaus to introduce a variety of skiwear products. He is credited in making the first goose down vest out of an old down comforter.

Klaus also introduced turtlenecks, wind shirts in the U.S. and in 1980 he popularized the ski brake. Klaus products are targeted for serious skiers. Eighty five percent of the Sport Obermeyer’s market is a serious skier that utilizes the products for winter activities. Sport Obermeyer’s produces manufactures for five different genders: men, women, boys, girls, and preschoolers.

Each gender market offers an excellent price/value relationship, where value was defined as both functionality and style. Sport Obermeyer’s focuses on the middle to high-end ski-market. Functionality was critical to the serious skier-products, which had to be warm and waterproof, yet not constrain the skier’s ability to move his or her arms and legs freely. Management believed that the effective implementation of its product strategy relied on several logistics-related activities, including delivering matching collections of products to retailers at the same time (to allow consumers to view and purchase coordinated items at the same time), and delivering products to retail stores early in the selling season (to maximize the number of square-footage days products were available at retail). Since the beginning Klaus has been actively involved in the company’s management. Klaus management approach was described as, Free of tension.

Klaus ultimate goal was to achieve harmony by emphasizing trust to the customers and providing quality and value to all consumers. Klaus’s decision-making skills were based on intuition and his overall industry experience. The Obermeyer family was actively involved in making sure new innovating products; color and styles were being produced. Lately, Wally Obermeyer has become more actively involved with the management and production stages. Wally’s approach relies heavily on formal data-gathering and analytical techniques.

Wally’s continues to believe that quality and value are high priorities but as of late Sport’s Obermeyer’s product lines have not been as successful. Wally decisions are centered on which styles to make in China and which styles to make in Hong Kong. Will production in China constrain Obermeyer’s ability to manage production and inventory risks? Wally’s decisions are based on the Obermeyer’s overall order cycle, supply chain, strategy and structure. Sport Obermeyer’s, structure is formulated through a two-year planning and production process. The design process for the 1993-1994-inventory line begins in February 1992.

This task involves careful analysis, experience, intuition, and utter assumption. The market’s key goal to is to predict the market response to different styles and colors. The structure is constructed beginning at the textile and accessories and suppliers stage. During this stage is where the initial designs are developed. Important events are the Munich show and the Las Vegas show in 1992. These two events are where the ideas come for the colors and style for the new line.

Europe is more fashion forward than the United States such that current European styles are good indicators of future American fashions. Another important event is the Las Vegas show in February. This is a major trade show for ski equipment and apparel. By May 1992 the design concepts are finalized which continue all the way to September 1992. The next stage goes through the apparel manufactures simultaneously working with Obersport Limited.

Sports Obermeryer’s critical outerwear products are sourced through the Hong Kong-based company Obersport, a joint venture between Sport Obermeyer and a Hong Kong partner. Obersport, in turn, manages supply and production operations in Hong Kong and China. Raymond Tse is the managing director of Obersport Limited. During this phase, orders begin to arrive. As they arrive they are translated into specific components and then placed on component order with the subcontractors vendors. Timing is especially important because any delay will cause problems, starting from tensions with vendors, over time at the subcontractors’ factories and late delivery to Sport Obermeyer.

Obermeyer’s initial production order begins to be created, which its usually about half of the annual production. Prototypes and samples are made, which include dyeing and printing. At this time the contractual factories working with Sport Obermeyer begin to deliver printing instructions, belts, zippers, and other accessories. All items have traveling time that needs to be consider and earliest the order is completed the more efficient the inventory line can be exported. Samples are produced and during the Las Vegas show of 1993, Sport Obermeyer receives 80%of its annual volume.

This is achieved because Sport Obermeyer’s stresses delivering matching collections of products to retailers at the same time. This allows consumer to view and purchase the product at the same time. Samples are revealed and the second and final production orders are made. These orders go back to Obersport and the cycle begins again. The winter retail season begins on September and ends in January. The peak time is between December and January yet Sport Obermeyer hopes to have their products made known and in the shelves before September.

One of the strategies for Sport Obermeyer is deliver products to retail stores earlier in the selling season. The reason is to maximize square footage and have more shelf space for your product. As the production cycle continues to depend on the timing of orders and materials sent by subcontractors Sport Obermeyer focus to the next phase and that is transporting the finished goods. During June and July the garments are shipped from Hong Kong to a warehouse in Seattle and then driven to a warehouse in Denver. The total time of delivery was six weeks.

In august another shipment is air-shipped to Denver to ensure a timely delivery. These shipments are especially important especially when understanding the strict quota restrictions in certain product categories between China and the United States. The United States government limited the numbers of units that could be imported from China. Government officials at the United States port of entry reviewed imports and if products were found violating quota restrictions they were immediately sent back to the country of origin. Quota restrictions were imposed on the total amount of a product category of all companies imported from China so Sport Obermeyer rushes to get their products into the country before other firms use up the available quota. If one of Sport Obermeyer’s units were returned it would break down the cycle of production and late deliveries would affect retail space and overall company profits.

The final period is dominated by deliveries to retailers. During August, UPS and RPS are used to transport the merchandise to there retail location. This is done early to make sure there is time to request replenishment. The winter retail does not peak until December and January but by then retail stores know what is selling and what is not. They can order more of the items that have been sold out. If orders are delayed, profit is lost because Sport’s Obermeyer is unable to ship its products to meet the new demand.

Inaccurate forecasts of retailer’s demands and timing errors have had a negative result on sales that have given the company excess merchandise and items were sold at deep discounts at the end of the season. Under Wally’s administration Sport Obermeyer’s production commitment for the first half of production was 24% of the wholesale price. The projected demand for the 1993-94 season would be an earning of 27 dollars on each Rocco parka priced at 112.50 (.24-*112.50). The projected loss for Sport Obermeyer is 8%. For every Rocco parkas not sold, Obermeyer would be losing $9(.08*112.50).

This is one example detailing the fashion gamble that Sport Obermeyer undertakes for every inventory line. Last year, almost a third of Obermeyer’s parkas had been made in China, all by independent subcontractors in Shenzhuen. This year, the company planned to produce half of its parkas in China, continuing production by subcontractors and starting production in a new planet in Lo Village, Guangdong. The new facility would eventually provide jobs, housing, and recreational facilities for more than 300 workers. This facility was Obersport Ltd first direct investment in manufacturing capacity in China. The downfall of producing in this new facility was the ability of predicting the demand, worker skill levels, and productivity levels.

Obermeyer should not increase the amount of production in China by such a large amount. Instead the adjustment should begin by 10% increments to test the reliability of the factories’ operation. This enables Obermeyer to take effective approaches in resolving existing operation issues in the new facility. The allocation of operations to workers differed from one factory to another depending on the workers’ level of skill and the degree of workers cross-training. Workers in Hong Kong worked about 50% faster then their Chinese counterparts.

In addition to being more highly skilled, Hong Kong workers wee typically trained in a broader range of tasks. Thus, a parka line in Hong Kong that required 10 workers to complete all operations might require 40 workers in China. Longer production lines led China to greater imbalance in these lines. Workers were paid on a piece-rate in both China and Hong Kong: the piece rate was calculated to be consistent with competitive wages rates in the respective communities. Wages in China were much lower than in Hong Kong; an average sewer in a Guangdong sewing factory earned US$0.16 per hour compared with US$3.84 per hour in the Hong Kong factory.

The Workers in Hong Kong were also able to ramp up production faster than the Chinese workers. This ability, coupled with shorter production lines, enabled the Hong Kong factory to produce smaller order quantities efficiently. For parkas, the minimum production quantity for a style was 1,200 units in China and 600 units in Hong Kong. Obermeyer produced about 200,000 parkas each year. The maximum capacity available to the company for cutting and sewing was 30,000 units a month; this included the production capacity at all factories available to make Sport Obermeyer products.

Obermeyer could decrease the amount of risk presented each year by reducing the amount produced for the Las Vegas Fashion Show. Obermeyer’s fate is always determined by the outcome of the show. Like most fashion apparel manufacturers, they faced a fashion gamble each year. If Obermeyer were to produce 50,000-70,000 units, they would eliminate the excess loss that has occurred in past years. Although Obermeyer invested in a new facility in China, there were still concerns about the quality and reliability of Chinese operations. Chinas labor is also much lower than Hong Kong.

The price of producing a variety of styles in Hong Kong would be lesser then producing in China. As mentioned earlier in the paper Hong Kong workers were trained in many different facets of production whereas China’s worker were trained in one specific area of production. The price of training and increasing the amount of workers would far exceed Obermeyers input cost. The backbone of Obermeyer’s sales is the parkas. It would be in their best interest to produce all the parkas in China were profit would be maximized. The Hong Kong factories should be used to produce the different styles of Obermeyer Ltd.

In conclusion, Obermeyer must strategize an effective method of calculating production decisions. Obermeyers initial issues have been due to scant information about how the market would react to the line. There is no indication of how consumers reacted to 1992-93 line of their skiwear. Obermeyer must comply sample data from the buying committee’s forecast and correlate it with Obermeyer’s top selling products. This would alleviate the amount of risk and loss executed every year due to inaccurate information of the market’s reaction. Speech and Communications.

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