Sport Obermeyer Sport Obermeyer, Ltd was created around 1947 by Klaus Obermeyer. While teaching at an Aspen Ski School, Klaus noticed a difference between the clothing that his students wore and the clothing skiers wore in his native Germany. Although Klaus started out by traveling to Germany to find high-performance skiwear that was suitable for his students, he designed his own line of skiwear and ski equipment products and that was how Sport Obermeyer, Ltd was introduced. Sport Obermeyer developed into one of the top competitors in the U.
S. skiwear market, commanding a 45% share of the children’s skiwear market and 11% share of the adult market in 1992. The core competencies of Sport Obermeyer would be functionality and style. The functionality has to deal with the quality of their clothes. Sport Obermeyer has achieved their style through innovation. This is how the company competes in the skiwear market, by offering a strong price/value relationship and value consisting of the functionality and style of their product.
Their products offered key elements that serious skiers wanted, such as products that were warm, water-proof and without constraint. While competitors offered outerwear for both skiing and casual wear, Obermeyer sold most of its products to customers for use while skiing. Obermeyer offered a variety of fashion ski apparel and based each “gender” market according to price, type of skier and the fashion forwardness of the market. Obermeyer faced two major problems in this case. Due to increasing product variety and intense competition, Obermeyer was unable to make accurate predictions of what retailers demanded.
This left Obermeyer with excess merchandise that had to be sold at discounts that were considerable below manufactured cost and a shortage on their most popular products. The second problem that Obermeyer faced was which products to produce in Hong Kong and which to produce in China. While labor costs were cheaper in China, the quality and reliability of Chinese operations were in question. China was also subject to stringent quota restrictions by the U. S. and their plants required larger minimum order quantities. Operational challenges/opportunities: 1. Chinese production a. Factors: i.
Labor cost: per garment (including repair work) at prevailing exchange rates Hong Kong US$9. 69 versus China US$0. 78 ii. Quality: Obersport monitors production and quality at all subcontractor factories including inspecting random pieces from each subcontractor’s production prior to shipping to the United States iii. Import quotas: result in increased transportation costs for goods produced in China; however, delivered cost is still less than for goods manufactured in Hong Kong 2. Supply chain minimum order quantities and lead times for custom components, dyed and printed fabric, zippers and snaps 3. orecast uncertainty -> optimal order quantity calculations based on information that is apparently very well understood by Sport Obermeyer (e. g. 24% profit on items sold, 8% loss on unsold items, and historical forecast and actual information analyzed to reveal standard deviation) 4. Item Reduction a. We have found that some of the items projections are very unstable. There are women’s parkas like the Stephanie that we found has the possibility of only selling one hundred units or could sell over a thousand. This is based on past sales.
This makes it very hard to predict how many units to order. b. Sport Obermeyer should limit the number of items that they produce. Items such as the Stephanie that have such volitale sales should be eliminated. This will reduce over ordering. It will also allow Sport Obermeyer to focus on the items that are still in production. They can increase the quality and appeal of the style, which will help them sell more of these products. Supply Chain Management Supply chain management is the overseeing of all activities of a business concerned with supplying an end user with their products or services.
This idea is the corner stone of cost savings for almost all businesses. Sport Obermeyer is no exception to this rule. Sport Obermeyer has had to realize how supply chain management effects their core competency and focus. To help propel their business Sport Obermeyer established Obersport, which has helped streamline the supply chain. Sport Obermeyer has been innovators on the fashion frontier, and the supply chain. However, it can still be improved upon. A main focus of supply chain management is the value chain. The value chain is concerned with getting the greatest value for the lowest cost.
The value of the product should not be compromised just to save on cost. For Sport Obermeyer its core competency and focus adds value to its product. Their core competency is innovation and one of its main focuses is timing. In the fashion industry to be an innovator your line has to be the first on the market. This is how they shaped their strategy. You can see this strategy in their techniques of ordering and pre-positioning. According to Meredith Shafer “in fashion goods, timeliness should be the focus of the supply chain, meaning quick deliveries, stock piling of long lead time items, and so on”.
Klaus Obermeyer and Raymond Tse established Obersport in 1985. They built Obersport to help coordinate the production and sourcing of Sport Obermeyer’s products. Sport Obermeyer is eighty percent of Tse’s annual production. So it made sense for them to go into business together to streamline the supply chain. Out of this came the idea to pre-position the greige fabric. This material has the longest lead-time of Sport Obermeyer’s entire operation. A certain amount of the fabric is produced each month and held in inventory.
This way the longest process of production is ready to go before ordering. Another good byproduct of this union is the better information sharing. Having a joint venture between the two companies should increase the amount and ease of information being shared between the two companies. This is one key strategy towards avoiding the bullwhip effect. Sport Obermeyer has been a part of revolutionizing supply chain management. They helped pioneer the postponement approach to production. This is a tactic in which they start production on products that have been proven sellers.
These products are easier to forecast and need less time to collect customer input. This gives the company extra time to collect customer input on the other lines. Orders for the rest are made once production is set. This saves time in the production stages because the orders are staggered. The basic idea is get the work that can be done going right away. When the rest of the orders come a good portion of the total production will be done. Just because Sport Obermeyer has focused on timely deliveries and speedy production does not mean they should not look to lower costs.
There are two strategies that could help them do just that. First is reducing the number of suppliers in the chain. Obersport is outsourcing to six countries. The only materials going into the parkas that are not being made in Hong Kong or China is the greige shell fabric, finishing of shell fabric, and finished lining. Obersport should only outsource to two countries Korea and Taiwan. The three previously mentioned products are all being partly outsourced from these two countries already. This means the orders will go up for these suppliers.
This does mean that the production time will go up. However, Sport Obermeyer will not have to sacrifice production time because transportation time will decrease. This is because all the materials will be coming from the same two factories. Both factories are located closer to the factories that are owned by Raymond Tse in Hong Kong and China, which is where they will go to be finished. Sport Obermeyer will save money on decreased transportation. They will also be increasing the orders to the two suppliers. This could result in lower material prices for bulk purchasing.
The second strategy is to combine materials. The materials that are being produced in Korea and Taiwan can be assembled at each factory. By reducing the suppliers Ober Sport will gain the purchasing power to request the new assembly. This increased efficiency will decrease total production time. Plus, Ober sport will not have to pay for this assembly labor, which will lower the overall cost to Sport Obermeyer. The new assembly may increase the suppliers labor cost. However, it will lower their packaging cost because they can ship it as one item now.
For any business to succeed they need to always be looking for ways to improve their supply chain. It is crucial that when improving the supply chain they do not compromise the core competencies and focus. Sport Obermeyer has understood these concepts. They established a company to help coordinate these processes. They have also been innovators in the supply chain management field. There is stillroom for improvement, but if there past focus on the supply chain is an indicator of their commitment they will set themselves a top their industry.
Production Allocation The allocation of outsourcing production of Sport Obermeyer’s clothing between Hong Kong and China represents a major decision in both the quality and cost of the units produced. Sport Obermeyer prides itself in being a middle market clothing designer and producer for ski apparel. Sport Obermeyer’s core competencies are reflected in the quality of their products, providing value to the consumers with both functionality and style as shown by their placement of their products in upscale retailers such as Nordstrom.
Sport Obermeyer currently allocates 1/3 production to China and 2/3 production to Hong Kong. Sport Obermeyer has expressed concern about the units made in China, since their repair rate is around 10%, while Hong Kong’s production only accounts for a 1-2% repair rate. On the other hand, production in China reflects a 8% cost savings on the production costs, due to their low labor wages. Although Sport Obermeyer would like to increase China’s production capacity to near 50%, they face a dilema in the fact that China demands minimum style orders of 1,200 units, while Hong Kong demands only 600 units.
China also has many barriers to trade that force the use of air freight in order to make sure all products are received, but could still present quota issues. In the short run scenario, it is suggested that Sport Obermeyer maintain the current allocation level of production in China and Hong Kong. China’s new production facility in Lo Village, represents a major concern in the quality of the units as well as efficiency problems due to the unskilled labor and new facility.
In the Chinese production facilities it is recommended that Sport Obermeyer start to allocate specific genders to certain locations. In other words, due to the quality that is associated with Hong Kong production, all the coats for men and women should be produced in Hong Kong, since they represent the purchasing decision. Also some of the mens and womens products reflect a traditional style that consumers use season after season, so quality must be assured to maintain Sport Obermeyer’s brand image.
Meanwhile, due to the high turnover of children’s clothing, mainly correlated with growing stages as they age, it is suggested that Chinese production should reflect these gender lines for preschool, boys, and girls. Long term quality may not be a major issue since the likelihood of the coats being used for mulitple skiing seasons is unlikely. Meanwhile, in the long run, due to the competitive nature of the market, and new competitors, it would be in the best interest of Sport Obermeyer to gradually step up production in China over a 3-5 year plan to nearly 65%.
As shown by graph 1, the cost savings associated with the Rococo Parka, are not that great if production shifts from Hong Kong to China, but in the long run as cost becomes an issue it will help increase or maintain profitability. The potential decrease in quality, which is Sport Obermeyer’s main focus, could result in lost market share. So in order to remain competitive it is suggested that over the long term, shift all the boys, girls, and preschool apparel to China, as well as some of the lower end mens and womens products upon the end of the 3-5 year plan.
The market has seen a shift to low cost products as seen through Columbia’s increased market share to 23% in adult jackets. Although a competitor in the market, Sport Obermeyer must realize that Columbia represents low end jackets, while Sport Obermeyer is in the market for high end jackets. The main reason for the long term shift of all styles for boys, girls, and preschoolers to China is that there are many environmental concerns. Hong Kong has more skilled labor, which could account for higher labor wages as time progresses, as well as the labor force in Hong Kong changing from manufacturing to service orientated professions.
Maintaing a presense in Hong Kong allows Sport Obermeyer to take advantage of the fact that a majority of their suppliers are located in Hong Kong, which could reflect greater savings in the future if production needs to be shifted back to Hong Kong, due to increased transportation costs. Chinese production on the other hand has low labor costs, but high transportation costs, due to quota restrictions and the location of the facilities. This represents a major problem that if oil costs increase, Chinese production may not be as profitable.
Shifting from 1/3 production to 2/3 production to China in the long run represents a strategic way to maintain contacts in both production markets in case Sport Obermeyer needs to change allocations to maintain profitability. Graph 1. [pic] Summary/Recommendations One of the reasons that Sport Obermeyer has been so successful is its commitment to its core competencies. They put out quality goods every season. They are always the innovators that other companies have to imitate. They have made sticking to the strategy of getting to market a fast as possible a top priority.
Sport Obermeyer has spent a great deal of time to ensure their company does not become unfocused by trying to break into other markets or getting away from their strategies. However, there is still room to improve while sticking to there core competencies and strategies. More production in China could save the company a lot of money in labor and transportation cost. The only problem is that the quality may be some what suspect at first. That is why we recommend that production is ramped up over the next three to five years. We will start off by producing more of the standardized lower quality goods in China.
These are the boys, girls, and preschool items. This way the workers in China have time to perfect the production line and their abilities to manufacture Sport Obermeyer’s lines. Also, Sport Obermeyer should reduce the number of items they produce. This will allow them to concentrate more on the items that they will continue to make. This should increase all aspects of quality for these lines. For the supply chain Sport Obermeyer needs to reduce the number of suppliers they use to Korea and Taiwan. This should reduce production cost because of the increased orders. This will also strengthen their purchasing power.
By increasing purchasing power they can demand that some of the components be assembled by the suppliers before being shipped to Hong Kong or China. By following our recommendations Sport Obermeyer can increase their control over quality, and they can lower cost. This will allow them to become more profitable, or allow them to lower prices and go after more of the market share. Meredith Shafer, (2007). Operations Management for MBAs, John Wiley & Sons, Inc. ———————–  Represents using air freight for all units at $5. 00 per unit. ———————– New Allocation Current Allocation