Sport_Obermeyer_Case_Study

Founded in 1950 by German-born aeronautical engineer and ski instructor Klaus Obermeyer and now jointly managed with his son Wally, Sport Obermeyer is a leading supplier in the U.S. fashion ski-apparel market. Its products are manufactured by a joint venture in Asia with Obersport, and by independent manufacturers located in the Asia, Europe, the Caribbean, and the United States. With sales of approximately $30 million in 1992, Sport Obermeyer had a commanding 45% share of the children’s market and an 11% share of the adult market. Nearly all of Sport Obermeyer’s products are newly designed each year to include changes in style, fabric, and color, and until the mid-1980s, the company’s design-and-sales cycle was relatively straightforward: design the product. Make samples, and show samples to retailers in March; place production orders with suppliers in March and April after receiving retailer orders; receive in September and October; and then ship them immediately to retailer outlets. That approach worked well for more than 30 years: production commitments were based on firm orders, and fall delivery provided ample time for efficient manufacturing. In the mid-1980s, however, several factors rendered the approach obsolete. First, as Sport Obermeyer’s sales volume grew, the company began to hit manufacturing constraints during the peak ski-wear-production with high-quality-skiwear manufacturers during the critical summer months to allow all of its volume to be produced after it had received firm retail orders. Second, the pressure to reduce manufacturing costs and increase variety compelled Sport Obermeyer to develop a more complex supply chain. The main competitors of Obermeyer were Columbia Sportswear, Spyder, and up and coming Helly Hanson, although the niche demographic selling area can differ. Columbia Sportswear Company is a United States company that manufactures and distributes outerwear and sportswear. It was founded in 1938 by the late Paul Lamfrom, father of present chairperson Gert Boyle. The company is headquartered in Oregon. Columbia Sportswear also produces footwear, headgear, camping equipment, skiwear, and outerwear accessories. In 2001, it was the largest American seller of ski apparel, making popular and relatively affordable outerwear. Spyder is a Colorado-based manufacturer of high-end skiing apparel. According to the company's website, it is the world's largest ski specialty brand. David Jacobs, Spyder’s founder and chairman was born in Montreal, Canada, and from 1957 through 1961 was a member of the Canadian National Ski Team. Spyder is the largest ski-specialty brand in the world. In 2004, Apax Partners, a global private equity group, acquired Spyder. Jacobs continues to direct the company as Chairman of the Board. Jake, his eldest son who penned the trademark spiderwebs, serves on Spyder’s board of directors. Other competitors such as Helly Hansen and The North Face are part of a proliferation of ski apparel companies expanding in the market as snow sports popularity grows in the youth demographic (snowboarding in particular). Sport Obermeyer relied on an in-house “buying committee” – a group of company managers from a range of functional areas – to make a consensus forecast of the demand for each of the company’s various products. Wally Obermeyer oversees this committee, is of course a dominant voice as a key decision maker. All committee members contribute forecasts of product sales from their respective experience, which are then aggregated by the group. This can lead to both excellent insights in trends, as well as very disparate views on the selling potential of an SKU. Obermeyer is wrestling with several concerns: how to create more accurate forecasts, how to reduce leadtimes, how to manage when demand data is transmitted to the company and the impact that has on design and ordering fulfillment, and how to reduce manufacturing costs without jeopardizing lengthening the order cycle or losing flexibility. The foremost of these issues is when they receive demand data, as this sets the timeframe and constraints of the current manufacturing cycle, all else being equal. Currently the company receives much of its strong trend and demand data from specific apparel shows (Las Vegas and Europe), and since these are later in the cycle of design and order fulfillment, the strain is placed on Obermeyer and Obersport to not only be correct in identifying trends before confirmation of their popularity, but also the manufacturing side as well react quickly in the case of emergency orders and also produce in as least inefficient and costly way as possible. Sooner receipt of demand data is also important to improving and validating product forecasts. The second issue for Obermeyer is the actual manufacturing. A decision to base the majority of an order with either the China factory (cheaper) or Hong Kong (faster and better) comes down to finding efficiencies within other aspects of the supply chain that will be discussed in further detail below. The functions of Obersport show areas of improvement that will help Obermeyer not only save money but also improve brand image through better delivery and inventory management. Currently, the proliferation of colors and SKUs has placed pressure on bringing the manufacturing process together in a timely manner. The largest impact on the case is the change in technology. From demand data to lifted quotas to the proliferation of sophisticated companies in Asia willing to improve a retail companies supply chain from procurement to manufacturing to delivery. Because of this drastic change, some of the recommendations are timely, but some could be applied in 1993 or today. Creating methods to receive earlier demand data indicators will help with the ordering process as Obermeyer puts in its initial order. This may be achieved through blog and other social media analysis, online marketing trends, and direct POS information from their largest retailers in a better integration model of information exchange. Early demand data decreases the impact of the Las Vegas convention as dominant trends in the run up to the convention are already mapped through the virtue of the internet and media/marketing companies capturing such data for clients. Another aspect not mentioned in the case but an aspect of the retail landscape today is online sales. These allow not only control by the manufacturer to mark-down inventory, but also an easy way in which to capture early indicators of client preferences of a specific SKU. Moving back into the supply chain, due to the proliferation of their SKUs and color combinations, online management tools of the demand benefit the forecasting dilemma Obermeyer has in 1992 and 1993. Technology also benefits the reduction of capital waste that dedicates funds to surplus inventory and higher costs for emergency replenishments on stock-out items. In relation to the manufacturing dilemma, changing procurement is a way to also reduce lead times. The scope of were all the components of a SKU come from demonstrates one potential source of to reduce cost and fulfillment time. Re-sourcing D-rings and snaps from Germany more local Asia manufacturers cuts down on delivery time, costs and transportation costs. Overall, our first suggestion is for the company to invest in better customer data exchange coupled with the utilization of the internet to track demand data much earlier the season to spot trends themselves, relieving some of the pressure of deciding order quantities prior to the apparel show. Second, through better forecasts with lower standard deviations (indication of more correct forecast according to Wally) amongst the Buying Committee, commit a larger order size to the China factory and not Hong Kong, knowing that they have more lead time to complete a task. Third, change procurement to source additional hardware, zippers, etc. in local areas to the assembly factories to reduce costs and aid in emergency orders. Fourth, use Hong Kong as fast solution to fill product as needed to stock inventory throughout the season. Since the forecasts have improved, the amount requested should be reduced as well, and the costs should not spiral out of control to make up inventory gaps. An alternative to earlier demand data and a greater accuracy in forecasting is postponement and increased pressure on primary client to order sooner in larger amounts. This allows for stock to be confirmed and a better idea of total order size earlier. Postponement for high volatility (or high standard deviation) SKUs as determined by the Buying Committee would also allow for better total fulfillment without the addition costs of overstocking or having a stockout. The risk of making no decision lies with the order cycle and Obermeyer’s continued ability to forecast and stock the right trend in an increasingly competitive retail market (the emergence of online retail, youth brands, etc.). In the retail world of seasonal wear, this could mean year of very down sales and a loss of market share and brand reputation in a niche market. Without managing the demand data and forecasting better, the company is left in a reactive and increasingly expensive model that leaves them inflexible to respond to changing trends. It also leaves them exposed to the coming change the internet will have on all aspects of the business, leaving the company not only with increasing costs, an unwieldy supply chain but also losing out to new markets (online/global retail).