SOLVING WALLY’S SAMP LE P R O B L E M (WITH K=0)

DETERMINING SPECULATIVE PRODUCTION QUANTITIES

k=0 <---Find value of k that makes last column sum to about 10,000

STANDARD FIRST-PERIOD
MEAN OF DEVIATION PRODUCTION QUANTITY
DEMAND OF DEMAND

STYLE
  Max (0,  k)
Gail 1017 388 1017
Isis 1042 646 1042
Entice 1358 496 1358
Assault 2525 680 2525
Teri 1100 762 1100
Electra 2150 807 2150
Stephanie 1113 1048 1113
Seduced 4017 1113 4017
Anita 3296 2094 3296
Daphne 2383 1394 2383 11
Sum---> 20,001 20,001 <---Sum

Too much!
SOLVING WALLY’S SAM P LE P R O B L E M (WITH K=2)

DETERMINING SPECULATIVE PRODUCTION QUANTITIES

k=2 <---Find value of k that makes last column sum to about 10,000

STANDARD FIRST-PERIOD
MEAN OF DEVIATION PRODUCTION QUANTITY
DEMAND OF DEMAND

STYLE
  Max (0,  k)
Gail 1017 388 241
Isis 1042 646 0
Entice 1358 496 366
Assault 2525 680 1165
Teri 1100 762 0
Electra 2150 807 536
Stephanie 1113 1048 0
Seduced 4017 1113 1791
Anita 3296 2094 0
Daphne 2383 1394 0 12
Sum---> 20,001 4,099 <---Sum

Too little!
SOLVING WALLY’S SAMP LE P R O B L E M (WITH K=1 )

DETERMINING SPECULATIVE PRODUCTION QUANTITIES

k=1 <---Find value of k that makes last column sum to about 10,000

STANDARD FIRST-PERIOD
MEAN OF DEVIATION PRODUCTION QUANTITY
DEMAND OF DEMAND

STYLE
  Max (0,  k)
Gail 1017 388 629
Isis 1042 646 396
Entice 1358 496 862
Assault 2525 680 1845
Teri 1100 762 338
Electra 2150 807 1343
Stephanie 1113 1048 65
Seduced 4017 1113 2904
Anita 3296 2094 1202
Daphne 2383 1394 989 13
Sum---> 20,001 10,573 <---Sum

Approximate
SOLVING WALLY’S SAMP LE P R O B L E M (WITH K=1.0608 )

DETERMINING SPECULATIVE PRODUCTION QUANTITIES

k = 1.0608 <---Find value of k that makes last column sum to about 10,000

STANDARD FIRST-PERIOD
MEAN OF DEVIATION PRODUCTION QUANTITY
DEMAND OF DEMAND

STYLE
  Max (0,  k)
Gail 1017 388 605
Isis 1042 646 357
Entice 1358 496 832
Assault 2525 680 1804
Teri 1100 762 292
Electra 2150 807 1294
Stephanie 1113 1048 1
Seduced 4017 1113 2836
Anita 3296 2094 1075
Daphne 2383 1394 904 14
Sum---> 20,001 10,000 <---Sum

Exact value
How should Obermeyer management think
(both short-term and long-term) about
sourcing in Honk Kong vs. China?
Honk Kong China
Cost of Production is very high, labor cost/
garment of 9.69 US$
600 Units in same style (small volumes)
More flexible
Faster production as staff is more cross trained
Staff is more efficient, 10 people in each parka
line
Each employee produces twice as much as
Chinese workers
Smaller lead times for raw material
Cheaper to produce, extremely low wage rates,
higher overtime hours, lower labor cost/
garment of .78 US$
1200 Units in same style (larger volumes)
Less Flexible
Slower production, as staff is less cross trained
Staff is inefficient, 40 people in each parka line,
leading to greater imbalance
There are a lot of quality concerns
Higher lead times for raw materials
Challenges
Honk Kong China
1. Workforce 1. Workforce
- Low unemployment - Cleanliness conscious and quality of work is
- Younger workers prefer office jobs poor
2. Wage rate is very high - Training is required
2. Quality and reliability of products produced in
China
3. Larger minimum order and quota restriction
on products
4. Skill level is poorer

Raw materials procured from suppliers from different countries

increases lead time.
So the policy should be to produce in Hong Kong in short term and try
to overcome limitations of China by making below sequential
improvements and in long term production should be done in China.