Wally Obermeyer (head of Obermeyer, a leading manufacturer of skiwear) wanted to discover a way of determining the best levels of production in order to make production commitments for the upcoming 1993-1994 season. So far, predicting production has been difficult for Wally, as the first more concrete signals of demand do not appear until Obermeyer participates in a trade shoe in Las Vegas, not long before production is due to begin. The products also face a short life cycle and are only ordered once a season. Therefore determining the correct quantities based on the most accurate estimates of demand are necessary, Furthermore, the company’s buying committee have huge disparities in each member’s demand forecasts for the…show more content… Table 1.1 Production quantities in Hong Kong
In order to help Wally decide which product lines to manufacture in either Hong Kong or China, a measure of risk needs to be undertaken for all 10 product lines based on average forecasted demand.
In order to determine what items should be produced where, a risk assessment was conducted for all lines per the average forecast for each line. The Coefficient of Variation (CV) was determined in order to analyse the risk associated with each line, due to fluctuations in demand.
The CV for each parka was derived using the following formula: CV = standard deviation/average forecasted demand. The CVs for each product line can be seen below in Table 2.1
Table 2.1 Risk assessment for each product line
Lastly, so as to determine which lines had more associated risk, it has been decided that any line with a CV of under 0.2 was low risk, and therefore less subject to fluctuations in demand. Those lines are Assault, Seduced, Entice, Electra, and Gail. Those lines with a CV of over 0.2 were considered high risk. Those product lines were Daphne, Isis, Anita, Teri and Stephanie.
For Wally to decide what product lines to create in which country, he must calculate the production commitments for the plant in China. The minimum production requirement for China is 1,200 units per line, double that of the Hong Kong plant. At the China plant, there is