# Sport Obermeyer Essay

806 Words4 Pages
Sport Obermeyer Answer the following questions: Using the sample data given in Exhibit 10, make a recommendation for how many units of each style Wally Obermeyer should order during the initial phase of production. Assume that all ten styles in the sample problem are made in Hong Kong, and that Obermeyer's initial production commitment must be at least 10,000 units. (Ignore price differences among styles in your initial analysis.) For the Initial aggregate planning the following facts need to be considered total production capacity for Women parka’s equal to 3,000 units per month or 21,000 units over the seven month annual production period this figure also roughly about 10% of the total expected demand for Sport Obermeyer. Ordering less than what the actual demand requires will result in an (understocking) situation which according the case data represent a loss of opportunity equal to 24% of the item’s wholesale price. However, ordering more than what actual demand will require will represent a financial loss equal to 8% of the item’s wholesale price. Wally Obermeyer needs to focus on structuring the initial order quantity that maximizes production capacity while minimizing the risk and financial impact of over or under ordering an item. The best way to achieve this is to equalize the cost of overstocking versus understocking an item. Using the variable “P” to represent the probability of being understocked and (1 – P) the probability of being overstocked. Therefore the probability of being understock = P * (Wholesale cost of item * 24%) and probability of overstocking = (1 – P) * (Wholesale cost of item * 8%). For example for ladies parka’s the whole sale cost of a Gail model is \$110.00, the cost of opportunity from being understocked = (110 * 0.24) = \$26.40 and financial loss is (110 * 0.08) = \$8.80. Using the formula we can extrapolate the following: P *