Sport Obermeyer Case
Sport Obermeyer case (Venugopal Vinjamuri and Kailash Kothari)
In order to determine the quantity of each product that should be purchased at the outset so as to fill half of the total forecasted volume (10,000 units), we need to calculate the purchase price per product (something that isn’t provided in the case) and also the salvage price per product. Let’s start with the cost information of the Rococo Parka. The cost to produce one piece in Hong Kong is $60.08 while the cost in China is $51.92. On the lines of Wally’s plan, let’s assume that half the orders will be fulfilled from Hong Kong and the rest from China. This places the average cost at $56. The total retail price of 112.5$ should equal the sum of cost ($56), profit ($27 as mentioned in the case) and operating expenses (expenses to run the company besides the cost of sourced products). This gives us a figure of $29.5 as the average operating cost, which is about 26% of wholesale price. We’ll apply this percentage across the board to arrive at purchase price per product (Exhibit 1). We’ll also arrive at the salvage price as product cost + operating costs – loss ($9 as mentioned in the case). The mean and std. deviation figures have been provided and it this point, arriving at production quantity per product is a trivial exercise (see results in Exhibit 2), using the template provided in class. Note that increments of 100 have been used. If this were single sourced to Hong Kong (Question 2), the cost figures as the relate to Hong Kong would be used ($60.08 for the Rokoko Parka). Please see Exhibit 3. Also, since the minimum order quantity is 600, this would be used as the starting point during quantity calculations (Exhibit 4). The approach basically compares the marginal benefit associated with each product in an iterative manner, always incrementing quantities of the products with the highest marginal benefit (note that our excel template compares three products at a time rather than all ten, so
In order to determine the quantity of each product that should be purchased at the outset so as to fill half of the total forecasted volume (10,000 units), we need to calculate the purchase price per product (something that isn’t provided in the case) and also the salvage price per product. Let’s start with the cost information of the Rococo Parka. The cost to produce one piece in Hong Kong is $60.08 while the cost in China is $51.92. On the lines of Wally’s plan, let’s assume that half the orders will be fulfilled from Hong Kong and the rest from China. This places the average cost at $56. The total retail price of 112.5$ should equal the sum of cost ($56), profit ($27 as mentioned in the case) and operating expenses (expenses to run the company besides the cost of sourced products). This gives us a figure of $29.5 as the average operating cost, which is about 26% of wholesale price. We’ll apply this percentage across the board to arrive at purchase price per product (Exhibit 1). We’ll also arrive at the salvage price as product cost + operating costs – loss ($9 as mentioned in the case). The mean and std. deviation figures have been provided and it this point, arriving at production quantity per product is a trivial exercise (see results in Exhibit 2), using the template provided in class. Note that increments of 100 have been used. If this were single sourced to Hong Kong (Question 2), the cost figures as the relate to Hong Kong would be used ($60.08 for the Rokoko Parka). Please see Exhibit 3. Also, since the minimum order quantity is 600, this would be used as the starting point during quantity calculations (Exhibit 4). The approach basically compares the marginal benefit associated with each product in an iterative manner, always incrementing quantities of the products with the highest marginal benefit (note that our excel template compares three products at a time rather than all ten, so