Sport Obermeyer Case
1. How many items should Wally Obermeyer order during initial phase of production?
The main problem of Obermeyer company is that they have to deal with unpredictable demand to some point in time (before the trade show in Las Vegas) and limited production capacity after that point. We can see how difficult is to predict demand from the data in given in the exb.5: the initial forecast for parka A was 2500 units, while the actual season sales consist only 510 units. It means that the mistake in the initial estimation made up for 490%! But updated forecast, incorporating 20% of demand was improved to 575 units. That is why Wally Obermeyer should very carefully think about the initial order. He should take into consideration several reasons, two most important of them are the following:
· risk of overestimating/underestimating demand for each model;
· relationship between order size and average forecast for each model.
He may use the formula for single-period inventory model to estimate how many units of each item Obermeyer should produce.
We know that expected profit for each parka is 24% and expected loss is 8% from the wholesale price. For Rococo parka the profit is 27$ and lost is 9$.