Case Obermeyer
First steps
* Constraint:
* Initial production commitment: 10,000 units
* Assumptions:
* Better to wait for more information to complete the final order as forecasts become more accurate (Exhibit 5). Limit = 10,000.
* Forecast accuracy was the highest for those styles where the Buying Committee had the highest level of agreement (low σ).
* For the same σ it is less risky to produce styles with high m, since there is less probability of sample-leftovers.
* We don’t take into account the price of each parka.
* During this case, 2σ is used, since “the STD of demand was approximately twice the STD of the Buying Commitee’s forecast”.
Our approach
In order to calculate production for each parka we need a formula that plans production according to the average of the given forecasts, penalizes the uncertainty (deviation) of each parka and takes into account the constraint of 10000 units for production.
* If prices are not considered, the recommended order Q can be calculated by using the formula “mi-k2σi”.
* This formula takes into account expected demand (m) and uncertainty (2σ)
* One has to find k so that total production is equal to 10,000 units
* Since the sum of m (20,000) and the sum of 2σ (9,428) are known, by solving the equation one can find that k=1.0607.
Recommendation
* Solving the formula for each parka we come up with the following production plan
* The solution is consistent with our initial intuition that we should produce a lower percentage of the forecasted average demand for parkas with higher value of the ratio 2σ/m.
* We notice that the answer is the same if we use σ instead of 2σ.
* For “Stephanie”, Obermeyer might want to adjust production, to have a sufficient sample quantity.
PARKA | m | 2σ | 2σ / m | Production recommendation m-k2σ |
Assault | 2525 | 680 | 0,27 | 1803 |
Seduced | 4017 | 1113 | 0,28 | 2836 |
Entice | 1358 | 496...