Question

Harvard business case "Sports Obermeyer LTD"

Using the Sample data given in the table "Sample Buying Committee Forecasts" make a recommendation for how many units of each style Wally should make during the initial phase of production. Assume that all of the 10 styles in the sample problem are made in Hong Kong and that Wally initial production commitment must be at least 10,000 units. Ignore price differences among styles in your initial analysis
Can you come up with a measure of risk associated with your ordering policy? This measure should be Quantifiable
Repeat your methodology and assume now that 10 styles are made in china. What is the difference (if any) between the two initial production commitments?
What operational changes would you recommend to Wally to improve performance?
How should Wally think (both short and long term) about sourcing in Hong Kong versus China? What kind of sourcing policy do you recommend?

Answer 1

The best production method given the cost of labor at $100/unit and capital at $400/unit is Method 1, with a total cost of $9000. If the cost of labor increases to $200/unit, Method 1 remains the most cost-effective option with a new total cost of $14000.

Step-by-step explanation:

To determine the best production method based on cost we need to calculate the total cost for each method. We are given the cost of labor, which is $100/unit, and the cost of capital, which is $400/unit. Using these figures, we can calculate:

• Method 1: Total Cost = (50 units of labor × $100/unit) + (10 units of capital × $400/unit) = $5000 + $4000 = $9000
• Method 2: Total Cost = (20 units of labor × $100/unit) + (40 units of capital × $400/unit) = $2000 + $16000 = $18000
• Method 3: Total Cost = (10 units of labor × $100/unit) + (70 units of capital × $400/unit) = $1000 + $28000 = $29000

Therefore, the best production method initially is Method 1, with the lowest total cost of $9000.

If the cost of labor rises to $200/unit, then we need to recalculate:

• Method 1: Total Cost = (50 units of labor × $200/unit) + (10 units of capital × $400/unit) = $10000 + $4000 = $14000
• Method 2: Total Cost = (20 units of labor × $200/unit) + (40 units of capital × $400/unit) = $4000 + $16000 = $20000
• Method 3: Total Cost = (10 units of labor × $200/unit) + (70 units of capital × $400/unit) = $2000 + $28000 = $30000

With the increased labor cost, Method 1 still remains the most cost-effective. It's essential for the company to continuously evaluate changes in labor and capital costs to maintain cost efficiency.