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.)
- You must place orders for at least 50% of the annual demand.
- There is a limited production capacity (only about 50% of total). The rest is available after the Las Vegas show.
- The earlier capacity should be used to produce the least risky items.
- What is risk in this context?
- Items with high variability in demand (can result in large overstocking).
- Items that are very expensive (overstocking can be very expensive).
- For this exercise, we are not considering the price. So, focus only on the variability.
- Also focus on the minimum production requirement for any item – 600 units.
- Variability of demand is also called Coefficient of Variation (Std. Deviation/Mean).