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153 HW 3 - IEOR 153 HW 3 Eddie Lo 19483002 1 Sport...

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IEOR 153 HW 3 Eddie Lo 19483002 1. Sport Obermeyer A) The joint venture was established to coordinate production of Sport Obermeyer products in the Far East. Obersport was responsible for fabric and component sourcing for Far East production; materials were used in Tse’s factories or contractors in China. The benefits to this relationship is risk pooling in that Tse and Obermeyer were working directly with each other and did not have to deal with Far East suppliers and producers first hand. Obersport would acquire material and production of Sport Obermeyer’s goods, negating the need for a middleman. Tse would figure out where to produce or who should be subcontracted in the best interested of Sport Obermeyer. B) In Hong Kong, production is more expensive but can be done in smaller lot sizes, is faster, and is more flexible. In China, production is cheaper but needs to be done in larger lot sizes, slower, and less flexible than Hong Kong. These points should be kept in mind when deciding the production policy. Upon analysis, Wally may find that there is a point beyond the smaller minimum quantities in Hong Kong will yield a high return even though the unit cost to produce in Hong Kong is higher (due to the fact that he won’t have to pay for the extra units from larger quantities in China, which are less likely to sell). Wally should find the return of indifference for each style and produce in Hong Kong (in smaller quantities) only after this point.
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