Case Analysis Chapter 6 VF Brands Global

Case Analysis – Chapter 6VF Brands: Global Supply Chain Strategy1 Xueyan Mou (88489) In-House Plant to Extensive Outsourcing VF was a traditional vertically integrated apparel company when it made jeans in its own plants, it was for which it had been known for. The company then went to an outsourcing strategy when it pursued a global marketing strategy featuring branded life style products. The change of strategy towards massive outsourcing was initiated for several reasons. The number one reason was that outsourcing to low cost countries around the world raised companies’ gross margin, as the production of garments was generally labor intensive and had low barrier to enter. It also saved companies extra costs (transportation and tax costs) by direct productions in sale target countries, especially with restriction of quota and tax tariffs. As a result of outsourcing, garments companies could focus more on its core business including garment designing and brand building. Global Supply Chain Challenge While what the majority of apparel companies were doing was to source where labor was in incredibly cheap, it was not going to be the differentiator anymore. VF needed to look for others 1 This case was prepared by Professor Roger A. Kerin, of the Edwin L. Cox School of Business, Southern Methodist University. Copyright © 2011 by Roger A. Kerin. 1 material utilization. as they usually needed to place the order 8 to 10 months prior to a particular season. and eliminate their risks and shortcoming as the same time. as companies could choose between a number of suppliers in different locations based on economic factors. as investments were better utilized and had high ROI when used in building brands and improving retail operations. and wouldn’t have enough time to add on more or cut down order by the time they received feedback from customers when the products actually hit the market. What Chris Fraser. Most contracts between apparel companies and apparel suppliers were short-term (mostly for one season). “Packaged Sourcing” also came with several risks that dragged VF away from higher efficiency of supply chain. Also it allowed apparel companies to put more energy and investment of human capital and money in more critical fields like brand building and retailing. Retailers suffered the costs of both excess inventory and stock-outs. Secondly. such as labor cost and transportation costs. or price-war of suppliers. and trade quota or tariff considerations to get cheapest price for finished goods.benefits like speed to market. However. lower inventories. Inflexibility of change was the first one. less work in process and lower cost to quality. with still being able to lower cost and minimizing investments in fixed plant and equipment. and suppliers needed 2 . “Packaged Sourcing” Outsourcing production to third parties as described as "packaged sourcing" had the benefit of low cost. President of Supply Chain International for VF Brands. should tackle was how to incorporate benefits from both traditional outsourcing and internal manufacturing. The apparel supply chains were very inflexible. lack of coordination/trust. And suppliers kept production information from the apparel companies to avoid it being used against them in the bidding. contract prices needed to be renegotiated each time. which made them invest little in process technology and productivity improvement. they usually tried to bid with as many companies as they could to diversify their risks. VF would be able to achieve: Volume forecast for a number of years instead of just a season in the case of traditional outsourcing.to re-bid for contract each season as companies were aggressively looking for even lower cost locations and always bargaining with suppliers for cheaper contracts. Fourthly. even if there is only a slight change to the existing design. If they were to encounter technical issues or problems. Third Way Sourcing Strategy The Third Way Sourcing was designed to be a halfway point between full integration and traditional outsourcing to make supply chain more efficient by building a true partnership with VF’s suppliers and integrating VF’s internal technical and supply chain expertise into external suppliers. Keeping contracts from taking competitors’ orders in the same category. kneeling down a clean deal with suppliers could be a time-consuming process. supplier often lacked the intention of process improvement. they generally added more labor or scheduled overtime. 3 . Garment contractors operated on razor-thin margins. as there was no pre-set price list for different designs each season. By building and signing contracts of long-term partnership (such as an agreement on production of a specific product line of VF). As no order guaranteed and frequent change of production targets for suppliers. Thirdly. while these companies were competitors for most cases. “If you think about speed to market. logistics services. I think we also need to focus on those first stages to see how we can shorten lead times. which is always one of the challenges of the supply chain. it also brought concerns including loss of flexibility. and administrative infrastructure to manage high efficiency of the supply chain process. labor supervision. because they lay in the design process. and thus VF could better invest its money in brands and retail operations. with investment in building. VF’s ambitious international expansion goals.Production lines dedicated to VF’s products. machinery.” The Third Way strategy had reached a critical cross-road. Recommendation – Sourcing Portfolio Perkins felt the real benefits of the Third Way strategy had not even been seen yet. Higher efficiency of investment resulting from division of work and letting the suppliers specializing in manufacturing management with the help from VF (such as getting lower purchasing prices of raw materials by utilizing VF’s purchasing capability). particularly for Asia. Even though we’ve seen all the benefits that Third Way Sourcing could bring. Only one-third is the time it takes to go from the order to the delivery to the store shelf. expanding internal manufacturing. or by simply doing more traditional sourcing. continued close of internal plants despite their strong 4 . equipment. They could do that by expanding Third Way sourcing. about two-thirds of the time is spent in the product development process. meant that they would need to bring on significant new capacity over the next several years. Flexibility from customized schedules and collaboration on process improvements. He commented. Further justified by financial results. Despite the objections. The qualified suppliers should be in good stand financially and in a steady economic environment. VF could actually utilize and let them participate in mentoring programs in which they could travel to new partner supplier sites and train local fresh graduate engineers and operators. and they persisted on the Third Way projects. sharing of VF’s hard-earned proprietary expertise with outside suppliers from other departments within VF. Fraser and Green didn’t treat these as real concerns as they only focused on using the skillsets of internal manufacturing to improve supplier performance in terms of cost. instead of riffing existing experienced engineers who had been working in VF in-house plants for years. on the condition that the suppliers were open enough to accept the new concept of “True Partnership” with VF. and VF could not have control of their overall financial and corporate management. 5 . In terms of staffing. quality. Therefore. selection of suppliers to partner with was the most critical task to accomplish.performance. and most importantly. The only problem to counter was the instability of external parties as most of them were small sized and sensitive to economic movement. and speed without transferring VF’s proprietary of equipment. Third Way actually achieved lower net cost and shorter lead-time in both Bangladesh and Morocco in India.