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VF Brand

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Javier Pereyra

on 3 April 2014

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Transcript of VF Brand

by James, Terrence, Javier & Matt
Presentation Outline
I. VF Brands
II. Apparel Industry
III. VF Operations Strategy
IV. Design Process
V. Third Way Supply Chain
Who has heard of VF?
Reading Glove and Mitten
Company, PA
Expanded into
Changed name to
Vanity Fair
Entered jeans business
with acquisition
of Lee Company
Acquired companies
to expand jeans
Committed to a global lifestyle company
Company Strategy
2000 - Heritage brands accounted for 90% of sales
2008 - Heritage brands represented only 56% of sales
Lifestyle 46%
Goal was to be 60% lifestyle, 40% heritage
Expand outside the United States
Russia, India, China
2001 - International sales constituted only 19% of revenues
2008 - grown to 30%
Expand direct to consumer business
Single brand stores
Web based retail
Further Growth
2008 Sales Revenue
by Coalition
revenue Channels
Organizational Culture
Preserve unique identities of brands
Keep design groups intact
Original locations
VF was highly decentralized
Vans operated out of Southern California
Napapirji operated out of Milan
Apparel Industry
Industry overview
Design, manufacture, and marketing of:
Personal luxury goods
Global sales (2008) - $1.3 trillion
Basic garments to super-premium suits and dresses
Merge of product lines (VF, Nike, etc.)
Highly Fragmented Market
No dominant player
Single digit market shares
Many competitors
Continuous brand investments

Large mass-retailers

Extensive outsourcing

Goal: vertically integrated supply chains

Vertical Integration
Tariffs and quotas made supply chain dysfunctional
Ex: Sweater sold in U.S.

One stop shop for apparel companies

Raw wool sourced in Australia
Spun in China
Dyed in Australia
Sweater assembly in China
Shipped to U.S.
Reduced lead times
Reduced costs

1992 - 49% of retail apparel sold in U.S.
1999 - 12% of retail apparel sold in U.S.
Tariffs and quotas diversified manufacturing
Walmart - largest jeans retailer in U.S.
Volume gave bargaining leverage

Economic Crisis 2008-2009
Total industry revenues fell 10%
VF sales fell 9% Y/Y in 2009
Earnings declined 30%
Strong cash position
Low debt
Bond rating: A
Untapped lines of credit

Long-term effect on suppliers
Small shops with thin margins would be crushed

Reported 60,000 closures in China alone
VF’s jean supplier shutting doors down

Volumes fell, and shutdowns ensued
15 million jeans per year on 3-mo. notice
VF Operations Strategy
Different Strategies

Internal manufacturing

Liz Claiborne
Ralph Lauren
Levi Strauss

Unique to retail industry
Competitors relied on outsourcing
Complete vertical integrations
VF Strategies
Began as an apparel manufacturer
Shifted in the late 1990s with North Face acquisition
Expansion of lifestyle brands and international markets led to Asian outsourcing
Internal plant closures
100% of lifestyle apparel, footwear, backpacks outsourced

Internal Manufacturing
Competitive Advantage
Among the best in the world

Lead time was much shorter than average


Huge investment building network

Carefully assess manufacturing capabilities
Allows acquisitions to be “plugged” into supply chain and enhance growth

Only negotiated with suppliers who followed international standards for worker’s safety

Ex: Napapirji
Supply Chain Problems
1.Complexity of the product line

2. Widely differing needs of brand coalitions
a. Held over 600,000 stock-keeping units
i. Defined by style and size

a. Product design vs. low cost
b. Must be able to match competitor lead times

Design Process
VF Prototypes
Items in store culminated a year prior
Design and marketing teams made judgments about appeal

1 year
Items in store culminated
Concepts and features added and dropped
Design and marketing teams
made judgments about appeal
Prices, volumes, and margins
Jan Apr
May Aug
Sep Dec
Feb Mar
Jun Jul
Oct Nov
Final decision would be made on entire 2009 fall season collection
Develop sourcing strategy

Locations were influenced by economics

Sample production

Raw materials, accessories

Trade quotas, tariffs

Define technical challenges, make modifications
Contracts negotiations are made
Long lead times made forecasting critical
Production cycle
Make adjustments to orders as forecasts are updated

Retailers expect collection arrival
Experienced costs on both ends
Excess of inventory - over-forecast
Too little demand
Stock-outs - under-forecast
Too much demand

Needed time to address flexibility concerns

Macro Environment
Economic Crisis of 2008-2009

Longer-term cost saving issues
Short-term turbulence

No place left to turn
Manage supply chain
Current Supply Chain
Produced apparel from internal plants and network of suppliers
Flexible outsourcing
Distribute production among different locations to minimize costs
Strong incentives to reduce costs for contracts

Lack of coordination and trust between suppliers and apparel companies
Higher inventory
Long lead times
Third Way Sourcing
Developed by Chris Fraser
Alternative to both in-house manufacturing and traditional sourcing

Experimented with limited suppliers
Pitched five years prior
Can it be implemented more extensively?
Third Way Supply Chain
Cut and Make
VF strike separate contracts for suppliers at each stage of the process

VF owned the inventory and suppliers paid for value added
VF coordinated flow of product
Maintained tight control over costs

Fabric, components, cutting, sewing, etc.
Package Sourcing
Single supplier took responsibility for entire process

Paid on a piece basis
VF did not have ownership over process
Used for lifestyle brands throughout Asia, Europe, and Northern Africa

Raw materials to finished goods and shipment
Quality and reliability
Costs were driven down by expansive supplier base
Low-cost sourcing met 10-15% margins
Needed to shift focus from low cost to efficiency
Lack of coordination and trust between apparel companies and their suppliers

Suppliers took on competitors to diversify risk
Suppliers never shared capacity, inventory, costs with apparel companies

No loyalty towards one another
Short-term contracts

Fear of losing bids

Mentality Shift

Competitive advantage

Manage the whole supply chain
Not from cutting costs
Derived from speed to market, material utilization, less work in process, lower cost to quality

Minimize investments in PP&E
Better invested in brands and retail operations

Inconsistent with management goals

Leverage internal technical expertise

Ex: Mexico
Gain greater control over supply chain without actually owning it

Transfer Mexican employees into Asia
Identified load container inefficiencies
Solution: develop guidelines for loading
Result: $2M savings

Third Way Sourcing
Halfway point between full integration and traditional outsourcing
Commit to several year contract with supplier
Non-compete clause
Supplier would set up production lines for VF products
Develop joint production schedule
Develop process improvements
Supplier would own factory and equipment
VF would use purchasing capacity to help supplier procure RM
Supplier would be paid on cost
plus basis
with a margin to meet ROA requirements

Dated back to initial pitch in 2005
Loss of flexibility in new approach
Sharing proprietary expertise with outside supplier
Not easy to replicate because it deals more with intellectual property than physical
Training employees the right way to do things
By 2009, formed five Third Way partnerships
Resistance met by existing suppliers

Staffing issues
Stubborn in their ways
New suppliers more easily convinced

Transport existing engineers across the world
Rigorously train new local employees

Ambitious international expansion goals
Third Way sourcing
Expanding internal manufacturing
Traditional Sourcing

What does VF do?
Our Recommendation
Continue production in Mexico
Source from China
Costs higher, but lower lead time
Third Way India-Morocco, India-Bangladesh
Manage costs more efficiently and slowly test out the true benefits of Third Way

Thank you

Any questions?
Full transcript