Case Analysis Chapter 6 VF Brands Global

7/25/2019 Case Analysis Chapter 6 VF Brands Global

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Case AnalysisChapter 6

VF 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

1This 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.


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benefits like speed to market, material utilization, lower inventories, less work in process and

lower cost to quality, with still being able to lower cost and minimizing investments in fixed

plant and equipment, as investments were better utilized and had high ROI when used in building

brands and improving retail operations. What Chris Fraser, President of Supply Chain

International for VF Brands, should tackle was how to incorporate benefits from both traditional

outsourcing and internal manufacturing, and eliminate their risks and shortcoming as the same

time.

Packaged Sourcing

Outsourcing production to third parties as described as "packaged sourcing" had the benefit of

low cost, as companies could choose between a number of suppliers in different locations based

on economic factors, such as labor cost and transportation costs, and trade quota or tariff

considerations to get cheapest price for finished goods. 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.

However, Packaged Sourcing also came with several risks that dragged VF away from higher

efficiency of supply chain. Inflexibility of change was the first one. The apparel supply chains

were very inflexible, as they usually needed to place the order 8 to 10 months prior to a

particular season, and wouldnt 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. Retailers

suffered the costs of both excess inventory and stock-outs.

Secondly, lack of coordination/trust, or price-war of suppliers. Most contracts between apparel

companies and apparel suppliers were short-term (mostly for one season), and suppliers needed


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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. And suppliers kept

production information from the apparel companies to avoid it being used against them in the

bidding. As no order guaranteed and frequent change of production targets for suppliers, they

usually tried to bid with as many companies as they could to diversify their risks, while these

companies were competitors for most cases.

Thirdly, kneeling down a clean deal with suppliers could be a time-consuming process, as there

was no pre-set price list for different designs each season, contract prices needed to be re-

negotiated each time, even if there is only a slight change to the existing design.

Fourthly, supplier often lacked the intention of process improvement. Garment contractors

operated on razor-thin margins, which made them invest little in process technology and

productivity improvement. If they were to encounter technical issues or problems, they generally

added more labor or scheduled overtime.

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

VFs suppliers and integrating VFs internal technical and supply chain expertise into external

suppliers. By building and signing contracts of long-term partnership (such as an agreement on

production of a specific product line of VF), VF would be able to achieve:

Volume forecast for a number of years instead of just a season in the case of traditional

outsourcing;

Keeping contracts from taking competitors orders in the same category;


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Production lines dedicated to VFs products, with investment in building, machinery,

equipment, labor supervision, logistics services, and administrative infrastructure to

manage high efficiency of the supply chain process;

Flexibility from customized schedules and collaboration on process improvements;

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 VFs purchasing capability), and thus VF

could better invest its money in brands and retail operations;

RecommendationSourcing Portfolio

Perkins felt the real benefits of the Third Way strategy had not even been seen yet, because they

lay in the design process. He commented, If you think about speed to market, which is always

one of the challenges of the supply chain, about two-thirds of the time is spent in the product

development process. Only one-third is the time it takes to go from the order to the delivery to

the store shelf. I think we also need to focus on those first stages to see how we can shorten lead

times. The Third Way strategy had reached a critical cross-road. VFs ambitious international

expansion goals, particularly for Asia, meant that they would need to bring on significant new

capacity over the next several years. They could do that by expanding Third Way sourcing,

expanding internal manufacturing, or by simply doing more traditional sourcing.

Even though weve seen all the benefits that Third Way Sourcing could bring, it also brought

concerns including loss of flexibility, continued close of internal plants despite their strong


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performance, and most importantly, sharing of VFs hard-earned proprietary expertise with

outside suppliers from other departments within VF. Despite the objections, Fraser and Green

didnt treat these as real concerns as they only focused on using the skillsets of internal

manufacturing to improve supplier performance in terms of cost, quality, and speed without

transferring VFs proprietary of equipment, and they persisted on the Third Way projects.

In terms of staffing, instead of riffing existing experienced engineers who had been working in

VF in-house plants for years, 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.

Further justified by financial results, Third Way actually achieved lower net cost and shorter

lead-time in both Bangladesh and Morocco in India. The only problem to counter was the

instability of external parties as most of them were small sized and sensitive to economic

movement, and VF could not have control of their overall financial and corporate management.

Therefore, selection of suppliers to partner with was the most critical task to accomplish. The

qualified suppliers should be in good stand financially and in a steady economic environment, on

the condition that the suppliers were open enough to accept the new concept of True

Partnershipwith VF.

Case Analysis Chapter 6 VF Brands Global

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