Levi Strauss and Co.Case Study

Purchasing and Supply Chain ManagementTeacher : John Hegarty

Presented by :Valerio CataldoCezara GhebosuAntonella Liotine

IPAG BUSINESS SCHOOL PARIS

It is a privately held clothing company of denim jeans.

Founded in 1853 by Levis Strauss.

Organized intro three geographic divisions : San Francisco ,Brussels and Singapore.

Re-invention of jeans through the use of different fabrics and cuts large variety of products.

General Background

Today Levi’s sells on average 800 millions of jeans per year ( primary product)

Red Tab jeans offers traditional cuts.

Silver Tab jeans define fashion looks with a background of quality.

Levi’s jeans expanded its fashion design not only in men and women apparels, but also in kids wear.

Products

Levi’s

Men wear

Tops

Shirts

Jackets

T-shirts

Vest

Bottom

Underwear

Jeans

Women Wear

Jeans

T-shirts

Jackets

Skirts

Our specification: Less water for Levi’s Jeans

During the production process, a typical pair of jeans are “finished” in large washing machines and dryers to create a unique look. This campaign concerns a significant water reduction in the finishing phase, (washing) up to 20%.

Some details:

On average a pair of jeans requires 8800 lt/w and 800 gr/c.

20% consists of 1760 lt/w per jeans as saving.

Reducing the number of washing machine cycles by combining multiple wet cycle processes into a single wet process

Incorporate ozone processing into the garment washing

Removing the water from the stone wash.

«Sometimes, the way to achieve a more sustainable design is to rethink a traditional process and find a way to do it better.»

That is a process innovation related to an ecogreen business phisolophy.

How to get it?

Value Delivery System

Less water(washing)

About cotton we have 4 main phases: the planting, the growing care,the picking and dividing cotton from the rest of the plant. ( leaves and sticks)

About cotton manufacturing we have first the transformation of cotton in thread ( spinning) and then the change in the colour (dyeing)

Jeans take shape here in the fabric manufacture through the weave of the threads and then all other phases concerning the cutting.

Then jeans are made up thanks to other phases regarding the washing and ironing.

Jeans to be available to the final customers bear 7 external transportations.

Some explanation(value delivery system)

Price building

1. All materials and labor have an impact on price equal to 8,12$ ( in Dhaka factory)

2. The assembly line takes an average of 20 minutes to complete a pair of jeans

3. Then jeans are packed and sent to Chittagong Port ( 152 miles from the factory)

4. There the jeans are shipped to US ( the average journey takes 30 days) and the price increases ,becoming 8,42 $

5. customs: the US import duties on a pair of jeans are 16,6% of landed cost. So the price becomes 9,82$

6. Jeans are repackaged for the distribution at the warehouse and then these are sent to a store at 12,29$

7. The average retail markup is 300%8. Your jeans will cost you at least 46,87$ ( final price)

Value Chain

30%

15,7%

32,3%

22%

Inbound LogisticsThe overall cost leadership strategic management of Levis is exhibited in its lean and agile inbound logistics function. The company uses its leading market position and economies of scope as key bargaining powers to achieve low costs from its suppliers.

Operations ManagementLevi’s has been praised by a number of supply chain management critics for its effective use of IT systems that facilitate the company’s low cost leadership strategy. According to Levi’s annual report (2012), the company has invested over £76 million in streamlining its operations through their third generation ERP(Enterprise Resource Planning) solution for the company. This company -wide ERP system has also facilitated the minimization of stock holdings within the company.

Outbound LogisticsLevi’s holds leadership position in online and offline jeans retail segments, which is due to its efficient and effective outbound logistics. The company has developed a range of store formats and types, which are strategically placed to achieve maximum customer exposure.

Marketing and SalesSocial and Environmental Concerning programs like “Less Water” and “Better Cotton” are being introduced through information technology advances which dissuade the customers from switching over to their competitors.

ServicesLevi’s has been pursuing a new strategy of cost leadership and differentiation, which has led to an increased importance placed on customer service. This one is exhibited through the development of “Make to order “ jeans, which involves young sailors and stylists who would fulfill each customer’s taste, making him/her feel comfortable and unique.

Value chain (2)

Suppliers criteria selection

In general all the suppliers are chosen by Levi’s on the basis of their quality levels but also by considering the observance of workers’ rights and human conditions.

Main selection criteria :1. Terms of engagement requirements2. Price and quality standards3. Delivery and capability 4. Lead time requirementsMoreover Levi’s prefers to maintain long last

relationships with its suppliers. Nevertheless suppliers have a lower bargaining power then Levi’s.

The main distribution channels are:1. Flag stores ( they sell only the Levi’s brand)2. Franchised stores ( shops that sell many

brands on the basis of a contract which give them this right)

3. Internet ( the online shop, which represents only the 10% of sales)

All these channels allow to Levi’s to obtain the largest distribution cover and so be present everywhere .

Distribution channels

Levi’s has a straight rebuy situation since it deals with routine products ( as cloths). Here the problem is related to the handling of logistic and administartive costs of these kind of products.

Levi’s in order to cut them uses electronic catalogues, internet ordering, electronic payment and so on. ( E-procurement)

Since both , product complexity and commercial uncertainty ,are low, the buying decision is purchasing department dominant.

Purchasing situationand decision-making process

Purchasing quantitiesExpected qualityPricing and volume discountsDelivery timeLegal responsabilities

Elements of Supply contracts

Levi’s uses the supply chain KPIs to track the current shipments , monitor inventory level and to ensure that all orders are accurated.

1. Order tracking ( monitor the status and accuracy of orders that are shipped out)

2. Rate of return KPI ( mesures the rate at which shipped items are returned )

3. Inventory turnover KPI ( measures how offen the organization is able to sell the entire inventory in a given year)

Some KPI

Poorly performing suppliers are warned that they are in danger of having the production orders reduced unless the are able to improve their TOE performance.

If performance does not improve, the production orders will be reduced untill the suppliers can bring it to an acceptable level.

If performance still does not improve the relationship will be ended.

Penalties

Levis Strauss considers reputation important for three main reasons:

1. Corporate reputation is a global asset2. If managed properly it can be a competitive

advantage.3. Reputation management can reinforce the

image of Levi Strauss products and advertising.

“There is only one clientthe reputation of our organization”

Anderson, J. (2009). Levi Strauss & Co. Annual Report.

Camp, S., Clark, G., Duane, L., & Haig, A. (2010). Life Cycle Analysis and Sustainability Report.

YouTube video about price building Levi’s Less water campaign Preece, S., Fleisher, C., & Toccacelli, J. (n.d.). Building

a Reputation Along the Value Chain at Levi Strauss. Retrieved from www.toccacelli.com: http://www.toccacelli.com/pdf/Building-a-Reputation.pdf

 

Sources