Oid 673 Global Supply Chain Management - Case Analysis

OID 673 Global Supply Chain Management- Case Analysis

VF Brands: Global Supply Chain Strategy

The Financial crisis of 2008-09 had greatly affected the international apparel industry and VF Brands, being the world’s largest publicly owned apparel company at that time had to make changes in its supply chain strategies in order to better position itself to thrive in this industry. Fraser knew that the traditional strategy of finding low-cost regions for sourcing was no longer feasible and VF could gain competitive advantage by identifying cost saving strategies in the way their supply chain is managed.

VF was known for its unique supply chain operations strategy that used a combination of highly skilled internal manufacturing capabilities and flexible outsourcing contracts to meet customer demands. However, with the expansion of VF into lifestyle brands and international markets, its existing manufacturing infrastructure was not suited to handle production and VF had to start outsourcing operations in Asia. This gave rise to the two strategies VF employed at that time which included “cut and make” contracts and “packaged sourcing” contracts. Despite achieving improved efficiency and cost savings, Fraser realized that their current supply chain could be made more efficient by bridging the lack of coordination and trust between apparel companies and suppliers. This idea gave rise to the “Third way” sourcing strategy based on longer contracts and creating supplier relationships that worked as closely as their internal plants.    

Third Way sourcing strategy as an alternative to VF’s current sourcing strategies

The Third way sourcing strategy was designed to be a midway point between conventional outsourcing and full integration to improve supply chain efficiency by building long-lasting partnerships with VF’s suppliers and integrating VF’s internal technical and supply chain expertise with its external suppliers. The main benefits of this strategy include lean inventory, reduced lead times and minimized production costs. With the execution of this strategy VF could achieve:  

• Reduced labor costs, as the supplier produces goods instead of an internal VF plant and improved production process as VF will provide the supplier with its internally developed techniques.
• Volume forecast for many years instead of a single season in the case of traditional sourcing and flexibility from customized schedules.
• Production lines dedicated to VF products with investments in machinery equipment, labor supervision, logistics services and administrative infrastructure thereby increasing efficiency of the supply chain process.
• Reduce supplier risk and uncertainty as the supplier will get long-term contracts. This will also reduce the frequency of renewing contracts leading to a decline in transaction costs for both VF and its suppliers.
• Suppliers can get lower purchasing price for raw materials by utilizing VF’s purchasing capability and VF can invest its saved capital in improving brand advertising and retail operations.
• Building trust among suppliers reduces the risk of losing contract in the event of minor disruptions as VF can immediately assess the situation and remove deficiencies.

The Third way strategy being at crossroads between the other two strategies has some similarities. Cut and make contracts utilized VF’s internal technical expertise to produce goods which the Third way strategy was also using, with the minor exception being that the supplier leverages VF’s internal manufacturing knowledge for production. Packaged outsourcing gave the entire responsibility to the supplier from production to shipping and had the benefit of low cost as VF could choose between a number of suppliers in different locations based on economic factors, transportation costs, labor costs and tariff considerations. The Third way strategy also gave sole responsibility to the supplier thereby reducing its manufacturing cost but differed from packaged sourcing by taking the responsibility of making certain investments in specialized equipment and capital when necessary. Despite the advantages mentioned, the Third way strategy also brought concerns regarding loss of flexibility, closing of internal plants despite strong performance, transfer of talent to external suppliers and sharing of VF’s propriety expertise with its suppliers. These minor barriers should also be considered when comparing the profitability of each approach.