Operations Management Coursework
ECCO Shoes Global Value Chain
By Arif Harbott
EMBA September 2010
Lecturer: Dr. Canan Kocaba
Deadline: 8th August 2011
Word Count: 2,497 (excluding contents, footnotes, graphics and appendices) Page 1 of 13
Page 1 of 13
Page 1 of 13
Table of Contents
ECCO’s operations strategy
Global vertical integration
Further operational execution examples
ECCO’s global supply chain
Drivers and trends in the industry
Supply chain risks and mitigation strategies
Intellectual property breaches
Inventory problems with changes in demand
Delays in material flows
Faster lead times
Appendix 1 – Global supply chain
Appendix 2 – Supply chain risk analysis
Appendix 3 – Supply chain complexity
Page 2 of 13
1 ECCO’s operations strategy
ECCO follow a differentiation business strategy producing the highest quality shoes and they use their operations as one of their main points of competitive advantage. ECCO’s operations strategy is top-down (i.e. formed in pursuit of its business strategy) and operations-led (i.e. based on the resources and capabilities within its operations). They prioritise quality and reliability; the supply chain is configured to produce in accordance with specification and without error.
ECCO has a very atypical operations strategy compared with their industry peers. Unlike their “branded marketer” competitors they produce their own materials and manufacture 80% of their own products in factories around the world. Owning and controlling the entire value chain gives them huge flexibility and allows them to maintain the highest levels of quality. Leong et al. (1990) state that operation strategy consists of the key decision areas concerned with the structure and infrastructure of operations:
Capacity: The majority of the manufacturing capacity is located in Asia due to the low rates of labour. However these facilities have long lead times and make the supply susceptible to changes in customer demand. There are no manufacturing plants in USA, which is one of ECCO’s major markets.
Process technology: This is a key asset to the company and the core of ECCO’s product strategy was shoes based on “direct injection”. Competitors tried to copy the direct injection technique, however, ECCO performed many small tasks differently throughout the process, which improved quality and made it hard to imitate.
Supply network: ECCO operates a fully integrated value chain manufacturing 80% of its products in-house. The remaining 20%, mostly shoes with very thin soles, are outsourced, as they do not benefit from ECCO’s core technology.
Facilities: An independent configuration of global facilities with tanneries and fullscale manufacturing facilities in Europe and Asia. Distribution centres are located in the major markets of Europe and United States. The decision to open facilities in China is to access cheap labour and to serve the growing Chinese domestic demand.1 Research and development is primarily carried out in Denmark.
Cost base: Due to the labour intensive nature of show manufacturing ECCO locate their production facilities in cheap labour countries. However there is then a trade-off in lead times and more stock must be held in local distribution centres, which increases working capital.
See Appendix 1 for a full break down of supply chain facilities in each country....
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