For the exclusive use of M. Sepehri
NOVEMBER 5, 2009
VF Brands: Global Supply Chain Strategy
It was August 2009. Chris Fraser, President, Supply Chain International for VF Brands, was driving to his office just outside of Milan near Lake Como. On this sunny morning, the sparkling lake was a picture of tranquility, a striking contrast to the turbulence of the global apparel industry. In the shorter term, the economic crisis of 2008-09 was taking its toll on the entire business from the largest marketing companies to the smallest sub-contractors. But beyond the crisis, Fraser also foresaw long-term structural changes in the apparel business that could call for profound changes in the way VF, the world’s largest publicly owned apparel company, managed its supply chain. Fraser noted “For the past few decades, supply chain strategy in apparel was focused on chasing low cost labor from one country to the next. Today, apparel is produced just about everywhere on Earth, and we have basically run out of new “low cost” places to source production – until, of course, penguins learn to sew. We have to start finding cost saving by how we manage our supply chain.”
For some time, Fraser had been advocating that VF shift its supply chain strategy. VF currently procured apparel both from its own plants and from a large network of suppliers. Like its competitors, VF’s outsourcing strategy emphasized flexibility. Most suppliers in the garment industry received short-term contracts (typically a few months) to produce a specific garment in specific volumes. This strategy allowed garment marketers like VF to shift production among suppliers in different locations in order to optimize costs and to respond to changes in exchange rates, tariffs, and other cost factors. Many believed that this approach also provided strong incentives for suppliers to reduce costs in order to compete for future contracts. Fraser admitted that while this approach had worked well for many years, it had its drawbacks. The lack of coordination and trust between suppliers and apparel companies led to higher inventory and long lead times. In addition, Fraser felt that a company like VF, with its strong internal manufacturing capabilities, had expertise that it could share with suppliers in order to improve processes and reduce costs. He noted, “For products coming from our own manufacturing plants, we can move things through the supply chain in days instead of weeks. That allows us to respond very quickly to the market. That’s the value of having our own plants. But from a capital point of view, it may not make sense for VF to continue to build its own plants. What I would like to see is that we create supplier relationships that work as closely with us as our internal plants do.”
Fraser called this approach the “Third Way” sourcing strategy because it represented an alternative to both in-house manufacturing and traditional sourcing. Fraser had first pitched the “Third Way” strategy five years ago, but encountered skepticism from some groups within the
________________________________________________________________________________________________________________ Professors Gary Pisano (Harvard Business School) and Pamela Adams (Franklin College) prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
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