Levis Case Assignments | Online Homework Help
please answer all 5 questions in 3-4 sentences
- What Value Discipline does Levi’s focus on? For how long have they done so?
- What does the Personal Pair initiative represent for the company? How important do YOU think it is to company growth? What evidence supports your position?
- How does the Personal Pair operation differ from Levi’s mainline operating model?
- In what ways does Levi’s Operating Model enable the company to act? In what ways does it constrain action?
- As the Entrepreneurial Leader accountable for the PP initiative, what would you recommend to Levi’s management?
Levi’s “Personal Pair™” Jeans (A)
In 1995, women’s jeans was a $2 billion fashion category in the US and growing fast. Levi Strauss was the market leader, but their traditional dominant position was under heavy attack. Standard Levi’s women’s jeans, sold in 51 size combinations (waist and inseam), had been the industry-leading product for decades, but “fashion” was now taking over the category. Market research showed that only 24 per cent of women were “fully satisfied” with their purchase of standard jeans at about $50 per pair.
“Fashion” in jeans meant more styles, more colours, and better fit. All of these combined to create a level of product line complexity that was a nightmare for manufacturing-oriented, “push-based” companies like Strauss. By 1995, Strauss operated 19 Original Levi’s retail stores across the country (2,000 to 3,000 square foot mall stores) to put them in closer touch with the ultimate customers. But this channel was a very small part of their overall $6 Billion sales which were still primarily to distributors and/or independent retailers. Exhibit 1 shows Levi’s financial footprint.
Strauss was as aggressive as most apparel manufacturers and retailers in investing in process improvements and information technology to improve manufacturing and delivery cycle times and (pull-based) responsiveness to actual buying patterns. But the overall supply chain from product design to retail sales was still complex, expensive and slow. In spite of substantial improvements in recent years (including extensive use of “EDI”), there was still an eight-month lag, on average, between ordering cotton fabric and selling the final pair of jeans. The industry average lag was still well over twelve months in 1995.
The financial footprint for one pair of women’s jeans sold through the normal wholesale channel compared to one pair sold through an Original Levi’s store is summarized in Exhibit 2. Although the retail channel was less profitable for Strauss, it was seen as an “investment” in understanding end-user customers better.
As an experiment in an alternative value chain concept, Strauss introduced “Personal Pair”™ kiosks in 4 of its Original Levi’s stores in the Fall of 1994. The experiment was made possible by a partnership with Custom Clothing Technology Corp. (CCTC), a small Newton, MA-based software firm specializing in client/server applications linking point of sale custom fitting programs directly with single-ply laser cutting programs in apparel factories. The new process operates as follows:
- The “Personal Pair”™ kiosk is a separate booth in the retail store, staffed by specially-trained sales clerks and equipped with touch screen PCs.
- A sales clerk uses tape to take three measurements from the customer (waist, hips and rise) and record them on the touch screen. There are 4224 possible combinations of these three measurements.
- The computer flashes a code corresponding to one of 400 prototype pairs which are stocked at the kiosk. The sales clerk retrieves the prototype pair for the customer to try on.
- With one or two tries, the customer is wearing the best available prototype. Then the sales clerk uses the tape again to determine the exact measurements for the customer (4224 possible combinations) and to note the length required (inseam).
- The sales clerk enters the 4 final measurements in the touch screen and records the order. Initially, the system is available only for Levi’s 512 styles, but 5 colour choices are offered in both tapered and boot cut legs.
- The customer pays for the jeans and chooses either Fed Ex delivery (a $5 extra charge, per pair) or store pick up. Delivery is promised in not more than three weeks.
- There is a money-back guarantee of full satisfaction on every order.
Each Personal PairTM customer order is transmitted by modem from the kiosk to CCTC where it is logged and immediately retransmitted directly to Levi’s factory in Mountain City, TN where each pair of jeans is individually cut using a computer-controlled cutting machine. In the regular supply chain, patterns are cut from rolls of denim in stacks 60 layers thick.
After cutting, each pair is hand sewn in the regular manufacturing line. Jeans are also normally sewn one pair at a time, but there is lots of WIP at each process stage and several identical pairs are made in sequence to minimize change-over time. Each Personal PairTM is individually inspected and packed for shipment.
Each Personal PairTM garment includes a sewn-in bar code unique to the customer for easy re-ordering at the store where the bar code is on file in the kiosk.
Exhibit 3 here is a summary of the normal supply chain for jeans sold through an original Levi’s store. The exhibit includes some additional information about inventories, property and equipment investment, and uncertainties along the chain.
Average Financial Footprint 1993-1995
(A very successful company, financially!)
Profitability Analysis of Women’s Jeans
Wholesaler Channel Estimate
|Original Levi’s Store Channel Estimate|
|Operations, per pair|
|Gross Revenue||$35||$50||$50 retail price with a 30% channel margin|
|Fewer markdowns||(3)||(5)||Average channel markdowns of $5; 60% born by the manufacturer|
|Mfg. Conversion||5||5||High labour content since all jeans are hand-sewn|
|Distribution||9||10(1)||Large, wholly-owned distribution network to dealer warehouse|
|Gross Margin||13 (40%)||25|
|S,G, & A||9 (2)||19 (3)|
| Profit before Tax
Investment, per pair
|Inventory||$4 (4)||12 (5)|
|Less A/P||(1)||(1)||Reflects 27 days of payables outstanding, with rounding|
|Accounts Receivable||4 (6)||0 (7)|
|Net Working Capital||7 (8)||11|
| TOTAL Investment
Notes for Original Levi’s Store Channel Estimates
- Add $1 for retail distribution, warehouse to store
- At $9, a little higher than overall S, G & A % of 25% due to supply chain problems with women’s jeans
- The additional $10 reflects an average 22% for all store expenses for retail clothiers
- Reflects 77 days, rounded to nearest whole dollar
- Reflects an additional 163 days of retail inventory, for a total of 240 days
- Reflects 51 day collection period, with rounding
- Retail customers pay at the point of purchase
- Reflects 4.6 turns
- Reflects a sales to fixed asset turnover of 5.33
- Doubled due to retail distribution investments
- $2.4M per store for 120,000 pairs sold per year
Levi’s Blue Jeans Supply Chain