Supply Chain Strategy in VF Brands - Essay Example

?Supply chain strategy in VF Brands Although many factors go into product manufacturing, services to the end s will always remain a primary motive. Today’s costumer demands, products and services on right time with perfect quality, and it is here the supply chain management comes into the picture. From the earlier centuries itself, production of goods useful for the humans is an ongoing process and organizations are organized to continue the ongoing process into complete and successful process. For the process to be a complete and successful one, the important link in the chain of the organization, which ‘joined’ all the process, is Supply Chain Management. This role of SCM in organizational functioning continues to evolve, with the incorporation of advanced technologies and other innovations. These innovations optimize the SCM, thereby reaching the product and services to the clients aptly, thereby improving the efficiencies of the organizations. It will be applicable for all organization and that includes even the fictional ones like VF Brands global supply chain strategy. From the early times, VF brands has maximally used a mix of in-house manufacturing and as part of SCM, traditional arms-length sourcing arrangements. However, with certain problems arising in these sections, and importantly with many opportunities in the anvil, the company wants to try a third approach. Through this, Third approach, VF wants to build a closer cooperation and partnerships with its supplier base. Thus, the main purpose of this 'third way' approach is to create and actualize a relationship with its suppliers, which combines accomplishment of its goals, even while maintaining flexibility in sourcing. So, this paper will analyze this case of VF Design, focusing on the challenges of the ' Third-way Supply chain strategy, and then advising Chris Fraser on supply chain strategy. Background about Supply Chain and how it crucial for VF Brands The concept of supply chain management (SCM) encapsulates methods and procedures for the comprehensive configuration, planning and control of cross business and company wide supply chains (Thaler, 1999; Walther and Bund, 2001). Supply chain management has evolved into a major business issue which when handled with correct magnitude leads to better financial results in a company. It largely deals with procurement and sales issues in an organization. Effective supply chain is a major requirement in all firms in order to remain relevant and competitive in the current market. Supply chain management can be defined as the process of finding raw materials for production of goods and services, manufacturing of the goods, transfer of the manufactured products to the customers including the middle-men and continued flow of communication among the parties involved. “Supply Chain Management is the designing and management of the process that will ensure that the Supply Chain will be effectively carried out across organizational boundaries so as to meet the requirements of the end customer.” (supplychainmanagement.in).This is applicable to VF Brands as well, as it has a current sustaining supply chain, but wants to develop a even more stronger and effective one. Supply chain management covers the flow of information, goods and finances between the organization and the supplier. All these flows are bidirectional that is, the flow can be from an organization to a supplier as well as a v to the organization. Figure 1.0 category of flows in supply chain management. A supply chain cannot be fully effective if there is no communication between the organization and the supplier. This communication can be in form of orders, feedback from customer, inquiry, announcement of new offers by the supplier, etc. Communication is a vital tool to maintain good business and client. A customer’s feedback can give a manufacturer new idea on improvement of a particular product, a customer can learn about a new product from the manufacturer via this critical mode. Business can not be complete without exchange of goods and services. This is the simple definition of trade. Goods can be transferred from the supplier to the customer and the converse of this statement is also true. A customer can order for goods from a supplier in order to consume or resale. Upon receiving these goods, a customer might realize the goods sent contained the wrong brand in them, this will imply that the customer has to send the goods back to the supplier or manufacturer, depending on their source. Supply chain management can be identified as having five basic components namely planning of strategies, sourcing for raw materials, making of goods and services, delivering of the manufactured goods and returning. Figure 2.0 supply chain management components Major issues faced by VF Brands The first major issue that is being faced by VF Brands is related to his outsourcing strategy as part of its supply chain management. Although, they manufacture sizable portion of the apparel products in-house, they also outsource 70% of its manufacturing process. According to the Pisano and Adams (2009, p.1) “the reasons for outsourcing were the low cost labor, many small manufactures competing for contracts leading to a price decrease, and large scale production”. With this outsourcing strategy, VF Brands mainly focus their efforts on marketing and selling the products, minimally thinking about the production process. “Most apparel companies typically concentrated on design and marketing, and generally performed little or none of their own production, much of which had been transferred to low cost countries around the world.” (Pisano and Adams 2009). Even then, it produces certain products by itself, when there is need for quick turnaround time. However, with technology and innovation aiding a lot, VF Brand and Chris Fraser are thinking about going in the Third Way. The other main issue VF brands face because of the current outsourcing strategy of outsourcing to suppliers in far away Asia, is that, it is not able to get the finished products quickly. Thus, time is a key issue here, VF is not able to follow the demand and trends, and thereby market the product. Without clear cut deadlines on when the finished product will arrive from its supply chains, VF is not able to launch the marketing campaigns aptly. Importantly, when a particular product sells fast, and a shortage arises in it, and if that particular product or apparel wear is still in the production or even in the transportation stage, VF will not be able replenish it quickly. Because of these issues, VF is producing those products in-house. The other issue in the supply chain is, VF does not depend on one particular integrated supplier, instead as it outsource works to different suppliers, who in turn will get raw materials from different suppliers, the process gets elongated, and thereby delays the reaching of finished products to its place. The firm will plan and strategize the ways and methods of manufacturing goods that will meet their customers’ requirements as well as minimize the cost of producing these goods and services. VF Brands does this process aptly because it has good options regarding the production process. Even while outsourcing major part of the production process; it has an in-house production facility to carry out crucial and other important works. However, with minimal focus on production, it indulges in good planning including marketing planning for its products. Sourcing involves in looking for better and minimum cost raw materials to be used in production of goods. The nature and cost of raw materials will highly affect the quality of goods produced by the company or even by the supplier, as well as the cost used in production. A better bargain on the cost of raw materials will give the manufacturer a ground of giving his/her customers a good price tag. In the case of VF Brands, its suppliers source their products from various locations. Although the cost of their sourcing is not available to VF Brands, the main fact that interests it, is the low cost of production. However, there is fear that as the suppliers offer low cost, they could compensate that by purchasing low quality raw materials. So, VF Brands should be careful in focusing on the quality, even while expecting a lower price. The other issue, which VF Brands faces in the supply chain, is that it does not have long term contract and trusting relationship with any one supplier. Most of the contracts were short term and this lead to trust issues with the suppliers. Only if the suppliers are provided continuous orders, with a long term vision, they can have trust and put their best efforts. But, in the case of VF, they continuously shift their suppliers to the ones, who offer the lower prices. Although, its is reducing VF’s production cost and positively impacting its financial results, it may not work in the long run. If VF mainly focuses on low cost, in course of time, quality aspects could suffer, as suppliers will also think of giving low quality products for low costs. So, SF has to seriously think about building long term relationship with any one of the optimal supplier or even a group of optimal suppliers. The other issue is, sharing of information and other management practices with the suppliers. Always, outsourcing companies including VF may provide just the order, without thinking about the technology or workforce used in the supplier units. As the production and apt delivery of finished products will be going on without any trouble, they may not focus on these issues. However, the fact is, if there is better coordination, it can lead to better productivity. In the case of VF brands, this is lacking and so focus has to more on these coordination issues and building long term relationship with the suppliers Recommendations VF Brands and in particular Chris Fraser have tough task when the start the process of restructuring their global supply chain. As the current outsourcing strategy of sending 70% products to Third World Countries and manufacturing the remaining certain products in-house strategy is working, without any major problems. So, the issue here, these current scenarios has to be optimized, so that the future scenario regarding the supply chain is the best case scenario. For that, the key thing is making the current outsourcing supply chain more stronger and effective. In that direction, VF Brands can diversify and at the same time customize its supply chains, according to the needs of the products. That is, although, VF Brands mainly outsource their production process to the Asian countries, it should also consider outsourcing their productions to countries in a nearby geographical area. Extending their supply chains in their nearby geographical area in other geographical territories is a key necessity for any organizations, particularly organizations in the Apparel industry. This will aid the organizations to bank on a wide variety of suppliers, so even if one supplier or more suppliers in a particular geographical area fails, they can fall on another supplier in another unaffected area. “The largest apparel companies that sold products in all major global markets thus found it advantageous and less risky to have an extremely broad geographic base of suppliers so that they could shift production in response to changes in tariffs and quotas.” (Pisano and Adams 2009). This would greatly aid VF brands to reduce the turnaround times, by reducing the time taken for transportation. Although, all the countries in its nearby geographical area may not have cheap labor, it has to focus and find a country, which an offer cheap labor. One of the main necessity of outsourcing is cheap labor, however with the countries in the North America and also quite a few countries in South America not offering low cost and at the same time skilled labor, VF had to focus on Asian countries. However, there are options of VF Brands in its geographical area itself in the form of Mexico. So, VF as part of the diversification of the supply lines, can think of outsourcing certain products to supplier units, closer to its location, for example in South American countries like Mexico. Mexico is known for manufacturing quality Jeans, and although VF brands is outsourcing Jeans production to Mexican suppliers, it can further expand that relationship to other products, which has high demand and needs quick turnaround time. By training with the aid of experts and also by coaching or mentoring with the aid of coaches or mentors, the supplier units in Mexico and also in Caribbean countries can be made to manufacture other apparel wears and lifestyle products, VF Brands sells. “Recent CIPD surveys have reported that the use of coaching and mentoring as development tools are on the increase within organisations. According to respondents, 72% use formal mentoring schemes and 88% expect line managers to deliver coaching as part of their day to day work.” (trainingzone.co.uk). The other recommendation is, VF Brands can focus on how to improve the coordination between them and the suppliers. As mentioned above, one recommendation could be building long term relationship with certain group of suppliers. However, as VF Brands wants to leverage on the low costs between them, they do not want to do that. From another perspective, that is fine, because these suppliers also do not work for only buyer. Normally, suppliers in the Third World Countries will elicit response from many manufacturers or buyers, and they will do their orders on a short term contract basis. They also do not wish to have long term contract. However, there are many occasions, when a benign or short term contract could develop into a long term contract, because of the successful completion of orders and smooth working relationship. In that case, the long-term contract can be formed, leading to better trust between both the supplier and the VF Brands. In that case, VF can make contracts with the suppliers to actualize separate or exclusive production lines for manufacturing only the VF products. “The supplier would set up production lines dedicated to VF's products, investing in the building, machinery, equipment, labor supervision, logistics services, and administrative infrastructure to manage the operations”. (Pisano and Adams 2009).. More than this perspective, the key recommendation that can be tried in the supplier unit, is the pepping up their operations through a coordinative effective. That is, VF Brands can come up with coordination strategies, which can make their outsourcing suppliers more efficient. As part of that strategy or coordination, VF Brands can share with them necessary skills and importantly key component of quality standards. “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.” (Pisano and Adams 2009). Every organization will have specific management style or a standard organizational culture. Organizational culture is the key because when such culture is created within organization incorporating the best practices and rules, it will be made to follow by all the employees, thus leading to uniform and better productivity. Even the new employees will be made to follow this organizational culture. According to Schein (2004, p.17), “The culture of a group can now be defined as a pattern of shared basic assumptions that was learned by a group as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems”. In the case, VF Brands also, it has created a effective organizational and related management practices. “VF took great pains to preserve the organizational cultures and unique brand identities of the companies it acquired.” (Pisano and Adams 2009). Although, it would be difficult to fully ‘transport’ their organizational culture to their supplier units, the key thing is, they can pick some of the effective practices in their culture and share with the supplier units. These practices should be applicable to the culture of the country, in which the supplier unit located. That is, instead of restating the existing organizational culture, it would be feasible and effective, if VF Brands in association with the local suppliers tries or suggest them to follow a certain organizational culture, incorporating best practices from its own. “Organizational cultural interventions involve more than simply restating values, beliefs, or norms and communicating them to individuals. Cultural changes involve a complex process of replacing an existing paradigm or way of thinking with another.” (DeSimone, Werner & Harris, 2002, p. 594). Although, there may be opposition from the suppliers and even the employees to follow “alien” culture, it can instilled to the suppliers, that only the cultural practices which have working in VF’s offices and units is being tried, not imposed. So, VF brands in association with Thus, through these ways, the supplier units in the supply chain can be optimized and their functioning can be improved further. This in turn will lead to better efficiency and also quick turnaround time, without compromising on quality. Quality is the key because, by achieving quality only, organizations can reach the ‘minds’ of the prospective customers, enticing them and finally ‘pushing’ them to buy their products or use their services. “Quality is ensuring everything we do has the customer in mind... Quality is about building reputation, performance and an attitude of winning in everything we do.” (Zafirovski). Any organization’s success including that of VF brands will depend on the quality of the products or services, it provides. If the quality drops even once, the product will acquire a negative image, affecting the product and the company, in the short as well as in the long run. So, providing products and services to the customers, only after checking it on the basis of quality, in the Supplier units, is the main option that will provide the organization, safety as well as success. References cipd. Employee communication, viewed on May 6, 2011 http://www.cipd.co.uk/subjects/empreltns/comconslt/empcomm.htm?IsSrchRe s=1 DeSimone, RL, Werner, JH, &Harris, DM 2002, Human resource development. Harcourt College Publishers, Orlando. Pisano, G and Adams, P. (2009). “VF Brands: Global Supply Chain Strategy”, Harvard Business School. Schein, EH 2004, Organizational Culture and Leadership, 3rd. ed. Jossey-Bass, San Francisco. supplychainmanagement.in, Supply Chain Management - from supplier's supplier to customer's customer, viewed on May 6, 2011 http://www.supplychainmanagement.in/scm/index.htm Thaler, K. 1999, Supply Chain Management, Process optimization in logistics chains, Fortis verleg. Walther, J and Bund, M 2001, Supply and Chain Management-New Instruments for Customer Oriented Design of Integrated Supply Chains, Frankfurter. Zafirovski, M, Quality and Customer Satisfaction, viewed on May 6, 2011 http://www.nortel.com/corporate/programs/gcvm/index.html Read More