Sustainability in Supply Chain: Italian Leather Shoe Industry - Research Paper Example

Sustainability of Future Global Supply Chain: Analysis of Gucci in Italian leather Shoe Industry

Introduction

In modern era of globalisation, one of the major points associated with the business process is sustainability. From a management perspective, the sustainable business tactic is helpful for any organisation to reduce the impact of various environmental, social or other operational factors, which can have a negative impact on the overall business operation in the long run (Crane and Matten, 2016). Rainey (2010), in his review, has mentioned that there are some key issues associated with the sustainable business development irrespective of the business industry. Generally the sustainable business concept is broadly categorised into 2 broad parts namely, external and internal. Some of the key external issues are corporate social responsibility, helping the nation in maintaining economic stability, environmental stewardship etc., whereas, the internal categories include factors like innovation level, strategic integration, leadership, etc. (Rainey, 2010, Blackburn, 2015). The following image helps to understand the integrated perspective associated with the sustainable business (or process) development in any organisation:

Image 1: Integrated Perspective for SBD objectives

(Source: Rainey, 2010)

One of the major points associated with this concept is that, it not only critically reviews the present scenario of business operation or the overall industry standard but at the same time, it helps the organisation to design a well-organised future plan to counter challenges that come across after analysing the current market scenario and future business trend. This concept not only considers the present challenges in the industry but at the same time looks for designing a future assumption regarding the sustainable business challenge and designs a plan to counter the same (Van Weele, 2009).

Image 2: Innovation and Planning and Sustainable Business Plan

(Source: Rainey, 2010)

Objective of the paper:

The main objective of this paper is to analyse the process of supply chain management of Gucci which is one of the leading leather shoe organisation in Italy and figure out the possible areas where the organisation can improve to achieve sustainability in SCM operation in the near future. The paper discusses about the overall supply chain of Gucci and how the concept of sustainability can be achieved in this segment.

Overview of the Supply Chain in Gucci Leather Shoe Segments

Gucci is one of the leading luxury brands that offers leather goods, and other accessories, fragrances and other luxury products to the customers in the global market. Gucci introduced its first outlet in Florence in the year 1921. The brand has focused on offering high quality leather products to the clients in the early stage of business. Gucci has restricted the use of Brazilian leather and has worked on using leather materials from deforestation-free areas. Gucci has considered the use of certified leather to produce sustainable products that assists in preserving the environment (Dailymail, 2016; Rainforest alliance, 2016).

If one looks at the overall scenario, it is very clear that majority of the organisations in the luxury fashion industry are working on renewing 80% of their available brands and designs, every single year. As the overall selling period is very short, every organisation is looking to develop and launch an attractive new collection along with existing popular brands of the past in order to achieve success (Cerruit, 2006). When one look at the overall industry, it is very clear that there some key characteristics associated with the consumers and those are:

• Lead time tolerance of the customer in the fashion and luxury shoe industry is very low in comparison to production lead timing in the organisation itself.
• The forecast error associated with the industry is very high as the high demand of any particular design or brand may fall at a rapid pace.
• There is a high degree of variation associated with the volume of production as the customers are always looking for new style and fashion (Cerruit, 2006).

As the shoe industry needs to take into consideration all the changes in demand associated with the market scenario, there is a possibility of high degree of differences between actual demand-cost forecasted at the beginning and the actual one. The following two images are helpful to understand the key factors associated with the luxury shoe industry like Gucci that may change the pattern of supply chain and logistics operation of the organisation:

Image 3: New Collection Development time Frame

(Source: Cerruti, 2006)

Image 4: Season Plan Structure of Luxury Fashion organisation (Example: Gucci)

(Source: Cerruti, 2006)

Like every other fashion brand, Gucci will also not get enough time to address the changing demand of the customers. Gucci as an organisation must look at the client lead time very carefully in order to address the issue of product delivery and reduce the lead time. Image 3 clearly signifies that the reaction time is minimal for any luxury fashion (leather shoe) organisation; whereas, the production time is comparatively higher. In order to manage the same, a well organised logistics and supply chain planning will be helpful for the company such as Gucci.

As an organisation, Gucci is focusing on collecting the raw materials for its luxury shoes from Brazilian rainforest. The brand is always looking for process development keeping in mind the ecological balance, which is one of the major aims of the organisation itself. For a long period of time, the organisation has been focusing on the style, standards and process of green carpet challenge, which they started to follow while producing various luxury bags and now are looking to expand the same to other products like leather shoe as well (Rainforest alliance, 2016)

Supply Chain Management

In the opinion of Christopher (2016), the supply chain management system defines the involvement of manufacturers, suppliers, distributors and retailers to supply the product to the clients. The supply chain system helps to develop the product delivery service that aids to draw the attention of the service users from the national and international domain (Ballou, 2007).

From a generalist approach, the concept of supply chain is helpful to manage the supply of the overall product in the market and at the same time, streamline the overall process of logistics operation within an organisation starting from collecting raw materials from the customers to delivering the final products in the market. Managing the inventory successfully, reducing the production lean time, managing resource time effectively are all considered as the key strategic points that organisations like Gucci must look at in order to improve their competitive position in the market (Monczka, et al., 2015).

Sustainability in Luxury Brand:

In recent years, the concept of sustainability is changing at a fast pace as organisations which are involved with the luxury goods segment are looking to create a brand image in the mind of their elite group of customers which is unique, distinguishable and path breaking in nature. According to the analysis of Niemtzow (2016), “shaped by macro-economic challenges that have diminished tourist flows and luxury sales, e-commerce that has eroded the exclusivity of luxury items and the evolution of consumer desires, with new generations looking for values-driven purchases”. This changing pattern is forcing organisations like Gucci to look at business sustainability with greater importance and design their future business strategies where sustainability get the major importance. In terms of sustainability, Gucci, in its luxury fashion shoe segment, needs to incorporate a value driven concept of creativity where the two major areas of the organisation needs to focus are sustainable growth for the future and developing creativity with purpose.

The logistic operation followed by Gucci is a concentrated one in its approach. In order to improve its overall business process, the logistics of the Gucci shoe merged its overall 200000 sq. ft. operation facility in its existing 100000 sq. ft. area to ensure optimum utilisation of space. The analysis of the existing radio-frequency logistic operation (related to carton flow) resultant into too much time waste and space occupying. At the same time, to improve the speed of processing in the peak season, part time recruitments are also necessary for the leather shoe division, which increased its cost (Kempfer, 2005). By analysing their modified work flow, it is clear that “moving the fast-movers into pick-to-light flow rack from Siemens (Grand Rapids, Mich.), and the slower movers into three Remstar (Westbrook, Maine) shuttle vertical lift modules (VLMs), Gucci reduced its labour costs and increased productivity by 40% while reducing floor space 80%” (Kempfer, 2005). Following is the diagrammatic view of the logistic operation of Gucci’s leather shoe segment:

Image 5: Gucci Picking Area of finished Goods (Leather Shoe) Logistics

(Source: Author’s Creation)

Sustainability in Gucci: Environmental Perspective

As one of the leading organisations in the luxury fashion market, the key focus of Gucci (Shoe segment) is to analyse and improve the overall system that it is following and make some changes that can improve its overall sustainability and market position. In recent years, climate change is a major point of concern for every single organisation as sustainability is taking the centre stage of every business strategy. Salem (2016), in his analysis, has mentioned that sustainability in the business operation process of Gucci’s leather shoe segments has restored as a value added option, which is significant for its trade in modern era”. Gucci is following some well organised sustainable policies to maintain its CSR responsibilities which is one of its key business strategies. The organisation is not only developing environment friendly processes but also keeping a close look on implementing ethical work practices as well (Dekker, et al., 2013). As Russell and Taylor (2008) in their review has pointed out that Gucci’s leather shoe segment is working on strategies which will meet the needs of clients without depleting the natural resources. In order to improve its environment friendly approach and implement the sustainability strategy, Gucci started to use FSC Certified paper for packaging, which is 100% recyclable.

Recommendation

In the near future, the concept that organisations like Gucci, need to look at is whether it can built on the sustainability issue in both logistics and CSR aspects to strengthen its position in the market and how to improve the same. In line with the existing practices, here are some key suggestions that the organisation can follow:

• Using bio degradable substances for bulk packaging while delivering the finished goods from warehouses to the retailer.
• Implement a strict rule for all the retailers and channel partners that sell leather shoe of Gucci all across the globe have to use FSC verified bags, which are made of 100% recyclable material.
• Ensuring that suppliers of all kinds of raw material are using the packaging materials which are FSC certified.
• Delivery of the finished goods are done in a more balanced manner where shoes will be packed in a single flannel to reduce the excess usage of the same.
• Introduce e-cards and catalogues which will replace the printed promotional material to save the waste of paper.
• Changing the overall transportation process to Euro 5 from Euro 4 by reducing truck transport by 30%.
• Incorporating energy saving programs in warehouses.
• Improve the radio frequency controlled carton flow in the warehouse where the bulk production line can skip the unnecessary stages.
• Improve the VLM methods by streamlining the supply of raw materials as and when required to cut down unnecessary storage in the warehouses. This will help to improve productivity by 40% and achieve higher sustainability.
• Increasing the batch size in the VLM slab from 10 to 20 to increase the speed of overall process flow and decrease the time gap between customer lead time of tolerance and production lead time.
• Improving the time taken in the postponement and make to stock concept of the production and logistics in line with the demand of the market so that excess production, waste of time can be reduced.

Image 6: Postponement and Make to Stock Concept

(Source: Cerruti, 2006)

Option Appraisal

It sustainability, one of the most important point associated with the process of implementing the new plan is doing an option appraisal. This helps the organisation to understand how much profitable is the process is in order to incorporate or change the existing system or process (here it is related to supply chain/logistics) in order to resolve the problem of the future. According to the review of IPC (2011, p. 1) “the process of setting objectives, generating options, and deciding on the ‘best’ option is commonly described as option appraisal. Option appraisal should help to develop a value for money solution to meet the objectives of a project”. There are three core process associated with option appraisal and those are cost benefit analysis, social return on investment and multi-criteria analysis (IPC, 2011).

Image 7: Option Appraisal Process

(Source: Whitfield, 2007)

In this circumstances, the process that Gucci can use is the SROI (Social Return on Investment) approach as the model of sustainability for the organisation is looking to improve the logistics operations in the future and at the same time looking after environment safety and social accounting. With the help of this concept, organisation can measure a wider concept which includes both value and money (IPC, 2011). Following table helps to understand the total cost associated with the sustainability project that the organisation is planning to implement:

Image 8: Cost Table of Sustainability Process Implementation

(Source: Author’s Creation)

If the sustainability plan is implemented, Gucci is expected to reduce its overall cost of logistics by 30%. In a hypothetical condition, if the overall logistics cost is $ 10.25 million, a sustainability plan can reduce the cost by close to 30% and complete the same at 7.175 million in a years. This will help to improve profitability. Cost of transporting raw material and finished goods also will be reduced after implementing this model by close to 10%.

From a social value perspective, using 100% recyclable packaging material is helping to manage bio diversity and reduce pollution in the society. This is helping the organisation to improve its brand image and brand equity. As of 2016, Gucci is in 44th position in terms of brand value with a valuation of $12 billion (Forbes, 2016) and this will continue to grow as various new initiatives are designed and suggested to ensure that the organisation is able to hold on to its competitive image in the luxury goods market.

Image 8: Cost

Gant chart and Network Diagram

Gantt chart: Sustainability in Supply Chain and Business Process

(Source: Author’s creation)

Network Diagram: Sustainability in Supply Chain and Business Process

(Source: Author’s creation)

Conclusion

In modern era, it is necessary for Gucci to promote its strategy of sustainability as the organisation is facing a tough competition in the market. The experts have now started to focus on the fact that, being a luxury fashion house (producing luxury leather shoe) is it possible for the organisation like Gucci to sale concept of status along with the achievement in the level of sustainability that the organisation has achieved or is planning to achieve. As Kaye (2011), in his review, clearly mentioned that to change the mind-set of the organisations like Gucci towards achieving sustainability, it is necessary to make the top management understand the importance of CSR. Gucci, as an organisation, is following its parent group PPR’s CSR agenda of avoiding risk, which prevents the organisation to avoid any malfunction in terms of logistics or operations.

Reference List

Ballou, R.H., 2007. Business logistics/supply chain management: planning, organizing, and controlling the supply chain. India: Pearson Education India.

Cerruti, C., 2006. Agile supply chain in the fashion business. [pdf] Littorails. Available at: < http://www.littoralis.info/iom/secure/assets/iom20061030.372121_4545a4f9d571.pdf > [Accessed 28 November 2016]

Crane, A. and Matten, D., 2016. Business ethics: managing corporate citizenship and sustainability in the age of globalization. London: Oxford University

Dekker, R., Fleischmann, M., Inderfurth, K. and van Wassenhove, L.N. eds., 2013. Reverse logistics: quantitative models for closed-loop supply chains. Berlin: Springer Science & Business Media.

Forbes, 2016. The world’s most valuable brands: Gucci. [online] Available at: < http://www.forbes.com/companies/gucci/ > [Accessed 2 December 2016]

IPC, 2011. Three techniques to support option appraisal and evaluation. [pdf] Institute of public care. Available at: < http://ipc.brookes.ac.uk/publications/pdf/Briefing_paper_-_Combined_summaries_of_approaches_to_strategic_analysis_for_options_appraisal-v4.pdf > [Accessed 2 December 2016]

Kaye, L., 2011. Can Gucci sell sustainability? [online] Triple Pundit. Available at: < http://www.triplepundit.com/2011/06/gucci-sell-sustainability/ > [Accessed 28 November 2016]

Kempfer, L., 2016. Gucci automobile order picking. [online] Material Handling & Logistics. Available at: http://mhlnews.com/technology-amp-automation/gucci-automates-order-picking > [Accessed 28 November 2016]

Monczka, R.M., Handfield, R.B., Giunipero, L.C. and Patterson, J.L., 2015. Purchasing and supply chain management. Boston: Cengage Learning.

Niemtzow, E., 2016. Chanel, Gucci and luxury fashion's sustainability crossroads. [online] GreenBiz. Available at: < https://www.greenbiz.com/article/gucci-chanel-kering-luxury-fashions-sustainability > [Accessed 28 November 2016]

Rainey, D.L., 2010.Sustainable business development: inventing the future through safety innovation and leadership. London: Cambridge University Press.

Rainforest Alliance, 2016. Gucci goes sustainable. [online] Available at: <http://www.rainforest-alliance.org/press-releases/gucci-goes-sustainable> [Accessed 25 November 2016].

Russell, R.S. and Taylor-Iii, B.W., 2008. Operations management along the supply chain. New Jersey: John Wiley & Sons.

Salem, N., 2016. Gucci group: the greenest of them all. [online] Eluxemagazine. Available at: < http://eluxemagazine.com/magazine/gucci-group-the-greenest-of-them-all/ > [Accessed 28 November 2016]

Van Weele, A.J., 2009. Purchasing and supply chain management: analysis, strategy, planning and practice. Boston: Cengage Learning EMEA.

Whitfield, D., 2007. Option appraisal criteria and matrix. [pdf] ESSU Research. Available at: < http://ipc.brookes.ac.uk/publications/pdf/Briefing_paper_-_Combined_summaries_of_approaches_to_strategic_analysis_for_options_appraisal-v4.pdf > [Accessed 2 December 2016]