Levi Strauss and Co Purchasing Presentation

Levi Strauss and Co. Case Study Purchasing and Supply Chain Management Teacher : John Hegarty Presented by : Valerio Cataldo Cezara Ghebosu  Antonella Liotine

IPAG BUSINESS SCHOOL PARIS

General Background 

It is a privately held clothing company of denim jeans.

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Founded in 1853 by Levis Strauss.

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Organized intro three geographic divisions : San Francisco ,Brussels and Singapore. Re-invention of jeans through the use of different fabrics and cuts large variety of products.

Products Today Levi’s sells on average

800 millions of jeans per year ( primary product)   Red Tab jeans offers traditional cuts.  Silver Tab jeans define fashion looks with a background of quality.  Levi’s jeans expanded its fashion Levi’s design not only in men and women apparels, but also in kids wear.

Shirts Jackets Tops T-shirts Men wear

Vest Underwear Bottom Jeans Jeans

Women Wear

T-shirts Jackets Skirts

Our specification: Less water for Levi’s Jeans 

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During the production process, a typical pair of jeans are “finished” in large washing machines and dryers to create a unique look. This campaign concerns a significant water reduction in the finishing phase, (washing) up to 20%. Some details:

 On average a pair of jeans requires 8800 lt/w and 800 gr/c.  20% consists of 1760 lt/w per jeans as saving .

How to get it?  Reducing the number of

washing machine cycles by combining multiple wet cycle processes into a single wet process

 Incorporate ozone processing into the

garment washing

 Removing the water from the stone wash.

«Sometimes, the way to achieve a more sustainable design is to rethink a traditional process and find a way to do it better.»

That is a process innovation related to an ecogreen business phisolophy .

Value Delivery System

Less water (washing)

Some explanation (value delivery system) About cotton

we have 4 main phases: the planting, the growing care,the picking and dividing cotton from the rest of the plant. ( leaves and sticks) About cotton manufacturing we have first the transformation of cotton in thread ( spinning) and then the change in the colour (dyeing) Jeans take shape here in the fabric manufacture through the weave of the threads and then all other phases concerning the cutting. Then jeans are made up thanks to other phases regarding the washing and ironing.  Jeans to be available to the final customers bear 7 external transportations.

Price building 1. 2. 3. 4. 5.

6. 7. 8.

All materials and labor have an impact on price equal to 8,12$ ( in Dhaka factory) The assembly line takes an average of 20 minutes to complete a pair of jeans Then jeans are packed and sent to Chittagong Port ( 152 miles from the factory) There the jeans are shipped to US ( the average journey takes 30 days) and the price increases ,becoming 8,42 $ customs: the US import duties on a pair of jeans are 16,6% of landed cost. So the price becomes 9,82$ Jeans are repackaged for the distribution at the warehouse and then these are sent to a store at 12,29$ The average retail markup is 300% Your jeans will cost you at least 46,87$ ( final price)

Value Chain

15,7% 22% 30% 32,3%

Value chain (2) 

Inbound Logistics

The overall cost leadership strategic management of Levis is exhibited in its lean and agile inbound logistics function. The company uses its leading market position and economies of scope as key bargaining powers to achieve low costs from its suppliers. 

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Operations Management

Levi’s has been praised by a number of supply chain management critics for its effective use of IT systems that facilitate the company’s low cost leadership strategy. According to Levi’s annual report (2012), the company has invested over £76 million in streamlining its operations through their third generation ERP(Enterprise Resource Planning) solution for the company. This company -wide ERP system has also facilitated the minimization of stock holdings within the company. Outbound Logistics Levi’s holds leadership position in online and offline jeans retail segments, which is due to its efficient and effective outbound logistics. The company has developed a range of store formats and types, which are strategically placed to achieve maximum customer exposure. Marketing and Sales

Social and Environmental Concerning programs like “Less Water” and “Better Cotton” are being introduced through information technology advances which dissuade the customers from switching over to their competitors. 

Services

Levi’s has been pursuing a new strategy of cost leadership and differentiation, which has led to an increased importance placed on customer service. This one is exhibited through the development of “Make to order “ jeans, which involves young sailors and stylists who would fulfill each customer’s taste, making him/her feel comfortable and unique.

Suppliers criteria selection  In general all the suppliers are chosen by Levi’s on the

basis

of their quality levels but also by considering the observance of workers’ rights and human conditions. Main selection criteria : 1. Terms of engagement requirements 2. Price and quality standards 3. Delivery and capability 4. Lead time requirements Moreover Levi’s prefers to maintain long last relationships with its suppliers. Nevertheless suppliers have a lower bargaining power then Levi’s.

Distribution channels

 The main distribution channels are:

1. Flag stores ( they sell only the Levi’s brand) 2. Franchised stores ( shops that sell many brands on the basis of a contract which give them this right) 3. Internet ( the online shop, which represents only the 10% of sales) All these channels allow to Levi’s to obtain the largest distribution cover and so be present everywhere .

Purchasing situation and decision-making process 

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Levi’s has a straight rebuy situation since it deals with routine products ( as cloths). Here the problem is related to the handling of logistic and administartive costs of these kind of products. Levi’s in order to cut them uses electronic catalogues, internet ordering, electronic payment and so on. ( E-procurement) Since both , product complexity and commercial uncertainty ,are low, the buying decision is purchasing department dominant.

Elements of Supply contracts  Purchasing quantities  Expected quality  Pricing and volume discounts  Delivery time  Legal responsabilities

Some KPI Levi’s uses the supply chain KPIs to track the current shipments , monitor inventory level and to ensure that all orders are accurated. 1. Order tracking ( monitor the status and accuracy of orders that are shipped out) 2. Rate of return KPI ( mesures the rate at which shipped items are returned ) 3. Inventory turnover KPI ( measures how offen the organization is able to sell the entire inventory in a given year) 

Penalties 

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Poorly performing suppliers are warned that they are in danger of having the production orders reduced unless the are able to improve their TOE performance. If performance does not improve, the production orders will be reduced untill the suppliers can bring it to an acceptable level. If performance still does not improve the relationship will be ended.

“There is only one client the reputation of our organization” Levis Strauss considers reputation important for three main reasons: 1. Corporate reputation is a global asset 2. If managed properly it can be a competitive advantage. 3. Reputation management can reinforce the image of Levi Strauss products and advertising. 

Sources Anderson, J. (2009). Levi Strauss & Co. Annual Report.  Camp, S., Clark, G., Duane, L., & Haig, A. (2010). Life Cycle  Analysis and Sustainability Report.  YouTube video about price building  Levi’s Less water campaign  Preece, S., Fleisher, C., & Toccacelli, J. (n.d.). Building a Reputation Along the Value Chain at Levi Strauss. Retrieved from www.toccacelli.com: http://www.toccacelli.com/pdf/Building-a-Reputation.pdf 