- What is the "Third Way?" Is it a good or bad strategy? Why do you say this? If you were CEO of the company would you endorse it? Why or why not?
Vanity Fair is one of the biggest apparel companies in the world. The company started with several company-owned manufacturing facilities that became very efficient (i.e. they set the standard in the industry) but because of the company’s growth plans, they had to source production from international suppliers. This put a huge pressure on their capabilities to manage their supply chain efficiently, given that they still own several US based manufacturing facilities and have working relationships with thousands of foreign suppliers, as well as a highly competitive apparels industry whose demands are varied product-wise. The company’s president, Chris Fraser thinks that there is some inefficiency in the company’s supply chain system and proposes a “Third Way” which is a supply chain principle for managing his suppliers. The “Third Way” is a means of managing these suppliers through sharing information such as engineering, production, and management learning’s gleaned from VF’s own production facilities. The Third Way also proposes to that these suppliers receive leveraging capabilities due to the volume of business they generate from VF.
This supply chain strategy is similar to what Toyota uses for their component suppliers or what Ikea uses for its own network of manufacturers. The difference however, is that VF’s supply chain is complex and is scattered all around the globe, whereas Toyota or Ikea’s suppliers are located in close geographical proximity to their assembly or distribution centers. I believe that the desire to turn VF into a very agile company by making its suppliers more efficient is laudable however, this is potentially very difficult for VF and may end up costing them more than just the expense of training their suppliers. Opening up their capabilities may cost them their competitive advantage, since the suppliers may not be entirely exclusive to VF. Agile manufacturing and agile supply chain is becoming the way of most manufacturing companies but it would be very difficult for the apparel industry to maintain agile manufacturing overnight. The company would do well to try the Third Way for some components or coalitions first before it dives headfirst into this idea.
- VF Brands still maintains some of its own manufacturing operations. What do you think of this strategy? Should they reduce or increase the amount of in-house manufacturing? What is the economic justification for your reasoning?
I believe that VF maintains its own manufacturing operations primarily for cost benchmarking and nothing else and I feel that this is a waste of valuable resource. VF, with its production capabilities, could use their owned manufacturing facilities for original, customized and even specialized items from any of their product lines. This is to produce high value products that could be generated in limited volumes and sold at a premium. The value of doing so is that only VF will have the products in the US which will provide them control and quick access to the market. The design process, which is the lengthier process in the entire chain, will be made more responsive since their production facilities also could respond to intricate changes in the design in a relatively shorter period of time compared to sourcing it from abroad. The margins would be relatively higher meaning the company can afford running the facility without grinding it to the ground to compete cost-wise.
VF should take a look at specialized manufacturing for its clients, similar to the mass-customization strategy that Nike or Levis undertakes. Nike for example, has their own customer-designed products which provide higher margins and yet get the products to the clients in a very short period of time .
- What is your opinion about their global strategy in terms of brand and organizational culture?
I think that the company recognizes the importance of the organizational culture of the brands that they acquired. The company knows that protecting the organizational culture of those brands is critical to that company’s growth. In the apparels industry, the critical elements are speed, costs, quality and innovation. VF found these critical elements in the companies that they have purchased. VF believes that those companies had a strong brand image and a unique culture. What VF did is essentially provide those companies additional resources and opportunities for sustained growth. For example, North Face and Vans are now billion dollar companies, thanks to the resources that were made available to them after they have been acquired by VF. Preserving the identities of the companies and changing only those that fit into a common corporate VF platform (i.e. financial management, logistics, sourcing) has helped the individual brands grow and flourish and is a strength that the company should continue exercising.
- What are the pros and cons of outsourcing manufacturing and internal sourcing? Give some recommendation for what is the best (including economic, strategic and logic thinking).
VF’s business requires a lot of expertise and the use of technology which is built up by the organization and is purchased from its many suppliers. The company utilizes both in house and outsourcing strategies to manage its product lines. The advantage and disadvantage of the two are numerous, but is simplified below.
Figure 1 Advantages and Disadvantages of In House Production and Outsourcing
For VF, even if they are very successful at outsourcing, they have to still use internal production capabilities. This is to ensure that they have a buffer in case the entire supply chain process falters. While it is recommended that relationships be built and maintained with their suppliers, having the capability to produce on its own is significant in a fast faced competitive environment such as the apparels industry.
As previously discussed, I believe that VF should mix their in house capabilities and outsourcing capabilities but do so for the purpose of satisfying or creating different market niches. The in-house capability can be used for mass-customization, similar to what Levis or Nike does. Outsourcing could be relegated to high-volume, low cost production. As stated, the value of doing so is that only VF will have the products in the US which will provide them control and quick access to the market. The design process, which is the lengthier process in the entire chain, will be made more responsive since their production facilities also could respond to intricate changes in the design in a relatively shorter period of time compared to sourcing it from abroad. The company will enjoy higher margins for in-house capabilities and wider profits from low-cost products that the company outsources.
Bibliography
Christopher, M. (1993). The Agile Supply Chain: Competing in Volatile Markets. Retrieved from SCLGME.org: http://www.sclgme.org/shopcart/documents/agile_supply_chain.pdf
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