Rapid Technological Advancement and High Competition it

¶ … rapid technological advancement and high competition it has become a challenge for businesses to manage their operations effectively and efficiently. It has become mandatory for businesses to find ways and methods which are not only cost effective for them but also deliver the required and needed value to the customers (Beamon, 2008).

Apart from this ongoing changes and technological advancements the element of globalization and internationalization has also resulted in imposing serious and worth considering impacts and influences on the decisions of the organizations and companies related to their day-to-day operations and also to their long-term strategies and plans. Organizations now also have to consider international and global environment and factors which have direct or indirect impact on the business and operations of the company (Fisher, 1997).

The overall business industry and environment has turned into a highly competitive landscape and companies are facing increasing pressure of creating competitive edge and difference in order to survive and grow in this competitive landscape. The trade liberalization policies and removal of international quotas and tariffs have on one hand provided companies with increased opportunities and whole new markets but on the other hand it has also raised serious challenges and threats for many businesses around the world.

Many manufacturing and other related companies are outsourcing some of their operations to the suppliers and contractors in countries where the cost of production and cost of operations is considerably low. This has allowed businesses to create a competitive edge on the basis of the low cost involved in the production and operations and companies can provide the same product and goods at relatively low prices than the competitors (Maloni & Benton, 1997).

But on the other hand this outsourcing in different regions and areas has resulted in creating challenges and problems for the companies while managing their supply chains. Businesses are looking for new methods and ways to manage their global supply chains in a better manner in order to increase the efficiency of the global supply chain and also the responsiveness of the global supply chain (Min & Zhou, 2002).

The most difficult decision being faced by different organizations in this challenging environment is the effective and efficient design of the supply chain. The companies are facing dilemma between deciding to outsource the operations or to perform them in house. The overall performance, responsiveness, and efficiency of the supply chain of any company are directly dependent on the decisions of outsourcing or in house performing of the operations. There are several factors which have to be considered before making this decision. This decision is also dependent on the nature of the product and needs and demands of the market and consumers. For example if the consumers want quick service and high responsiveness it will be beneficial to keep the control of operations with the company and focus more on in house and internal production. On the other hand if the consumers are price conscious it will be better to outsource the operations to the suppliers and contractors who can perform those operations at considerably lower cost than the main company (Min & Zhou, 2002).

CHALLENGES IN SUPPLY CHAIN Management:

It is becoming difficult and challenging for the organizations and companies to manage their supply chain effectively and efficiently. The decisions about the design of the supply chain are one of the most vital and critical decisions that have to be taken by the companies (Ballou, Gilbert, & Mukherjee, 2000). It is essential for the companies to understand the basic concept of supply chain. Supply chain is just not a new name for logistics; it is more than that (Cooper, Lambert, & Pagh, 1997). The network of supply chain consists of the main organization along with the suppliers and customers of the business. Due to the involvement of many different parties and levels the supply chain management is just not the management of the logistics but is the combination of the management of the human resources, internal processes, and of the process of product transformation. Apart from this supply chain management also includes the sharing and management of the information among the main organization and suppliers and customers of the organization (Harrison, Lee, & Neale, 2003).

The most important question which has to be answered by the organizations while designing supply chain is about the objective of the supply chain. There is a tradeoff between the responsiveness and cost efficiency. The supply chain can be either highly responsive or can be cost efficient. This decision is made according to the needs and demands of the market and customers. The supply chain should be designed in such a manner that it facilitates and helps the organization in the fulfillment of the needs and requirements of the end consumers (Kouvelis, Chambers, & Wang, 2006).

The decisions related to the supply chain strategies, operations, and designing are difficult and challenging. The companies are creating competitive edge over one another with the help of effective and efficient supply chain network. The fact that the supply chain network involves several other parties and levels makes the management of the supply chain more challenging. The companies and organizations have to come up with the right strategies and plans for profitable integration and long lasting partnerships with the other members of the supply chain like suppliers and distributors (Lavassani, Movahedi, & Kumar, 2009).

Supply chain management is important and critical for the organizations because it enables the organizations to create maximum value and customer service, which will help and facilitates the organizations in the process of creating high profits and revenues for the business (Lancioni, 2000).

OVERVIEW OF THE COMPANY AND THE APPAREL INDUSTRY:

VF is one of the renowned and famous names in the apparel industry. The company is being operated since the year 1899 when it started its operation under the name of Reading Glove and Mitten Company. With the passage of time company has been expanding and finally in 1917 it changed its name to Vanity Fair. The company further expanded and entered into new markets by using the strategy of acquisition. The company is known for its wide set of acquisitions in order to expand the existing product lines and diversify into new markets and areas. For many years the main strategy of Vanity Fair was of vertically integrated manufacturing in jeans and most of the factories of the company were located in the United States. In the following years Vanity Fair also entered in the market of global lifestyle apparel (Pisano & Adams, 2009).

The strategic growth plan of the company revolved around two key points. The first goal or aim of the company was the expansion of sales and business outside the United Stated to other countries particularly to the countries with rapidly developing and growing economies like Russia, India, and China. The company worked to increase its international sales. The second element or goal of the strategy of the company was the expansion of the direct to consumer business. The company increased the retail outlets and company operated stores in different areas and regions. The company strived hard and keeps on coming with new and innovative ideas and strategies in order to compete and survive in the industry.

The overall apparel industry constitutes of design, manufacturing, and marketing of the clothes, accessories, and the personal luxury items and goods. The apparel industry is highly fragmented and competitive. There are broad and wide range of products and items along with the range of prices in the industry. Different companies operating in the industry are always looking for new methods and techniques to create competitive edge over other competing companies. The growing trend and increasing power of the mass retailing chains has also resulted in causing serious challenges and issues for the companies in the industry. The recent economic downturn has imposed huge pressure on businesses in order to reduce the cost associated with the operations.

Apart from this the globalization and other advancements have also changed the overall outlook of the industry. The consumers are asking for quicker service and the retailers and wholesalers are seeking more flexibility. In order to fulfill these changing needs and requirements businesses in the apparel industry are looking for ways and methods to make their supply chain more responsive and flexible (Pisano & Adams, 2009).

OPERATIONS AND SUPPLY CHAIN OF THE COMPANY:

The supply chain of the company consists of several steps and intermediaries. The supply chain process starts from the design and end when the final product is at the shelf of the store ready for consumer to purchase. The traditional supply chain processes of the company starts long time before the availability of the final product for the consumers. The design department of the company starts working on the design of the product according to the needs and requirements of the market and consumers, once the designing of the product is done a prototype is formed of the product which is used for taking any further internal and external decisions related to the manufacturing of the product.

The prototype is required because even the drawing having every detail sometimes is insufficient to judge the design. The prototypes are not only used for the purpose of internal decision making related to the evaluation of the design but it is also shown to the retailers which are the prospective customers. In response to different privacy and security concerns and issues along with the issues of speed and responsiveness, the prototypes are made by VF in the development centers which are either owned by the company or are partners of the company. This whole process consumes almost time period of four weeks. Along with this process the marketing department works on forecasting and predicting important factors like prices, sales, volumes, and profit margins related to different products and items. These forecasts and predictions made by marketing department have huge and vital impact on the design and strategy of supply chain of the company.

Once all the design is finalized and all important decisions are taken by the marketing department the next step is to decide for the sourcing and other important steps related to the design of the supply chain. The company decides whether it will hire internal supplier or external supplier for the job and what will be the location of the supplier and other related matters. The sourcing decisions encompass the multiple levels including the sources of raw materials, accessories, fabrics, and other material. Several factors are considered before deciding the suppliers like location of the suppliers, economic factors including cost, and also the skills and expertise of the suppliers. For this purpose the company has different sourcing offices located at several locations which manage the process of procurement in the local region.

This process of sourcing and procurement takes couple of months including identification of the suppliers, getting quotes on prices, and production of samples. Once this is done the contracts are signed for the respective products and associated volumes. There is high lead time involved therefore the prediction and forecasting should be done carefully and efficiently. The production of the final garments and items is completed in time period of four to five months and the final products are shipped back to United States through the sea which takes around two weeks. After clearing customs the products are shipped to the distribution centers of VF and are finally delivered to the retail outlets and the stores (Pisano & Adams, 2009).

ISSUES AND PROBLEMS WITH THE EXISTING SUPPLY CHAIN:

The existing supply chain of the company involved high lead time and was less flexible and responsive. The supply chain was competitive in the old scenario of apparel industry. Previously the supply chain of the overall apparel industry has been very inflexible. The retailers and wholesalers were required to place their orders about eight to ten months before the season. At the start of the selling season the products were delivered and the retailers were not able to adjust stocks and respond to the changing requirements and needs of the customers. The cost associated with the stock outs and excess inventory was to be tolerated by the retailers (Pisano & Adams, 2009).

With the passage of time, different technological advancements and changes have changed the outlook of the overall industry. The manufacturing companies in the apparel industry along with the retailers are looking for new methods and techniques to increase the flexibility and responsiveness of the supply chain.

This imposes increased pressure on the VF to revise and change the supply chain strategy and make it more flexible and responsive in order to remain competitive in the industry. The company responded to this challenge by forming different new strategies for managing the supply chain of different products and items. The company was able to create a supply chain which was highly efficient and was globally diversified. But the low cost and high efficiency is no longer the wining criteria in the industry. People now want quick service and flexibility.

THIRD WAY SUPPLY CHAIN STRATEGY:

In response to changing needs and requirements of market and industry the management of the company was looking for new methods and strategies to remain competitive in the market and increase the market share of the company. The company recognized that to some extent the supply chain was inefficient and irresponsive because of the lack of trust and coordination among the company and the suppliers. The contracts are short-term and the company and suppliers are not loyal to each other. The company changes the suppliers in order to further reduce the cost and the suppliers were also working with different companies. This lack of trust and coordination resulted in holding excessive inventory and increasing the lead time. The overall process involves high time and there was no improvement in the process.

On the other hand in-house production facility of the company was far more competent and efficient. The company could have increased the flexibility and responsiveness of the supply chain by utilizing the internal expertise and internal manufacturing. But the company was not ready to invest in the fixed manufacturing plants and other associated equipments as it was not consistent with the corporate capital development strategy of VF.

The president of the supply chain international for VF Brands, Chris Fraser, came up with an altogether new idea and concept of managing the supply chain of the company named as 'Third Way Sourcing'. He suggested that the company can further improve the efficiency of the supply chain along with increasing the flexibility and responsiveness, with the help of leveraging and internal technical expertise. In this way the company can try to gain higher level of control on the supply chain without owning the suppliers in reality. He was of believe that if the company will be able to enforce its internal technical expertise in the supply chain it will have clear competitive edge over other companies in the industry. The strategy which was put forwarded by him that was in between the strategies of full integration and traditional outsourcing. The main idea or focus was to build a true partnership between the supplier and the company.

Fraser suggested that the company will enter into a contract or an agreement with the suppliers for a particular product line for a long time period and the supplier will not serve any other competitor. The production line will be established by the supplier which will be dedicated to the products of VF. Suppliers and VF will work in collaboration in order to develop production schedules according to the needs and requirements of both the partners. Both the partners will share the information related to the forecasting of the order and the production capacity. VF will work along with the suppliers in order to improve the process. The engineering resources of the company will be available in order to improve the processes of production without charging any cost. Whenever it will be needed and required the company will make investments in the equipment and other specialized capital material. The company will help the suppliers in getting the raw material at discounted and low prices by using the purchasing capacity. At the same time the company will buy back any raw material which will be unused. Under this agreement cost plus basis along with the margin will be used to pay the suppliers (Pisano & Adams, 2009).

The company has formed five different third way agreements or partnerships with different suppliers. These third way partnerships include (Pisano & Adams, 2009):

1. Production of backpacks in Thailand.

2. Production of jeans in Bangladesh.

3. Production of jeans in Morocco.

4. Production of jeans in China for Chinese market.

5. Production of outwear in China.

Although the company also faced some backfires like in the case of partnership with the Moroccan supplier and the company had to buy the manufacturing plant. The company was able to reduce the overall cost involved in the supply chain process and was able to make the supply chain further efficient and competitive (Pisano & Adams, 2009).

CHALLENGES OF THE THIRD WAY SUPPLY CHAIN:

There are different issues, problems, and challenges of the third way supply chain which have to be faced by VF. First of all the company has to manage the internal resistance and criticism. The marketing department of the company was concerned about the flexibility of the supply chain which is the major driving force in the industry. According to them if the company will move away from its traditional sourcing strategy it will loss the flexibility. The manufacturing department was concerned about the closing of the internal manufacturing plants and was frustrated over the issue as they knew that they had the expertise and were more competent because of their strong and exceptional performance. And they were also against the idea that the sourcing team will handle and manage the engineering resources. They were also concerned about the concept of sharing of the specialized internal expertise of the company with the suppliers. According to them this results in serious privacy concerns and the internal expertise of the company which was earned through experience and hard work will be exposed to outsiders and can be used for the competitors also (Pisano & Adams, 2009).