Case Analysis Chapter 6

VF Brands: Global Supply Chain Strategy1

Xueyan Mou (88489)

In-House Plant to Extensive Outsourcing

VF was a traditional vertically integrated apparel company when it made jeans in its own plants,
it was for which it had been known for. The company then went to an outsourcing strategy when
it pursued a global marketing strategy featuring branded life style products. The change of
strategy towards massive outsourcing was initiated for several reasons. The number one reason
was that outsourcing to low cost countries around the world raised companies gross margin, as
the production of garments was generally labor intensive and had low barrier to enter. It also
saved companies extra costs (transportation and tax costs) by direct productions in sale target
countries, especially with restriction of quota and tax tariffs. As a result of outsourcing, garments
companies could focus more on its core business including garment designing and brand
building.

Global Supply Chain Challenge

While what the majority of apparel companies were doing was to source where labor was in
incredibly cheap, it was not going to be the differentiator anymore. VF needed to look for others

This case was prepared by Professor Roger A. Kerin, of the Edwin L. Cox School of Business, Southern Methodist
University. Copyright 2011 by Roger A. Kerin.

benefits like speed to market, material utilization, lower inventories, less work in process and
lower cost to quality, with still being able to lower cost and minimizing investments in fixed
plant and equipment, as investments were better utilized and had high ROI when used in building
brands and improving retail operations. What Chris Fraser, President of Supply Chain
International for VF Brands, should tackle was how to incorporate benefits from both traditional
outsourcing and internal manufacturing, and eliminate their risks and shortcoming as the same
time.
Packaged Sourcing
Outsourcing production to third parties as described as "packaged sourcing" had the benefit of
low cost, as companies could choose between a number of suppliers in different locations based
on economic factors, such as labor cost and transportation costs, and trade quota or tariff
considerations to get cheapest price for finished goods. Also it allowed apparel companies to put
more energy and investment of human capital and money in more critical fields like brand
building and retailing.
However, Packaged Sourcing also came with several risks that dragged VF away from higher
efficiency of supply chain. Inflexibility of change was the first one. The apparel supply chains
were very inflexible, as they usually needed to place the order 8 to 10 months prior to a
particular season, and wouldnt have enough time to add on more or cut down order by the time
they received feedback from customers when the products actually hit the market. Retailers
suffered the costs of both excess inventory and stock-outs.
Secondly, lack of coordination/trust, or price-war of suppliers. Most contracts between apparel
companies and apparel suppliers were short-term (mostly for one season), and suppliers needed

to re-bid for contract each season as companies were aggressively looking for even lower cost
locations and always bargaining with suppliers for cheaper contracts. And suppliers kept
production information from the apparel companies to avoid it being used against them in the
bidding. As no order guaranteed and frequent change of production targets for suppliers, they
usually tried to bid with as many companies as they could to diversify their risks, while these
companies were competitors for most cases.
Thirdly, kneeling down a clean deal with suppliers could be a time-consuming process, as there
was no pre-set price list for different designs each season, contract prices needed to be renegotiated each time, even if there is only a slight change to the existing design.
Fourthly, supplier often lacked the intention of process improvement. Garment contractors
operated on razor-thin margins, which made them invest little in process technology and
productivity improvement. If they were to encounter technical issues or problems, they generally
added more labor or scheduled overtime.
Third Way Sourcing Strategy
The Third Way Sourcing was designed to be a halfway point between full integration and
traditional outsourcing to make supply chain more efficient by building a true partnership with
VFs suppliers and integrating VFs internal technical and supply chain expertise into external
suppliers. By building and signing contracts of long-term partnership (such as an agreement on
production of a specific product line of VF), VF would be able to achieve:
Volume forecast for a number of years instead of just a season in the case of traditional
outsourcing;
Keeping contracts from taking competitors orders in the same category;
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Production lines dedicated to VFs products, with investment in building, machinery,

equipment, labor supervision, logistics services, and administrative infrastructure to
manage high efficiency of the supply chain process;
Flexibility from customized schedules and collaboration on process improvements;
Higher efficiency of investment resulting from division of work and letting the suppliers
specializing in manufacturing management with the help from VF (such as getting lower
purchasing prices of raw materials by utilizing VFs purchasing capability), and thus VF
could better invest its money in brands and retail operations;

Recommendation Sourcing Portfolio

Perkins felt the real benefits of the Third Way strategy had not even been seen yet, because they
lay in the design process. He commented, If you think about speed to market, which is always
one of the challenges of the supply chain, about two-thirds of the time is spent in the product
development process. Only one-third is the time it takes to go from the order to the delivery to
the store shelf. I think we also need to focus on those first stages to see how we can shorten lead
times. The Third Way strategy had reached a critical cross-road. VFs ambitious international
expansion goals, particularly for Asia, meant that they would need to bring on significant new
capacity over the next several years. They could do that by expanding Third Way sourcing,
expanding internal manufacturing, or by simply doing more traditional sourcing.
Even though weve seen all the benefits that Third Way Sourcing could bring, it also brought
concerns including loss of flexibility, continued close of internal plants despite their strong

performance, and most importantly, sharing of VFs hard-earned proprietary expertise with
outside suppliers from other departments within VF. Despite the objections, Fraser and Green
didnt treat these as real concerns as they only focused on using the skillsets of internal
manufacturing to improve supplier performance in terms of cost, quality, and speed without
transferring VFs proprietary of equipment, and they persisted on the Third Way projects.

In terms of staffing, instead of riffing existing experienced engineers who had been working in
VF in-house plants for years, VF could actually utilize and let them participate in mentoring
programs in which they could travel to new partner supplier sites and train local fresh graduate
engineers and operators.

Further justified by financial results, Third Way actually achieved lower net cost and shorter
lead-time in both Bangladesh and Morocco in India. The only problem to counter was the
instability of external parties as most of them were small sized and sensitive to economic
movement, and VF could not have control of their overall financial and corporate management.
Therefore, selection of suppliers to partner with was the most critical task to accomplish. The
qualified suppliers should be in good stand financially and in a steady economic environment, on
the condition that the suppliers were open enough to accept the new concept of True
Partnership with VF.