How Levi's Got Its Jeans into Wal-Mart People around the world recognize Levi's as an American icon, the cool jeans worn by movie stars James Dean and Marilyn Monroe.
For one reason or another, however, the company failed to keep up with the fast-changing tastes of American teenagers. In particular, it missed the trend to baggy jeans that caught hold in the mid-1990s. Sales plummeted from $7.1 billion in 1996 to $4.1 billion in 2003, and Levi's U.S. market share dropped from 18.7 percent in 1997 to 12 percent in 2003, a huge decline of almost one-third in both dollars and market share. ANALYZING AND RESPONDING TO WHAT HAPPENED
Competition hit Levi Strauss on both the high and low ends. Fashion-conscious buyers were drawn to high-priced brands like Blue Cult, Juicy, and Seven, which had more fashion cachet than Levi's. On the low end, parents were buying Wrangler and Lee jeans for their kids because on average they cost about $10 less than Levi's Red Tab brand.
Wrangler and Lee were also the brands they found at discount retailers such as Wal-Mart, Target, and T. J. Maxx. David Bergen, Levi's chief information officer (CIO), described the company as "getting squeezed," and "caught in the jaws of death." Levi Strauss's new CEO, Philip A. Marineau, came to the company from PepsiCo in 1999, a year after he helped PepsiCo surpass Coca-Cola in sales for the first time. Marineau recruited Bergen in 2000 from Carstation.com. Marineau quickly realized that turning Levi Strauss around would entail manufacturing, marketing, and distributing jeans that customers demanded, particularly customers at the low end where the mass market was located.
Bergen was eager to join Marineau's team because of his background in clothing, retailing, and manufacturing with companies such as The Gap and Esprit de Corps in the 1980s. He knew that Marineau's plan to anticipate customer wants would require up-to-date IT applications such as data warehousing, data mining, and customer relationship management (CRM) systems. He also knew that selling to mass market retailers would require upgrades to the supply chain management (SCM) systems, and he understood that globalization would necessitate standardized enterprise resource planning (ERP) systems. Overall, it was a challenge any ambitious CIO would covet.
After all, designing and installing IT systems that drive and achieve key business initiatives is what it is all about. JOINING WAL-MART Wal-Mart was a pioneer in supply chain management systems, having learned early on that driving costs out of the supply chain would let it offer products to customers at the lowest possible prices, while at the same time assuring that products the customers demanded were always on the stores' shelves. Becoming one of Wal-Mart's 30,000 suppliers is not easy. Wal-Mart insists that its suppliers do business using up-to-date IT systems to manage the supply chain-not just the supply chain between Wal-Mart and its suppliers, but the supply chains between the suppliers and their suppliers as well. Wal-Mart has strict supply chain management system requirements that its business partners must meet.
Wal-Mart's requirements presented Levi Strauss with a serious hurdle to overcome because its supply chain management systems were in bad shape. Levi Strauss executives did not even have access to key information required to track where its products were moving in the supply chain. For example, they did not know how many pairs of jeans were in the factory awaiting shipment, how many were somewhere en route, or how many had just been unloaded at a customer's warehouse. According to Greg Hammann, Levi's U.S. chief customer officer, "Our supply chain could not deliver the services Wal-Mart expected." Bergen created a cross-functional team of key managers from IT, finance, and sales to transform Levi Strauss's systems to meet Wal-Mart's requirements. Their recommendations included network upgrades, modifications to ordering and logistics applications, and data warehouse improvements, among others.
Although Bergen realized that about half the changes required to current IT systems to accommodate the state-of-the-art demands of Wal-Mart would be a waste of resources since these systems were being replaced by a new SAP enterprise software system over the next five years, Levi Strauss could not wait for the SAP installation if it wanted WalMart's business now, so it decided to move forward with the changes to the current systems. The successful transformation of its supply chain management system allowed the company to collaborate with Wal-Mart.
The company introduced its new signature line at Wal-Mart, which sells for around $23 and has fewer details in the finish than Levi's other lines, no trademark pocket stitching or red tab, for example. Wal-Mart wants big-name brands to lure more affluent customers into its stores, while still maintaining the low price points all Wal-Mart customers have come to expect. Wal-Mart Senior Vice President Lois Mikita noted that Wal-Mart "continues to tailor its selection to meet the needs of customers from a cross section of income levels and lifestyles." She also stated she is impressed with the level of detail Levi Strauss has put into its systems transformation efforts to "make the execution of this new launch 100 percent." ACHIEVING BUSINESS SUCCESS THROUGH IT
Bergen's changes were a success and the percentage of products delivered on time quickly rose from 65 percent to 95 percent primarily because of the updated supply chain management system. Levi's total sales were also up in the third and fourth quarters of 2003, for the first time since 1996. NPD Group's Fashionworld is a research group that tracks apparel and footwear market trends.
In 2003, Levi's appeared on NPD Fashionworld's top 10 list of brands preferred by young women, ending an absence of several years. Marshall Cohen, a senior industry analyst at NPD Fashionworld, noted that Levi's "hadn't been close to that for a while. Teens hadn't gravitated toward Levi's in years. That was incredible. A lot of that has to do with having the right style in the right place at the right time." The improved systems, Cohen noted, also helped the company get the right sizes to the right stores. Another highly successful IT system implemented by Levi Strauss is a digital dashboard that executives can display on their PC screens.
The dashboard lets an executive see the status of a product as it moves from the factory floor to distribution centers to retail stores. For example, the dashboard can display how Levi's 501 jeans are selling at an individual Kohl's store compared to forecasted sales. "When I first got here I didn't see anything," Hammann said. "Now I can drill down to the product level." The digital dashboard alerts executives to trends that under the previous systems would have taken weeks to detect. For example, in 2003 Levi Strauss started to ship Dockers Stain Defender pants. Expected sales for the pants were around 2 million pairs.
The digital dashboard quickly notified key executives that the trousers were selling around 2.5 million pairs. This information enabled them to adjust production upward in time to ship more pants, meet the increased demand, and avoid lost sales. Levi Strauss also uses the systems to control supply during key seasonal sales periods such as back-to-school and Christmas. "If I look overconfident, I'm not," Bergen said. "I'm very nervous about this change. When we trip, we have to stand up real quick and get back on the horse, as they say." As if to reinforce Bergen's point, Gib Carey, a supply chain analyst at Bain, noted, "The place where companies do fail is when they aren't bringing anything new to Wal-Mart. Wal-Mart is constantly looking at ‘How can I get the same product I am selling today at a lower price somewhere else?
Questions
1. How did Levi Strauss achieve business success through the use of supply chain management?
2. What might have happened to Levi's if its top executives had not supported investments in SCM ?
3. David Bergen, Levi's CIO, put together a cross-functional team of key managers from IT, finance, and sales to transform Levi's systems to meet Wal-Mart's requirements. Analyze the relationships between these three business areas and SCM systems. How can an SCM system help support these three critical business areas?
4. Describe the five basic SCM components in reference to Wal-Mart's business model.
5. Explain RFID and provide an example of how Levi's could use the technology to increase its business operations.