Levi's Personal Pair Jeans

Levi's Personal Pair Jeans

Introduction:

Levi's Strauss was the market leader for women's jeans in 1995. However its position as leader was coming under heavy attack. Focusing on size combination (which they offer 51), Levi's was losing ground as more styles, more colors, and better fit became more important to its customers. Market research showed that only 24% of women were completely satisfied with their jeans purchase, at $50 a pair they were becoming a tough sell. Levi's responded by recognizing a need to be in closer tough with their customers. They began to open stores to sell directly to their customers (rather than trough another retailer). They also implemented new technology such as EDI to help their supply chain. Unfortunately the lag time for their products was still 8 months.

Levi's was a company that needed a way to strengthen their business. Using the value chain analysis the company need to improve its value chain in order to sustain a competitive advantage. The results of their value chain analysis are as follows:

1. Value: only 24% satisfaction rate.

2. Value stream: ROE average more than 38% lead to little improvement in their cumbersome value chain.

3. Continuous flow: 8 months lag time.

4. Pull: The customer initiated nothing activity was driven by sales forecasts.

5. Perfection: A good ROE led management to miss opportunities in improvement.

In 1994 they were approached by Customer Clothing Technology Corp. (CCTC) with a business proposal. Specializing in client/server application linking point-of-sale, customer-fitting programs directly with single-ply cutting programs in apparel factories, CCTC suggested a joint venture to introduce woman's "Personal Pair Jean" kiosk in the Original Levi's stores.

Problems:

Levis faced with the complexity in product line for manufacturing-oriented and the complication of supply chain from product design to retail sale. Therefore, Levi's jeans had high cost of productions and high selling price that lead to the lower of customer satisfaction. When the Personal Pair system was established, it had impacts on the value chain or traditional original Levi's store. Management have to answer how it will identify the price of the personal Pair jeans and how it will change the overall result of ROIC.

Assignment Question:

1. In the Exhibit 2, it shows that ROIC for the wholesale channel is double that of the retail channel. It makes sense that the total invested capital for the retail channel is $25 greater than the wholesale channel because of the investment required per store, which is pretty typical for a company that has two channels like Strauss. From exhibit 2 in the case notes, the increases or decreases between the wholesale channel estimate and the retail channel estimate do not show any discrepancy that could