Problem Statement: Levi’s Strauss, market leader for women’s jeans till 1995, had been losing market share as more styles / colors / better fit became more important to customer (Only 24% women satisfied with jeans purchase). Levi’s decided to stay closer to customer by direct selling (removing retailer) & hence, opened retail stores. They implemented EDI (Electronic data exchange) to help improve supply chain. But lag time was still as high as 8 months (hindering continuous flow)
Solution by Supply chain partner – In 1994, CCTC (Custom clothing technology corporation – experts in linking POS info with vendors) suggested a joint venture to introduce women’s “Personal Pairs” kiosks in the original Levi’s stores. The 8 step process of ordering custom fit pair of jeans is as follows:
1) The Personal Pair kiosk would be a separate booth in the retail store, staffed by trained sales clerks equipped with touch-screen PCs.
2) A sales clerk would take 3 measurements from each customer (i.e., waist, hips and rise) and record them on the touch screen. Working from these three measurements, 4,224 combinations would be possible.
3) The computer would then flash a code corresponding to one of 400 prototype pairs that are stocked at the kiosk, and the sales clerk would retrieve the prototype pair for the customer to try on.
4) With one or two tries, the customer would be wearing the best available prototype. Then the sales clerk would take the final exact measurements for the customer (out of the 4,224 possible combinations) and note the length required (i.e., inseam).
5) The sales clerk would enter four final measurements on the touch screen and record the order. Initially, the system would be available only for Levi’s 512; however, 5 color choices would be offered in both tapered and boot-cut legs.
6) The customer would pay for the jeans and choose either Federal Express delivery (addition $5 charge) or store pickup. A maximum 3 week delivery would be promised.
7) Each customer order would be transmitted by modem from the kiosk to CCTC, where it would be logged in and transmitted daily to Tennessee (Where each pair is cut, hand sewn, inspected, and packed for shipment.) Each pair would include a sewn-in bar code unique to the customer for easy reordering at the kiosk-store that stored the bar code.
8) A money-back, full-satisfaction guarantee would be provide with every order
Effect of the initiative: Levi’s was cautious & priced them $15 more than on off-the-shelf product. But the program became popular with the following positive effects
I. For the styles affected, unit sales were up 49%.
II. Distribution costs and distribution investment per pair were virtually eliminated.
III. Non-material manufacturing and distribution costs were cut by 47%.
IV. The price increase of the Personal Pair coupled with the cost reduction resulted in a 467% increase in pretax profit (i.e., from $6 to $34 per pair)
V. Asset investment was remarkably reduced: inventory of $12 per pair of woman’s jeans sold (reflected an 8-month pipeline) was reduced to $1 reflecting only raw materials requirements.
VI. Accounts receivable were negative since all pairs were prepaid.
VII. The kiosk yielded a greater than 10-fold increase in profitability.
VIII. By 1997, the program was responsible for 25% of the sales of the 30 U.S. company-owned stores
Conclusion: Levi’s Strauss can attribute all of these gains to CCTC’s approach to improving their value chain. The fundamental ideal in this approach is customer satisfaction. By creating a system driven by customer demand and specific to the exact needs of their customers CCTC sold Levi’s a way of doing business that ultimately made their business leaner and more focused on fulfilling their customer’s needs. Without the help of and outside value-chain-analysis and improvement like CCTC (which was eventually acquired by Levi’s in 1995) Levi’s could have never grasped the scope of the opportunities they were missing
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