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As noted earlier, VF had historically been an apparel manufacturer. At one point, it owned approximately 100 factories. With the acquisition of The North Face, in the late 1990s, this began to change. The North Face, like many of the organizations VF would subsequently acquire, had no internal manufacturing. VF’s existing manufacturing infrastructure was not well suited to these lifestyle brands for two reasons. First, VF’s plants were largely focused on jeans and denim products, while many of the lifestyle brand products were not. Second, VF plants were located in Mexico and the Caribbean in order to optimize the logistic costs and tariffs to serve the US market, VF’s traditional focus. With the strategy of expanding into lifestyle brands and international markets, the company needed to expand its outsourcing in Asia. This was a significant shift in the company’s philosophy. A painful part of this new strategy included the closing of many of VF’s internal manufacturing plants. By 2009, VF produced about 30% of its products in-house (in its 40 remaining plants), and sourced the rest from independent suppliers. Of course, there was significant variance across product lines in sourcing. For instance, VF produced about 60% of its jeans in-house. Imagewear, which was largely targeted at the US market, and which required very quick response times, also sourced the vast majority of its products internally. On the other hand, VF used outsourcing for 100% of its lifestyle apparel, footwear, and backpacks. Still, VF was proud of the internal manufacturing capabilities the company had accumulated over 125 years, and believed those capabilities provided it a significant competitive advantage. A recent benchmarking study by a consulting firm indicated that VF’s internal manufacturing plants were among the very best in the world in terms of quality, efficiency, and reliability. The time needed to produce a garment in VF-owned factories was much shorter than the industry average. VF’s factories also had defect rates well below industry averages. On production lead times, VF-owned factories required 10 days from “cut to ship” compared to 30 to 50 days for external suppliers. VF also believed it had built up technical and engineering capabilities for apparel manufacturing that few companies could match. For instance, its Mexican and Nicaraguan plants employed about fifty engineers focused on improving processes. The company had developed novel techniques and even proprietary equipment for manufacturing jeans. Mike Green, Managing Director of VF Asia, a member of Fraser’s international sourcing team, had spent 26 years at VF in engineering, plant management, and sourcing roles. He commented “There is no doubt that VF plants set the standard in the industry.” On the sourcing side, building up a reliable and high-quality supplier network required an enormous investment in time. Prospective suppliers needed to be visited and their manufacturing capabilities carefully assessed. In addition, VF had a strict policy of only doing business with suppliers who followed internationally established standards for worker safety and protection. It also took time to establish good working relationships with suppliers, and only experience could really tell which ones were reliable. By 2009, VF had relationships with more than 1600 contractors and 30 distribution centers around the world. The top 20 suppliers accounted for about 45% of the outsourced volume procured by VF on an annual basis. To manage this, the company hired Chris Fraser in 2000. He came from another sourcing position in a large apparel company located in Asia. When he arrived, sourcing represented only a small portion of total sales. Between 2000 and 2009, with the acquisition of many new lifestyle brands, the company’s sourcing volume in Asia alone increased 15 fold to reach a total value of $1.8 billion. As VF gained experience with sourcing, the management team also began to understand that its supply chain network provided a significant platform for growth. Chris Fraser provided an example: “When we acquired Napapirji, they had a very strong brand, but they would have had to invest years and millions of dollars to grow to $300 million in sales. By being part of VF, they now had access to our supply chain network. We could just plug them in to our system.” One of biggest challenges of running such a large apparel supply chain was the sheer complexity of the product line. VF, for instance, currently had over 600,000 SKUs, where an SKU was defined by only style and color (and not article size). Jeanswear alone had approximately 100,000 SKUs. Moreover, while some “classic” product lines change little from year to year, the lifestyle brand product typically had very short product life cycles, and required nearly constant replenishment of new designs. On average, about half of VF’s SKUs were essentially new product designs every year. A second complexity was the widely differing needs and priorities of the brand coalitions. For instance, in more fashion oriented products where VF competed with companies like Liz Claiborne and Tommy Hilfiger, product design was considered “king.” Product designers in those lines focused almost solely on creating an exciting menu of products that would hit the fashion “sweet spot” in the coming season. In these product lines, cost was not such a critical issue. Products sold in VF’s brands stores typically fit into this category. In other products lines, the name of the game was low cost and rapid replenishment. For instance, large retailers in the US demanded that VF be able to replenish store inventories within 8 days in order to minimize inventory costs. For product lines competing with Zara, a chain well known for being able replenish inventories continuously throughout a season, the supply chain had to be extremely responsive. There were also significant differences in product requirements across regions, even for seemingly very similar products. Consider jeans. In the American market, jeans were by and large a non-fashion clothing item (Fraser, an American, pointed out, “Americans wear jeans as an ‘anti-fashion’ statement”). A good quality pair of Wranglers could be bought for $16-$30 depending on the retailer. But in Europe, jeans were worn as a fashion item. They had different cuts, design, and fit, and were often made of different denim than jeans sold in the US market. They also sold at smaller retailers and at much higher prices than in the US (e.g. a pair of Wranglers could sell for $60-$80/pair).