Levi's Personal Pair Jeans Case Review

1. The return on investment capital (ROIC) for Strauss is calculated in table 1.

Table 1: ROIC wholesale versus Retail

This table shows that the 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 possibly skew the results. However, there will be a big problem if Strauss only takes into consideration the ROIC of the two channels when determining if either a, they are profitable enough to maintain and b, whether or not changes need to be made for improvement. Unfortunately, ROIC is a lagging indicator that only allows companies to evaluate past performance. A high ROIC, in this case both channels could be considered on the higher end, especially wholesale, leads companies to believe the company is performing very well and that management must be doing a good job. But, the unbalanced focus on the method used to compute ROIC may actually indicate poor management, due to harvesting behavior, ignoring growth possibilities, and ultimately long-term destruction. Other major concerns with ROIC is that the figure can be manipulated by management, influenced by accounting, and affected by inflation and currency exchange movement. Thus, regarding ROIC and the question "so what" is exactly indicative of the ultimate use of ROIC, "so what" it tells nothing and could be called somewhat useless in making forward looking well informed management decisions. As such, more profitable, concrete, and unbiased methods for analysis must be considered.

A possible solution to this problem will be discussed in question 5.

2. In the 1990s the market for jeans was quickly changing with a greater demand for fashion oriented jeans. In the early 1990s Levi Strauss was using a push-based manufacturing technique that allowed the company to mass product jeans. Unfortunately, with fashion comes individualism and the need for customization, as such Levi's was forced to change their manufacturing from traditional to lean manufacturing. The concept of lean manufacturing is to have a pull effect instead of a push effect where nothing in the manufacturing process is produced until it is required by the next step. Thus, items are not produced to create volume and push the products out the door, they are produced based on customer demand. Lean manufacturing decreases over production so that only the required amount is produced with virtually no work in progress. This results in an increase in flexibility with no waste that is highly responsive to customer requirement and closely related to customer dynamics. The new market demand for customization and fashion meant that Strauss needs to start listening to the customer instead of mass producing, which in effect will have a large impact on the value chain and how they implement strategies. Value-chain-based analysis is said to have the following five steps:

1. Identify the value chain from the customer's view. Produce a specific product from the perspective of a specific target customer, at a specific price, at a specific place and time.

2. Map the three elements of the value stream - physical, information stream, problem solving/decision making stream.

3. Focus on ensuring continuous flow and minimizing disruptions.

4. To ensure this, create a pull where the customer initiates the value stream.

5. Perfect the cycle and allow for continuous improvement.

Assessing the value chain is going to help Strauss strengthen their business and sustain a competitive advantage. From the five steps listed in the value-chain-based analysis the following can be said for Strauss.

1. Strauss only had a 24% customer satisfaction rate.

2. The return on investment capital was high enough which lead management to ignore what looked to be a heavily weighted value chain.

3. There was an 8 month lag time.

4. Customers did not initiate, activity was driven by sales.

5. The good ROIC led management to miss important improvement opportunities.

To analyze the impact of the personal pair jeans on Levi's value-chain let's use Michael Porter's value chain analysis diagram seen in table 2.

Table 2: Porter's Value Chain

With the assistance of CCTC using electronic data interchange that allows for laser cutting of the jeans there is a drastic impact to inbound logistics, including technological and operational requirement. But, this is not necessarily good; in the regular supply chain 60 pairs of jeans were cut at a time, with the new customized jeans only one jean can be cut at a time. This could drastically impact the work-in-progress because workers can no longer work on 100 jeans in a row that require the same sewing they have to sew different jeans, which could actually hinder their change over time and prolong production In effect this would increase lag time, making it a stretch for Levi's to make the three week deadline they promise customers who purchase personal pair jeans at the in-store kiosks. Another inbound logistics issue that seems "fuzzy" is that each kiosk needs to be stocked with 400 pairs of prototype jeans. How much room does it take to store 400 pairs of jeans? How much space will there be in the store for the kiosk?

The biggest change to the supply chain that will provide the most value to Levi's is the new focus on customer satisfaction along with improving production. The in-store kiosk with trained clerks demonstrates to customers that Strauss' appreciates high quality and fit. By providing the customer with hands-on personal attention, Strauss can not only sell a pair of jeans, but an idea, a way of life, after all the jeans will be custom-fit, one-of-a kind, a very inciting concepts to most customers. In addition, considering the personal pair jeans kiosks will have trained clerks, an immediate value is created in human resources as there is now a need to train and develop the sales clerks. This will have an impact on the company's ability to growth with new sub-divisional

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