Louis Vuitton Case
Louis Vuitton : New product introductions vs. product availability Introduction Louis Vuitton is a part of the Louis Vuitton Moet Hennessy Group. Being the core business, Louis Vuitton is the most famous brand not only in the group, but also in the fashion industry.
It is well-known for its quality and design. Most of the Louis Vuitton consumers are wealthy people, who expect premium products regardless to the price. Considering this fact, Louis Vuitton may implement a strategy, which ensures availability of the products at any time and provide the clients with the best possible customer service.
In the past, Louis Vuitton faced the out-of-stock problem and it has not been solved yet. As a consequence, the company loses not only sales but also reduces its reputation. Managers realized that consumers’ satisfaction is one of the most important aspects for a company in order to continue being successful, gain high profits and reputation. The source of the out-of stock problem in Louis Vuitton causes some disagreements between the company’s vice president for marketing and sales and the vice president for manufacturing and logistics.
The first one states his opinion that the lack of flexibility and responsiveness is the base of the problem, while the second one blames the recent increase in new product introductions and the poor forec asting of demand. We will investigate these different problems and how Louis Vuitton can solve them by aligning the manufacturing process and marketing activities in the most efficient way. Supply Chain Strategy Consumers of luxury products have high expectations regarding the products? quality and design. Furthermore, the consumers want to be provided with a omplete shopping experience, when they purchase a Louis Vuitton handbag for 3 000 Euros or a pair of Louis Vuitton shoes for 1 000 Euros. An essential part of this shopping experience is the product itself. Therefore, Louis Vuitton? s supply chain has to be set up in making demanded products available, wherever and whenever they are demanded by a consumer. Unfortunately, Louis Vuitton is able to have around 98% of all demanded products from classic product lines available at their store . But if consumers request a product of one of Louis Vuitton? fashion lines, which are newly and less frequently introduced product lines, the rate of available products decreases roughly to 80%. Louis Vuitton products are bought due to the quality of the goods. Thanks to online stores, consumers use to easily purchase a desired good on the Internet. On the one hand, it saves consumer’s time; on the other hand, the probability of a potential out-of-stock problem is reduced, because o nce the purchase is realized, the company is able to react in a several ways to deliver the product.
It can send the product from a store or from different warehouses, depending on where the consumer is located and where the item is available at that time. Moreover, Louis Vuitton could improve its capacity strategy. Managers have to decide how to organize manufacturing in the most efficient way that a maximum number of units are produced for a time period. Currently, employees working for Louis Vuitton are divided into groups and each group is able to produce 120 hand bags per day.
However, considering the out-of-stock problem, one can assume that it is not the sufficient quantity to meet the demand and a solution has to be found. In order to increase the capacity, Louis Vuitton has to increase the labor force. In that way, Louis Vuitton will be able to increase its manufacturing capacity and potentially solve the out-of-stock problem. Inventory Strategy Louis Vuitton has to decide whether to reduce the inventory in order to avoid additional costs induced by required inventory space in the stores or to increase the availability of demanded products.
Undeniably, inventory must be as close to the stores as possible. This implies that if a certain product is out-of-stock it can be quickly delivered and satisfies consumer wants. Moreover, inventories should be kept in regional warehouses and that would also help Louis Vuitton to react in the most flexible way t o fluctuations in demand. For instance, if the store in Tokyo is out -of-stock, it would be easier to report about the problem to the nearest warehouse rather than to the main one in France. It will result in shortening the lead time. As a consequence, Louis Vuitton has to be constantly aware of the stock level.
This can be achieved by the introduction of a continuous review system, which is used to manage independent demand of inventory and monitors the inventory level of any item constantly to release reorders, when the reorder point is reached. Thus, the company will be able to solve the problem once a higher than expected demand is realized. The most efficient strategy for Louis Vuitton should be larger inventories in the regional warehouses at higher prices. Sourcing Decisions Louis Vuitton is well known for being creative, innovative and looking for the excellence.
Since Louis Vuitton was established in 1854, the core competencies of the company have always been des ign and quality, they perfectly correspond to the aim of Louis Vuitton to be one of the market leaders in the fashion industry. On the one hand, the classical collections have not been changed for years, and therefore being a symbol of elegance and prestige. On the other hand, fashion and collections constantly change in order to be modern. Quality is the second core competence the company uses to be one of the best brands in the industry.
To provide the customers with the best, Louis Vuitton uses high quality raw materials, which is the first step to a qualified final product. Furthermore, employees involved in the manufacturing process do 80% of their task manually. It is more costly and time consuming, but is highly valued by the consumers. Considering these facts, Louis Vuitton needs to make the right sourcing decisions. First, the company should keep the designing and manufacturing activities sourced in, because these activities are the most important regarding Lou is Vuitton? creation of value. Second, I think distribution activities can be sourced out. The company should use firms, such as TNT, DHL, UPS, etc… Louis Vuitton can choose among a variety of distributors in each country and select the most reliable one, which provides good delivery and service for a given price level. Warehouses are another part of the supply chain which can be sourced out. Renting a warehouse implies a smaller investment for Louis Vuitton and enables them to be more flexible.
The out-of-stock problem that Louis Vuitton is facing can be solved by placing warehouses in regions with high population. Moreover, according to the fact that the company requires high quality raw materials, but not all of the existing suppliers offer sufficient qua lity; one possible solution is the implementation of the single sourcing. This means that Louis Vuitton depends on only one firm for all items needed for producing their leather goods. However, this can be extremely risky, because of the probability of un expected situations such workers’ strike.
Another solution may be the multiple sourcing strategy. This implies that Louis Vuitton relies on many suppliers, but the associated risk with this type of strategy is that many firms become familiar with the core competencies of Louis Vuitton and it is possible to use these competencies for their own businesses. Finally, the most suitable sourcing strategy in the case of Louis Vuitton seems to be the dual sourcing strategy. It means that Louis Vuitton uses two suppliers, which serve the needs of the firm proportionally.
Both of them are willing to have the leader position on behalf of higher revenues. This situation is advantageous for Louis Vuitton, because it can assure that because of the competition between the suppliers, they will be always supplie d with premium quality raw materials on a particular pric e level. Logistics One of the main aspects of the logistics system is the distribution. Most companies aim at minimizing their distribution costs and Louis Vuitton is not an exception. This is the reason why the company uses the multimodal solution.
Therefore, Louis Vuitton combines transpor tation by sea, air and road. The advantage of cargo ships is that they can transfer big quantities on long distances. Moreover, Louis Vuitton operates in different continents and thus it is of great importance to ship in a cost effective way. The water transport provides efficient services at low prices. However, in specific situations such as rush orders, it is more rational to use airfreight. It can increase the costs but it guarantees that the company avoids the out-of-stock problem and satisfies customers? and consumers? wants.
The distribution system, on its side, has a great impact on the location of warehouses. For instance, the main centralized logistics warehouse in Cergy Pontoise is located near Paris, in France. The capital of France facilitates t he headquarters of Louis Vuitton as well as it is a city with high demand in fashion products. These are maybe some of the reasons why Louis Vuitton chose to situate its central distribution center. But, shipping from France to other countries may imply long customer lead time, which is the required time between the customer’s order and the delivery of this product.
To shorten it Louis Vuitton could benefit from spot stock warehousing. Shortening the lead time is one of the most important aims of the companies, because of the fact that goods are available in the stores just at the time consumers demand them. One way for Louis Vuitton doing that is to decrease the overproduction of goods with lower demand. The second possible solution is the implementation of more frequent shipments of smaller quantities. This could be more effective in combination with an improved forecasting system.
It has the potential to reduce costs by not keeping fewer goods in stock, which are not highly demanded. Moreover, to avoid the out-of-stock problem, Louis Vuitton should interact and understand the preferences of the consumer. Louis Vuitton could do it via tracking the last purchases. In this way the company can recognize if a certain customer is willing to buy goods from the classical or from the modern collections. And Louis Vuitton can progressively improve its forecasting activities in order to know which collections have to be produced and which inventory has to be increased.
Conclusion To improve the alignment between manufacturing and marketing, Louis Vuitton has to consider several factors. First, giving the present out-of-stock problem combined with the expected growth rates, the company has to increase their manufacturing capacity, based on the expected growth rate for the overall industry and for the different regions as well. In order to achieve that, they should add more labor force. More groups of workers will lead to increased production and therefore increased inventory in the warehouses.
This would result in greater availability of products in retail stores and solve the out-of-stock problem. In addition, larger inventory of product enables Louis Vuitton to be responsive to increasing demand in peak times as well as providing the opportunity to focus on the production of newly introduced products and the satisfactions of its demand. Furthermore, Louis Vuitton should consider decreasing the introduction of new fashion lines in order to avoid disruptions of manufacturing and su pply chain activities caused by changes in the manufacturing process due to newly introduced products.
Second, by improving the forecasting tools, Louis Vuitton should be more accurate in estimating the future demand for specific products. Moreover, Louis Vuitton should forecast more often and for shorter time periods. Louis Vuitton should continue to insource the leather good production and use the dual sourcing strategy for purchasing raw materials. Finally, the group should introduce marketing tools in order to interact more with the consumers and to forecast the demand.