This was co-authored with Tabitha Pladet, Ace L. D. Mundo and Nidhi Garg
1.
What
is the Problem?
When
the team was researching on a topic to choose, it came across an article that
was published on the Wall Street Journal dated January 13th, 2014 about
Lululemon that said that the supply chain had been the major reason behind the
major recall of products, the mismatch in the SKUs, and inconsistent demand
planning. The team decided to dig deeper in the problem and find the real cause
and come up with a viable solution. (Exhibit 1) From what was evident,
following were the key issues that the article identified:
- Quality problems that led to recall. The yoga pants
were see through when users bent.
- Inconsistent quality led to delay of orders and their
deliveries.
- Delay of orders and their deliveries led to lack of
merchandise in the stores that was up to date with fashion trends, a key
feature of this industry.
- Late arrival of matching pants to tops.
- Incorrect forecasting of sales led to accumulation of
stocks.
Before we elaborate on what caused the problems
and what could be the best work around for the problem, we would like to
briefly mention a little about Lululemon.
2.
Who
is Lululemon?
Lululemon
or Lululemon Athletic is an apparel manufacturing company that is, at its core,
inspired by Yoga practitioners. It innovated on its product line from the late
90’s to become the second in sports apparel volumes to Nike Women’s sports
apparel by 2013. It draws a lot of its customers primarily because of the
flexibility and the unique quality of Luon one of the special fabrics that
Lululemon uses in its clothing line.
The
company is head quartered in Vancouver Canada. Its major production hubs are <>
The
company was started by Chip Wilson, but he quit after a goof up, that forms the
core of our study caused them to lose over $67 million in revenues and a lot
more in terms of brand image.
3.
What
does the Supply Chain of Lululemon look like?
The
supply Chain of Lululemon has the following blocks:
- Design and
Development
- Sourcing and
Manufacturing
- Distribution and
Delivery
- Wholesale
- Retail
A
pictorial representation is present in exhibit 2.
What
we observed was unique about the supply chain is that they use PLM software to
manage the demand data (source: exhibit 3). But the sorting of clothes while
packing only happens manually. Also, the demand forecasting is more a reactive
feature of this supply chain as opposed to a proactive approach. What we saw
was there was a challenge in the logistics, and supplier front of this chain.
The suppliers of Lululemon own the proprietary of the Luon fabric, and the
manufacturing is done primarily by the suppliers and manufacturers. Lululemon
just brands the clothes and ships them to their distribution channels using a
logistical solution system that is also outsourced (exhibit 3)
The
challenge that we as a team anticipate from such a chain are:
1. Quality
Assurance/ Quality Control: Since Lululemon does not own any
of the suppliers or the manufacturing process, it points to an obvious
challenge that the company would face in implementing a Quality Audit and
maintaining a certain standard.
2. Testing
Methods: We looked in closely at the fabric testing
conditions that Lululemon was applying in 2012 (exhibit 4) and one concern that
was echoed by those watching Lululemon closely was that the tolerance levels of
the fabrics wasn’t tested as stringently as it ought to have been. What
Lululemon discovered eventually was that small changes in the fabric
composition and handling created major noticeable differences in the end
product.
3. Back-Flow
of Demand information through the supply chain: What
we as a team discovered as a key challenge after looking at Lululemon’s supply
chain was that the company was not ready to accept data from the customer in
the form of feedback and implement changes that would lead it to achieve its
quality and delivery goals.
4.
What
is the REAL problem?
When the team investigated the problem during
the initial stages, we concluded that due to a flaw in the production, the
quality of the yoga pants was compromised. As a result the media labeled them
see-through. This led to the recall of the batch by Lululemon. After
encountering this issue Lululemon started concentrating its effort on looking
at the production and trying to figure out the fault in it. To ensure that no such
quality issues pop up again they added more of the inspection and quality
control procedures to the process. This increased the quality standards but led
to the delay in deliveries since inspection and quality control processes were
time taking processes. Because of the delay in deliveries and the recall a
batch of shirts arrived the retail stores without the matching yoga pants. In
an effort to correct the production process, Lululemon almost forgot
introducing new designs in the market as per the new season. This drove
customers off the stores. Because of the all this they were not able to
forecast the sales and inventory correct and this made them incur the high
inventory cost.
But upon deeper investigation we observed that
the metrics used to test the fabric was the real issue. Since the lower
threshold testing was at fault the quality of products churned out by the
quality control was not up to the mark leading to the see-through quality.
5.
How can we best address the problem?
Our
team recommends a three-pronged approach towards solving the problem with
Lululemon.
Firstly, it needs to set up adequate
testing standards as a first reaction to its current see-through fabric
problem. To this effect I am sure Lululemon’s current testing and quality team
can come up with the best set of solutions to create a process to eliminate
this flow.
Secondly, Lululemon needs to identify a
better forecasting model that factors in key elements such as demand and
arranges its suppliers to react fast to the changing demand. Something that
Lululemon can borrow from Zara, (exhibit 5) another JIT supply chain company.
Zara does not over produce. The secret to their lean set up is marginal
inventory, and limited stocks of key products. Given that their segment needs
them to be updated with the latest fashion trends they need to keep changing
their design and inventory levels. As a result, they commit to only getting
approximately 50% of the expected volume, and the rest it changes depending on
feedback from the retail channels. Maybe Lululemon can adopt a modified version
of this inventory, and lean method to modify its forecasted demand data and
train suppliers to be more agile.
Thirdly, to maintain a strong ecosystem of
suppliers, and on time deliveries, the company needs to invest in a strong
leadership, and have strong logistic partners. This can become a competitive
advantage for the company in the longer run. For example, Flipkart, (Exhibit 6)
India started out as an e-commerce company, but is now diversifying into a
strong logistics partner for key businesses, including other e-commerce
companies.
Exhibit 1: The Wall Street Journal
Article
Exhibit
2: Supply Chain of Lululemon
<Tabitha Please Put that Picture
here>
Exhibit 3: Evidence of PLM Software
Use
Exhibit 4: Evidence of Testing
Parameters Used
2012 Testing Parameters:
Exhibit 5: Zara Supply chain
Exhibit 6: Flipkart Logistics
(eKart)
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