Sunday, June 8, 2014

Lululemon Problems - An Operations Perspective

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:
  1. Quality problems that led to recall. The yoga pants were see through when users bent.
  2. Inconsistent quality led to delay of orders and their deliveries.
  3. 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.
  4. Late arrival of matching pants to tops.
  5. 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:
  1. Design and Development
  2. Sourcing and Manufacturing
  3. Distribution and Delivery
  4. Wholesale
  5. 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
Description: http://www.emeraldinsight.com/content_images/fig/3000170105004.png
Exhibit 6: Flipkart Logistics (eKart)


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