Louis Vuitton Tries Modern Methods On Factory Lines For Craftsmen, Multitasking By Christina Passariello Oct. 9, 2006 1201 am ET PARIS -- A year ago, it took 20 to 30 craftsmen to put together each Louis Vuitton "Reade" tote bag. Over the course of about eight days, separate workers would sew together leather panels, glue in linings and attach handles. Then, inspired by car maker Toyota Motor Corp. and egged on by outside management consultants, the venerable French luxury-goods house discovered efficiency. Today, clusters of six to 12 workers, each of them performing several tasks, can assemble the $680 shiny, LVlogo bags in a single day. The factory-floor changes are part of a sweeping effort by Louis Vuitton to serve customers better by keeping its boutiques fully stocked with popular merchandise -- to operate, in other words, more like a successful modern retailer. Its supply-chain overhaul includes changes to its distribution system and to the way salespeople serve customers in its tony stores.

For years, high-end fashion houses like Louis Vuitton -- best known for its expensive brownand-gold logo bags -- paid far more attention to product design, craftsmanship and image than to the mechanics of keeping their stores stocked. When new designs caught on, they often sold out and the companies were often ill-prepared to speed up production and distribution. Chic but less-expensive fashion labels such as Zara and H&M have thrived by spotting trends quickly and filling shelves with new products every fortnight. Their success has forced higher-end rivals to rethink how they do business. After decades of relying solely on their designers' instincts, for example, some luxury fashion houses, including Italy's Gucci Group, are now using focus groups to find out what consumers actually want. Louis Vuitton, a unit of LVMH Mot Hennessy Louis Vuitton, the world's largest luxurygoods company, is pursuing a more-fundamental overhaul. With help from management consultants at McKinsey & Co., Vuitton set out to make its manufacturing process more flexible, borrowing techniques pioneered by car makers and consumer-electronics companies. "Behind the creative magic of Louis Vuitton is an extremely efficient supply chain," boasted Yves Carcelle, the brand's chief executive officer, at a recent news conference.

Tampering with Vuitton's production poses a risk to the brand's image. Customers pay hundreds of dollars for its logo canvas bags, for example, partly because they have bought into the notion that skilled craftsmen make them the old-fashioned way. Although the company has been modernizing gradually for some time, that reputation is still vital to the company's success. The public image of Louis Vuitton, which was founded in 1854, has been shaped by celebrity advertising, lavish fashion shows and the star-power of its top designer, Marc Jacobs. (Its spring collection was unveiled at a show yesterday in Paris.) Although it designs apparel, the bulk of its sales come from accessories such as handbags, wallets and suitcases. The company has long regarded limited-edition products as a way to bolster its cachet. As a result, customers often found themselves on waiting lists for popular merchandise. That thinking is changing. "What do our clients want? Products that are always available in stores," said one company document outlining the changes.

The new factory format is called Pgase, after the mythological winged horse and a Vuitton rolling suitcase. Under the new system, it takes less time to assemble bags, in part because they no longer sit around on carts waiting to be moved from one workstation to another. That enables the company to ship fresh collections to its boutiques every six weeks -- more than twice as frequently as in the past, according to one Vuitton official.

"It's about finding the best ratio between quality and speed," says Patrick-Louis Vuitton, a fifth-generation member of the company's founding family, who is in charge of special orders. Other luxury-goods companies are taking similar steps. Versace SpA recently hired a division of Computer Sciences Corp. and Giorgio Armani SpA hired Oracle Corp. to help make their supply chains more efficient. Burberry PLC, Cartier and Prada SpA have retained German software firm SAP AG for the same purpose. Many high-end fashion houses "had the image, but they couldn't compete on execution," says Rick Chavie, SAP's senior vice-president for retail and wholesale. Adds Gladys Lau, Oracle's senior industry director for retail: "Like Zara, luxury brands are all about speed-to-market."

For years, luxury-goods makers have thought about supply and demand differently than do other consumer-goods companies. In most sectors, running out of a product when demand is strong is considered disastrous. But production is limited for some high-end fashion items. A waiting list for the Paddington bag made by French fashion brand Chlo created such an aura of desirability last year that it became a cult item -- and established Chlo as a hot brand. The industry has begun to rethink that approach. French fashion house Herms International has hired another 300 factory workers to reduce waiting lists for best sellers like its $7,000 Kelly bag, named after the late actress Grace Kelly. Herms craftsmen still stitch most of its bags by hand, signing them when they finish. To increase production, Gucci recently took on more suppliers near its Florence headquarters. Gucci and Prada are among the brands that rely on outside suppliers to produce much of their merchandise. Louis Vuitton, which has annual sales of nearly $5 billion, hopes the supply-chain changes will help it meet a goal of at least 10% annual sales growth for the next several years. That's important to its publicly traded parent company, LVMH, which is dependent on the Vuitton brand for more than half of its profit. LVMH does not break out income from its various units. In the first half of this year, LVMH's net income climbed 46% to $1.03 billion on sales of $8.78 billion.

Louis Vuitton expanded internationally in 1978 when it opened stores in Tokyo and Osaka to sell its LV-logo trunks, suitcases and handbags. By the late 1970s, its sole factory in Asnires, near Paris, where the Vuitton family began making trunks in 1860, wasn't big enough to sustain the growth. "When the first electrical sewing machines arrived 30 years ago, people saw it as the devil," says Mr. Vuitton, who abandoned his veterinary studies to work at Asnires in 1973. The company started buying up factories, or ateliers, across France. Over the years, on average, it opened a new one every two years. Today, there are 13 factories producing accessories. Thanks to a big marketing and store-opening push in the U.S. and Asia, annual sales rose to about $3.2 billion in 2000 from about $760 million in 1990.

In 1998, the fashion house moved into the ready-to-wear apparel business by hiring Mr. Jacobs, an American designer. Mr. Jacobs's production of a new Louis Vuitton clothing line each season prompted the company to reconsider its approach to accessories. In addition to classic designs such as the LV-logo shoulder bag, Vuitton began producing bags like the graffiti bag and the cherry-print bag, which were in stores one season and gone the next. The Sept. 11 attacks, the SARS virus in Asia and the onset of war in Iraq together cast a threeyear pall over the luxury-goods industry, in part by crimping global tourism. When the recovery began, Louis Vuitton launched an advertising campaign featuring celebrities such as Jennifer Lopez and Uma Thurman and opened stores on Manhattan's Fifth Avenue and elsewhere. Vuitton was releasing a new handbag each season. But the factories, which were working on long-term schedules, remained out of step. If a seasonal bag became a hit, the company wasn't capable of ramping up production. When a denim monogram bag caught on last year, for example, customers cleaned out store shelves, and would-be buyers were turned away. Vuitton executives grew intrigued with the lean production process developed by Japanese car makers, which enabled their factories to react quickly to changes in vehicle orders. The Japanese approach seemed to offer a way for Vuitton to shift production to the handbags that were selling best, senior Vuitton executives say. The "zero-defect policy" of the car makers -- all problems are supposed to be corrected before cars left the factory -- also seemed appealing.

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Zara Thrives by Breaking All the Rules How the Spanish apparel chain gets new designs into stores in two weeks while keeping costs low by Kerry Capell ARTEIXO, SPAIN Many U.S. apparel retailers are choking on slow-moving inventories as consumers hold back on spending. But Spain's Inditex, whose Zara chain pioneered cheap chic, is zipping ahead. The $13.8 billion company, which is closing in on Gap (GPS) for the title of world's biggest clothing retailer, has nearly quadrupled sales, profits, and locations since 2000 . This year, Inditex plans to expand by up to 640 stores. "They will weather the storms better than most of their rivals," says Michael Lewis, a supply-management professor at University of Bath's School of Management. Inditex's secret? Besides selling relatively cheap clothes, which fit the times, the company maintains an iron grip on every link in its supply chain. That enables it to move designs from sketch pad to store rack in as little as two weeks. This "fast fashion" way of doing things has become a model for other apparel chains, such as Los Angeles-based Forever 21, Spain's Mango, and Britain's Topshop, which is set to open in New York next year. Inditex has spent more than three decades perfecting its strategy. Along the way it has broken almost every rule in retailing. At most clothing companies, the supply chain starts with designers, who plan collections as much as a year in advance. At Inditex, Zara store managers monitor what's selling daily-and with up to 70% of their salaries coming from commission, there's a lot of incentive to get it right. They track everything from current sales trends to merchandise customers want but can't find in stores, then shoot orders to Inditex's 300 designers, who fashion what's needed instantly. For rivals hoping to mimic Inditex's results, analyst Luca Solca of Sanford C. Bernstein has a bit of advice: Don't follow the Zara pattern halfheartedly. "The Inditex way is an all-or-nothing proposition that has to be fully embraced to yield results." Capell is a senior writer in BusinessWeek's London bureau. HIGHER PAY AT THE PLANT Typically, apparel chains outsource the bulk of production to low-cost countries in Asia. Inditex produces half of its merchandise in factories in Spain, Portugal, and Morocco, keeping the manufacturing of the most fashionable items in-house while buying basics such as T-shirts from shops in Eastern Europe, Africa, and Asia. Wages are higher at Inditex-its factory workers in Spain make an average of $1,650 a month, vs. $206 in China's Guandong Province. But the company saves time and money on shipping. Also, Inditex's plants use just-in-time systems developed in cooperation with logistics experts from Toyota Motor (TM), which gives the company a level of control that would be impossible if it were entirely dependent on outsiders. In addition, Inditex supplies every market from warehouses in Spain. Even so, it manages to get new merchandise to European stores within 24 hours, and, by flying goods via commercial airliners, to stores in the Americas and Asia in 48 hours or less. Air shipments cost more than transporting bulk packages on ocean freighters. But Inditex can afford them. The company produces smaller batches of clothing, adding an air of exclusivity that encourages customers to shop often. As a result, the chain doesn't have to slash prices by 50%, as rivals often do, to move mass quantities of out-of-season stock. Since the chain is more attuned to the most current looks, it also can get away with charging more than, say, Gap. "If you produce what the street is already wearing, you minimize fashion risk," notes Jos Luis Nueno, a marketing professor at IESE Business School in Barcelona. 59 Facilities layout, lean manufacturing, brand management, value-added activities Some firms in the fashion industry have adopted lean or just-in-time approaches to maintain or increase their competitive advantage. Read the following articles or other resources to address the questions below: "Brand-New Bag: Louis Vuitton Tries Modern Methods on Factory Lines" (C. Pas. sariello, Wall Street Journal, October 9, 2006, p. A1) and "Zara Thrives by Breaking All Rules" (K. Capell, BusinessWeek, October 20, 2008, p. 66). Required (a) Compare Louis Vuitton's previous and current processes for making a bag. For example, how many people and days are required, what are the workers' degrees of specialization, and what improvements have resulted? (b) How did Louis Vuitton's previous process for making bags support the company's value proposition? (c) How have practices from competitors such as Zara changed Louis Vuitton's view of what its target customers want? Has Louis Vuitton's value proposition changed? If so, how well will the new process support the company's value proposition? (d) What performance indicators do you think are critical in evaluating the performance of this manufacturing operation from the standpoint of customers and the company