Dressed for SuccessBy Edward Cone | Posted 03-05-2005
Dressed for Success
One of the hidden challenges facing Boyd Rogers as he built a global information technology network turned out to be ordering dinner. VF Corp., where Rogers serves as vice president of global supply chain and technology, is the world's largest apparel maker, with sales last year of more than $6 billion, and a stable of big-name brands, including Wrangler, Lee, Nautica and The North Face. It is a business that has globalized rapidly, with most materials and many finished products now made outside the U.S. So when VF hosts a conference for its major suppliers at its Greensboro, N.C., headquarters, Rogers has to scramble to plan a menu that is palatable to all of his guests. "Just picking things we can all eat is a big job," he says. "We are doing business with people from all over the world, and it's extremely important for me to learn about their countries and their cultures."
VF's progress along that learning curve has been a key to its success in the rapidly changing apparel industry. Under Chief Executive Mackey McDonald, VF has made the transition from successful-but-stodgy manufacturer to world-spanning enterprise, delivering strong growth and financial performance by sourcing and selling its products all over the map. "Our entire business is globalizedmarketing as well as sourcing," says McDonald. The payoff: In the past three years, sales have increased by 20 percent, income from operations is up 30 percent, and VF stock has doubled in price.
"We were a manufacturing business; now we're a sourcing business," says Rogers, a soft-spoken North Carolinian who came up through the ranks at Wrangler before joining the VF corporate team five years ago. "These days, it makes more sense to own brands than machines." But iconic brands are no longer enough, as the decline of rival jeansmaker Levi-Strauss & Co. demonstrates. You've got to manage the business to take advantage of cost savings and marketing opportunities around the world, and to do that you need information systems that can support a truly global company.
McDonald, who became chairman and CEO in 1998, saw that the markets for both textiles and finished goods were opening up, and set the company on a growth strategy aimed at cost savings, customer service for big retail partners, and new products and acquisitions that could reach more consumers and keep up with their changing tastes. He made Rogers responsible for developing the core back-end systems that tie the company together and make its customer-oriented systems work. Despite some early hiccups that saw one big enterprise resource planning project scrubbed, the transition has been successfuland fast.
In 2002, VF bought about $140 million worth of material from Asian producers. In 2005, it will buy ten times that amount. About 30 percent of its products are now sourced from Asia, and over 50 percent from Mexico and Central America. Meanwhile, rapid growth in foreign markets, especially Europe, has made VF the U.S.'s most successful mass-market apparel company in terms of international sales. Sales overseas now make up about 23 percent of the company's total revenue, up from 20 percent in 2002, and they are expected to reach 30 percent by 2008. Last year saw rapid growth for The North Face in overseas markets, along with the launch of Wrangler and Lee jeans in China, the debut of a new jeans brand in Russia, and a market-leading share of the European backpack business from the Eastpack line.
VF has come a long way. The modern company was formed by the 1986 purchase of Blue Bell Inc. (the Greensboro-based owner of Wrangler, Jantzen and other brands) by VF Corp., a venerable Pennsylvania-based maker of intimate garments and Lee jeans originally called Vanity Fair Mills. VF moved its headquarters to Greensboro in 1997. McDonald led the push into global markets and also extended VF's reach by acquiring such brands as Nautica, The North Face and Vans. "They have evolved into probably the best-managed apparel company in the U.S., if not the world," says David Griffith, a senior analyst for retail and consumer goods companies at Tradition Asiel Securities in New York City. "They've done a tremendous job of shifting their supply chain, and also in building global sales."
Essential to this metamorphosis is a technology strategy that standardizes supply chain and enterprise resource planning systems, assimilates the acquisitions that have helped drive the company's expansion, and leverages sophisticated customer-support and data mining software to help drive further growth. "I'm impressed with the amount of energy devoted to systems and consumer research used in tandem with technology," says Griffith.
McDonald credits VF's customer support and analysis technology with much of its momentum. "Front-end systemsthat's where our growth is coming from," he says. VF works closely with key retailers such as Wal-Mart Stores Inc. to manage inventory and replenishment, and to gather data that will inform the latest styles. "With our focus on growth, we need to understand consumer needs around the world," says McDonald. "The successful use of demand-side data to deliver consumer needs is the biggest competitive advantage we have."
Underpinning the sales and marketing systems is the global network of supply chain and ERP platforms overseen by Rogers. "Mackey is looking to me to take out cost and provide the capability for global sales," he says. That means making sure that the five different groups of like companies within VF, known as coalitions (Jeanswear, Intimate Apparel, Outdoor, Sportswear and Imageware), can share information internally and with each other, across both divisional and national borders. "Business drives our technology, and our growth plan is to invest in and acquire core brands, and to build on supply chain to be as cost-effective as we can," says Rogers, who reports to Chief Financial Officer Robert Shearer (VF has no formal CIO).
But before becoming a world-class business, VF had to get things in order at home.
: Playing Catch-Up">
The migration of the U.S. textile and apparel industries to low-cost labor markets such as Mexico and China, a long-term process turbocharged by free-trade legislation, was a shift of historic proportions. It also stretched VF's supply chain and redistributed its operations. Over the past decade, as denim production moved from the Carolinas to Mexico, so did VF's Wrangler and Lee plants. And The North Face and other outdoors brands were already heavily committed to Asian sourcing when VF bought them.
Yet VF was still trying to tie together its existing systems within and between its various coalitions. The company lacked the IT systems to support a new kind of distributed corporation. "We had underdeveloped our technology platform," says Rogers.
VF was running a patchwork of legacy systems, and it couldn't share core data, from financial information to inventory and purchase orders, even among related companies. The plan was to create a core operating platform, keyed to VF's business processes, onto which could be bolted new acquisitions.
The first of the coalitions to move to a common SAP enterprise resource planning system was the big Jeanswear group, where Rogers was then vice president of operations. That system, which included supply-chain planning software from i2 Technologies, went live in February 2000. It was a successful project"A lot of our best practices came out of Jeanswear," says Rogersalbeit one completed a little more than a year behind schedule, and with some costly modifications made on the fly.
Company | VF Corp.
Major Brands | Wrangler, Lee, Nautica, Vans, The North Face, JanSport, Eastpak, Vanity Fair, Lily of France
Corporate Headquarters | Greensboro, NC
VP, Global Supply Chain and Technology | Boyd Rogers
Revenue | (fiscal 2004) $6.05 billion
Net Income | (fiscal 2004) $472.9 million
Stock Price | $60.34 (Mar. 4, 2005); 52 week high-low: $42.55$60.74
The next big element of the planputting the Intimate Apparel coalition on the common systemdid not go as well. There were problems with the way the software supported the products, and with the way the organization supported the project. SAP's product at the time lacked the capacity to handle the multiple dimensions in which garments are sized, and the coalition had trouble finding enough people to put on the development job. After delays and layoffs, it was shelved amid what Rogers, by then working from the corporate offices and charged with rationalizing the global network, describes as "bad vibes and low morale." Since then, VF has rallied, smoothly integrating much of its fast-growing outdoor business onto the platform and, in February, successfully adding the Intimates coalition.
The ability to add new companies to the common platform is critical to VF's growth strategy. "We want to own great brands with growth potential and consumer appealbut it's not essential that they be great operating companies when we buy them," says Rogers. "We can fix that by connecting them to our coalition systems." The North Face, for example, used to be rated poorly at order fulfillment, but since being added to the VF system it scores among the best in its market. One big job ahead: integrating the big Nautica unit, acquired in the second half of 2003. "I hope I never catch up because we continue to buy companies," says Rogers.
Rather than try to build a single global system, VF has moved to create common footprints across major geographic regions, and then to connect those to each other. So while the U.S. standardizes on SAP, European operations (including the Intimates business, headquartered near Barcelona, Spain, and the Lugano, Switzerland-based Outdoor unit) will centralize on software from vendor JBA (now Geac), which is also used by the Brussels, Belgium-based International Jeans business. Rogers is now working to allow these regional systems to share information. "The technology of it is not hard, it's the business processes," he says.
Globalization is also changing VF's distribution network. Rogers is working to reduce the number of distribution centersthere are currently 31 in the U.S. aloneand to move them from older locations near now-departed manufacturing plants to ports that can handle shipments from China and Latin America. Still to come: a common software system for all distribution centers, foreign and domestic, that is capable of handling products from any coalition.
As always, business goals are driving the technology policy, and that tech policy reflects the company's new ethic. In November 2004, VF announced an outsourcing deal with IBM Corp. for data center management. It made sense in light of issues such as peak load capacity, but it was essentially a financial transaction. "We must have studied outsourcing ten times in ten years, and we knew that we were efficient," says Rogers. "But in terms of capital spending versus expense, it made sense to take the assets off our books. We're careful about return on capitalwe don't want to own a lot of brick and mortar." That's the McDonald strategy in a nutshell: Save on fixed costs, invest in things that will drive growth.
: Filling in the White Spaces">
Filling in the White Spaces
Mackey McDonald likes to talk about filling in the "white spaces" on the product mapthe uncharted places where VF can introduce or acquire new lines that tap into consumer desires VF does not yet meet. "That's why we acquired Vans, to reach young consumers," he says. "We were under-penetrated in that market." Customers around the world are looking for products that suit their self-image and differentiate them from the crowd, whether that crowd is in South Dakota or South Africa. "It's lifestyle segmentation, not geographic segmentation," McDonald says.
At the same time, particular customers want products that meet specific needs. Market research showed that men who wear jeans to work, for example, prefer heavier denim and reinforced pockets, so VF created Riggs Workwear by Wrangler, a new brand for the workplace. "The ability to have consumer information is a key to filling in the white spaces," McDonald says.
Pat Garvey is an explorer of those white spaces. The project leader of the common systems sales chain, he works closely with the domestic operations of big retailers such as Wal-Mart, Target Corp. and Kmart Corp. to manage their inventories of VF products, and to gather data that can help VF understand what customers around the world want to wear next. VF helps the chains with sales planning and replenishment, down to the level of individual garment styles and colors in particular departments across the chains, and even runs replenishment for some of the largest companies. "We plan our business the way they plan theirs, using their calendar and their metrics," says Garvey.
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Using sales planning software from JDA Software Group and proprietary dynamic modeling software, supported by the back-end ERP system at the coalitions, VF is able to keep inventories lean but well-matched to customer demand. The company can even analyze patterns at particular stores, factor in the demographics of an area, and plan accordingly at other stores that serve similar populations. Getting good, clean data can be a struggle, particularly from retailers that don't work as closely with VF's own systems. But the payoff comes in ways beyond efficiency. "We are learning to leverage what we learn across our divisions," says Garvey. "It's fairly early in the game, but we're looking to get as much consumer-specific data as we can, to understand the consumer down to sub-brand level."
That kind of knowledge, combined with a supply chain that can source and stock goods efficiently around the world, is intended to let VF continue to fill in the white spaces on its product chart and its map of the globe. It's a design for growth that should stay in fashion for years to come.