Transforming Banks for a Digital Future: The Winners, The Losers, and the Strategies to Beat the Odds
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.
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