Case Name: Levi’s Personal Pair Jeans (A)

Student Name: Zhan Yi Qiu

Student Number: 100309412
Short Cycle Process:

 Who: Financial Advisor

 When: 1995
 Where: United States

Case Analysis:
ISSUES:
High ROIC of wholesaler and retailer channel may raise concerns to growth opportunity in the
long run.

ANALYSIS:
Exhibit A illustrates the ROIC of the two distribution channels with wholesaler generating 31%
and retail generating 16%. The ROIC of wholesale channel almost doubles the ROIC of retailer
due to the significant increase in investment made to retail stores. The higher investment and
lower ROIC of retail can be explained by Levi Strauss’ mission of establishing closer relations
with final consumers. Nonetheless, both channel exhibits high ROIC indicating the business’
efficiency in generating cash flow from its capital investments. However, high ROIC is also a
concern to the company as a lack of future investments to distribute current returns may result
with loss of growth opportunities to maintain Strauss’ position as a market leader in the jean
industry.

RECOMMENDATIONS:
Levi Strauss can make further investments to capture growth opportunities presented in the
market. Levi Strauss can adopt the “fashion” jean trend by implementing its proposed “Personal
Pair” kiosk in its retail stores.

ISSUES:
Long lead time of final goods in inventory is inefficient to cost and operation of the business.

ANALYSIS:
The supply chain in Case Exhibit 3 illustrates the massive 8-month lead time from raw materials
to retail sales. This is a major concern due to:
- Expensive cost and investment in distribution
- Uncertainty and variations in shipping schedules between worksites
- High inventory and storage cost per store due to push strategy

By adopting a shorter lead time Levi Strauss may better satisfy its consumer by adding value to
its products through enabling product flexibility. The shortened lead time will also allow the

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 company to experience lower cost by significantly decrease distribution cost and investment
through directly shipping finish goods from factory to retail. In addition, shortening the current
lead time will result with better cash flow by significantly decreasing inventory days presented in
Case Exhibit 1. Higher turnover of inventory will allow the company to focus on lowering sales
collection days to meet payable days of 27.

RECOMMENDATIONS:
Levi Strauss can implement some lean system from factory warehouse to retail outlet to lower
transportation and storage lead time. Or the company can adopt the “Personal Pair” project to
implement a pull system and further add value to its product by offering better fit, style, and
color.

ISSUES:
Unknown operational and investment cost and price of “Personal Pair” products. Assumptions
can be made on cost based on the two channel data provided in case, which can then be used to
determine product pricing through breakeven analysis.

ANALYSIS:
Exhibit B illustrates the operational and investment cost of “Personal Pair” kiosk. Due to the
implementation of a pull system Levi Strauss can no longer use scaling to lower its conversion
cost, thus, there is an assumption of a $10 increase per pair. Distribution cost is lowered by $5
from wholesaler due to outsourcing some of the cost to customers who are willing to pay for
FedEx delivery. The investment section is relatively the same as wholesaler channel. A/R is not
like retail channel because of the money back guarantee made to consumers when ordering
products in the kiosk. Finally, the kiosk investment will be $30 dollar a 50% increase from retail
store investment due to implementation of innovative technology and skilled labour in the booth.

Using the goal seek function, I then determined the gross revenue of one pair of jeans to be $55
when ROIC is 15%. This pricing makes sense as it does not cannibalize the current product of
the retail store that are sold at $50. Pricing the product lower or equal to the $50 standard is not
justified as it may damage company image of luxurious products through offering cheaper goods.
Furthermore, the partnership with CCTC establish an unique ordering platform in the industry
which provide products that consumer values. For example, jeans with more style, color, and
better fit.

RECOMMENDATIONS:
Implementation of “Personal Pair” kiosk may greatly increase sales and customer satisfaction by
introducing products that customer values. If the investment is successful, Levi Strauss may
cease the growth opportunity of the fashion jean market and further maintain its position as a
market leader in the jean industry. Moreover, the implementation of better tailor jeans may
greatly boost the satisfaction rating of Levi’s products.

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 APPENDIX:

Exhibit A

Exhibit B

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