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Case 2-3: The Levi’s Personal Pair Proposal Personal Pair proposed by Custom Clothing Technology Corporation (CCTC) Marry

Levi’s core products w/ emerging technologies of mass customization Potentially yield stronger profit margins due to price premium & streamlined production process If bad, could be expensive & time-consuming

Company Background & History - Gold rush - Farm- or factory- workers - Celebs - Political statement & American icon - Also sold pants of other fabrics & skirts, jackets, outerwear - More than ½ of revenue from US sales - Europe/Asia – highly profitable - Latin America/Canada – secondary, smaller contributions to profit - Apparel imports were increasing - Introduced Dockers – women’s, men’s, khaki Competition & the Denim Industry - 10% sales increase per yr - 1990 = 31% of market - Many producers were moving to low-cost overseas facilities which had cost advantages - Levi – strong “social conscience,” wanted to avoid exploiting disadvantaged workers, “US-made,” leader in providing generous salary & benefits packages to EEs; did not relish in price competition b/c history of brand recognition & brand loyalty - Brand name carried less cachet  necessary to create valued features - Growth uneven, net income dropped Cost Structure - Wholesale channels - Chain of Original Levi’s Stores (OLS) to keep them closer to customer - Ongoing investment per pair of jeans Mass Customization - Uses emerging comm. & comp tech to bypass limitations of traditional mass production methods - “the ultimate niche is a mkt of one” - Balance b/t providing consumers flexibility to meet needs w/o too much that DM process becomes perplexing & company’s costs spiral out of control trying to meet the customers’ phantom needs - Dual set of competitors o Low-cost, high-volume producers o Higher-cost producers that targeted affluent Personal Pair Proposal - Mass customization model could lower costs as well as provide the differentiation advantage since the reengineered process is often more efficient once new tech is applied - Lower distribution costs & inventories of unsold products - Collaborative customization - Dialogue  provide - “just-in-time” fashion - How it would work o Networked PC’s o Trained clerks measure o Code #  in 3x more measurements o Pay for jeans

- - - - - o Delivery or store pickup o Translate order o Sewing line o Inspected  packed  bar code o Arrives in 3 weeks Pricing o $15 premium o Others say $5 or $10 is better Planned Scope o Equip 4 OLS w/ kiosks o Expand to 60 kiosks o Expand to London & charge 19 pound premium Cost Impact o Investments in tech & process changes o Complex SC for OLS channel & relatively simple SC for PP program o Cost savings in distribution – nearly eliminated o Manufacturing & RM would not change much o SG&A expenses reduced if 50% of all sales are reorders that don’t incur incremental costs in retail stores o No price adjustments Investment Impact o Increases in invested capital:  Initial $3 million to integrate systems  IT investments estimated at $10/pair to maintain system & upgrade  Kiosks take up 1/3 of space in OLS o Decreases in invested capital:  Required inventory significantly lower = no inventory of finished product & small inventory of RM  Accts receivable lead to a net gain of $2/pair b/c customers pay 3 wks in advance Cost-Efficient Mass Customization o Product modifications – key elements:  Customizing would have to take place at beginning of process (rather than typically at end)  Manufacturing process modified to allow for better flow – allow more flexibility & handling of custom products  EE need large range of skills  Products of subprocesses in manufacturing chain are standardized  complex comp program w/ computerized patterns that were beamed directly to the cutting floor  integrates some tech enhanced sub-processes w/ existing standard labor-intensive manufacturing methods The Decision Considerations o Ability of Levi to implement new tech o Cost savings based on CCTC’s estimates o Mkt research indicated women weren’t satisfied o Competition .