Levi's

"Personal
Pair" Jeans (A)
PGP36252 – Ajir Bihari
PGP36253 – Aman Antriya
PGP36255 – Ansh Arora
PGP36263 – Divya Ramakrishna Nallabilli
PGP36269 – Khyati Masaun
 Women's jeans industry grew into a $2 billion fashion
category.  

The growing dissatisfaction (76%) was a threat to "push-

Case based" companies such as Strauss.

Overview A complex, expensive and slow supply chain.

Adopted “Personal Pair” concept of crafting custom jeans at

specialized kiosks at 4 of the 19 Original Levi’s retail stores. 

Collaborated with Custom Clothing Technology Corp. as a

specialized Information Systems partner.
Industry Analysis: Porter's Five Forces  
Threat of Suppliers Threat of Buyers 
• No threat from suppliers' end • High Threat of buyers
• Raw material is abundantly available  • Declining sales growth.
• Stagnated Net Income Growth.

LEVI 
STRAUSS
Competitive Rivalry Threat of New Entrant
• Big Competitive Threat  • High threat level.
• High Volume of Producers • Low entry barriers.
• Cost Disadvantage • Quite inexpensive to enter 

Threat of Substitution
• Low threat of Substitutes.
• Brand name itself is a perceived product
differentiator
Value Chain
Analysis
 It describes the internal activities a firm
engages in when transforming inputs
into outputs.

Each activity along the horizontal chain

Value Chain adds incremental value.

Analysis
To analyze the contribution of these
activities in terms of value creation to
the final product

The value chain is divided into primary

and support activities.
 Primary Activities

• Supply Chain Management

• Operations
• Distribution
• Marketing and Sales
• After Sales Services
Supply Chain Management

Slow, complex and expensive. From ordering cotton fabric to selling the “Personal Pair” impact:
final pair of jeans – it took 8 long months
– which was still quicker than the industry Each custom pair of jeans would be
average >12 months. delivered within 3 weeks of order.

Individually cut for the best fit, as opposed

to patterns being cut in fabric stacks of 60
layers.

Inventory costs of $12 per pair of jeans (8-

month pipeline) was reduced to $1.
Operations

"Personal Pair" impact:

Kiosks were operationalized at 4 of these stores.

Operated 19 Original Levi’s retail stores (2000-3000 sq.
Each kiosk was equipped with touch enabled PCs and
foot mall stores) – main purpose was to stay close to
staffed with a specially-trained clerk.
their ultimate customers.
The increased customer satisfaction would enable
Levi's to charge a premium while having lower
Inventory Costs.
Distribution

• By 1995, 19 Original Levi's retail

stores across country
• Majority sales through distributors
and/or independent retailers.
• Wholesale Channel and OLS Channel
• Order is transmitted by modem
from kiosk to CCTC and then
immediately retransmitted directly
to Levi's factory.
• Customer could choose either FedEx
delivery or store pickup
Marketing & Sales

• Pull based responsiveness to

actual buying patterns
• Increased customer interaction
• For the styles affected, unit sales
were up 49%.
• Personal Pair : Customized
offerings
• Using Personal Pair kiosk is a point
of differentiation 
After-Sales Service

• Money back guarantee of full

satisfaction on every order
• Each Personal Pair garment
included a sewn in bar code
unique to customer for easy
reordering at the store
Support Activities

Research and Information Human Resources Accounting and Firm Infrastructure

Development Systems Finance (Processes, Policies
and procedures)
 Levi's – invested heavily on R&D and as a result
Research and is one of the oldest apparel company in US
Development Originally 51 size combinations, total 4224
possible combinations post customization

R&D and
Human
Resources
Specially-trained sales clerks equipped with
Human touch screen PCs catering to Personal Pair Kiosk
Resources Clerks effectively working towards customer
satisfaction by ensuring the perfect fit
 • Levi's aggressively invested in process
improvements and information technology
• Extensive use of Electronic Data Interchange
(EDI) for effective supply chain management

Information • Partnership with CCTC, linked POS custom fitting

Systems programs with single ply cutting programs in
factories improving the operations

• Each personal Pair garment tagged to a unique

bar code – easy reordering and improved
customer re-buy experience
Accounting
and Finance
• Retail Channels are less profitable
than wholesale.
• Retail can be seen as an
investment to understand end-
user customers better
Pretax ROIC for Wholesale & OLS Channels
Line Item Wholesale Channel OLS Channel
Net Revenue 32 45
     Less Costs 19 20
Gross Margin 13 (41%) 25 (56%)
     Less SG&A 9 19
Profit before Tax $4 (13%) $6 (13%)

Total Investment $13 $38

ROIC (Profit before Tax/Investment) 4/13 = 30.77% 6/38 = 15.79%

As ROIC for the business through Wholesale Channel, the Wholesale business is more profitable than OLS
business.
Pretax ROIC for Wholesale & OLS Channels
• OLS has a higher gross margin (56%) than Wholesale Channel (41%)
• Due to higher SG&A expenses in OLS business, net profits are lower
• OLS business is capital intensive since it requires the setup and maintenance of
retail stores. 

Benefits of OLS despite less ROIC:

• Increased customer interaction to gauge customer preferences and gather
feedback.
• Build brand image through professional service & good ambience
• Differentiating factor from competitors.
 Impact of "Personal Pair" on Value Chain
Production Raw Material Factory Distribution Sales and
Production Shipping
Planning Logistics Warehousing Warehouses Promotion
• Gets simplified • Manufacturing • Systems are • Earlier there was • Now delivery of • Order is • If the "Personal
as it will be and RM heavily lag of almost 8 the order must transmitted Pair" system
based on real- procurement customized for a months be done within electronically works out as
time orders and cost will not single customer. between the 3 weeks or and the final expected, then
hence, will change much. There is a need ordering & money must be product is Levi's will need
follow just in Just in time to keep the selling returned to shipped directly to advertise and
time system. system will inventory low of finished the customer. to the customer promote their
reduce the cost but sufficient. jeans. Since the So, the shipping at his/her use of IT to the
of RM inventory. Labor should new system is must be faster expense. The customers in
be specialized in demand driven, than before. distribution cost making
jeans investment is and investment operations
making art. reduced were efficient.
drastically. eliminated.

The value chain can be reduced in size with elimination of factory warehouses, distribution
warehouses and stocking at retail outlets.
 Additional Investment on Kiosk Infrastructure

Investment  Cost

Integration on Levis & CCTC $3 million 

Systems
Infrastructure
IT Investment $10 (allocated per pair of jeans)

Retail Space for Kiosk $7 (allocated per pair of jeans)

 We suggest $5 - $10 premium over the usual price, due
to following reasons:

• Levi’s investment in innovation for customization

makes it a premium service and hence, price
reduction reflects badly on it.

Pricing of • Price reduction is difficult to reverse as compared

to price hike.

"Personal Pair" • Lowering prices will reduce the perceived brand

image of Levi’s since customers are willing to
pay higher.
Jeans • So, a Premium should be charged to establish the
value of personalization and fitting in customer
segments.
• This premium can help Levi’s recover its expenses on
kiosks, additional salaries to personnel and
acquisition of CCTC.
• The advantage of customization subdues the
inconvenience of waiting period, and this must be
come with a premium.
Impact of "Personal Pair" on the financial
footprint
Wholesale Channel OLS with "Personal
Pair" Kiosk
A/C Receivables Collection 51 Days 0 Days
Days
Inventory Days 77 Days 0 Days
Payables Days 27 Days 27 Days
Cash Conversion Cycle 101 Days -27 Days

• "Personal Pair" Kiosk will ensure inventory cost is ZERO since the holding period is ZERO.
• Kiosk will lead to negative cash conversion cycle which implies a cash surplus for future
investments and innovation. This becomes an advantage considering that competitors have a slow
conversion cycle. 
How many of you will be
willing to spend 20-30%
more for a pair of custom
fitted jeans?
Advice to Management
Further Expansion Yes
• Idea successful in London and US – can be expanded to similar demography 
• Number of channels and outlets must be increased in US too

Extend to other products Yes

• This idea must be extended to other products, like tees a and tops. It will help -
• bring out Levi’s brand image of fashion and style-oriented company (as fashion was taking over the category)
• Increase the fraction of people satisfied from their purchase to from the current 24%

Changes to the system Proposed below

• Lag of 3 weeks should be reduced - bring automation in the production process and reduce production time
• Tie ups with other 3rd party retail stores to increase kiosks
• Based on demand, another factory can be setup in the west of US to reduce transportation costs and time

 Personal pair project envisioned a niche that would allow Levi’s to compete against low-cost high-volume
producers
 Customization will provide product differentiation and increase customer satisfaction
 Pull-based approach, will lower distribution and inventory costs
Suggestions for New Value
Chain
• It is important to develop strong relationships with suppliers as their
support is necessary to receive, store and distribute the product
• Analysis of operational activities is important for improving productivity,
maximizing the efficiency and ensuring the competitive success of Levi
Strauss. The increased productivity can help Levi Strauss to achieve
consistent economic growth, increase profitability and set a powerful basis
for competitive advantage.
• When outbound activities are timely managed with optimal costs and
product delivery processes put a minimum negative effect on the quality, it
maximizes the customer satisfaction and increases growth opportunities
for the firm. Levi Strauss should pay specific importance to its outbound
value chain activities
Suggestions for New Value
Chain
• Levi Strauss will highlight the benefits and differentiation points of offered
products to persuade the customers that its offering is better than
competitors. Only producing a high quality product at affordable costs and
distinctive features cannot create value until Levi Strauss invests on the
marketing and sales activities. The sales agents and marketers play an
important role here.
• Effective and wisely integrated marketing activities can develop the brand
equity of Levi Strauss and help it stand out from the competition.
• To spread positive word of mouth due to quick, timely and efficient
support services.
• Levi Strauss can control the infrastructure activities (or commonly called
overhead costs) to strengthen the competitive positioning in the market.
Suggestions for New Value
Chain
• Levi Strauss can analyze human resource management by evaluating
different HR aspects, including- recruiting, selecting, training, rewarding,
performance management and other personnel management activities.
The effective HR management can allow Levi Strauss to reduce competitive
pressure based on motivation, commitment and skills of its workforce.
• The technological integration in production, distribution, marketing and
human resource activities requires Levi Strauss to realise the importance
of technology development. It can be divided into product and process
technological development activities.
• Due to its linkage with multiple value chain activities, Levi Strauss should
carefully consider its procurement activities to optimise the inbound,
operational and outbound value chain.
Thank You