Supply Chain Management strategies in the luxury

industry
Cecilia Castelli
Politecnico di Milano
cecilia.castelli@polimi.it

Cecilia Castelli

1 Introduction
The industry of luxury goods is expected to become in 2006 a $170 billion
business worldwide (Egon Zhender International, April 2006), and in the
recent years sales were growing 6% per year (Kwak and Yoffie, 2001).
Despite the adverse economic cycle, luxury goods firms experience increasing
demand: this is due in part to the increasing social relevance of owning luxury
goods, in part to the strong commitment of the luxury companies in branding
and communication (Castaldo and Boni, 1999). But does the success of such
companies lay in communication activities only? It would be interesting to
understand if and to what extent- the choices of the appropriate operations
and supply chain strategy influence the success in the luxury niche.
The topic of Supply Chain Management, due to the major economic trends
of the last decade (globalization of markets, outsourcing of activities, demand
for growing number of innovative and customized products in small volumes,
with high quality and high service level, in an unpredictable way), emerged as
a promising research field and was largely studied; however the models that
have been proposed dont seem to describe properly the strategies to adopt in
the luxury goods industry. A specific research project is ongoing at
Politecnico di Milano, aiming at studying Supply Chain strategies in terms of
goals (critical success factors - CSF), key performance indicators (KPI), intraand inter-firm practices, and risk and benefit sharing mechanisms that are
actually adopted in the field, on the base of large empirical studies in the
luxury goods segment and at developing a Supply Chain strategy model that
can be specific for this particular industrial niche.
2 Research background
2.1 The modern industry of luxury goods.
The concept of luxury has its roots in the history of the great
civilizations of the ancient world: luxury goods have always been associated
to wealth, exclusivity and power, as long as it was identified with satisfaction
of non-basic necessities. The term luxury itself comes from the Latin
luxus which means soft or extravagant living, sumptuousness, opulence
(from the Oxford Latin Dictionary in Dubois et al., 2005). The modern
industry of luxury goods has its origins in the XIX century in Europe when,
thanks to the industrial revolution, some entrepreneurs established companies
aimed at creating exceptional products that represented the elitist lifestyle of
the time. Due to the limited local potential growth, these companies had to

Supply Chain Management strategies in the luxury industry

expand their sales outside the country of origin in order to reach a large
customer base. This put the basis for the present-day global luxury companies
(Antoni et al., 2004).
As business grew, the customer base became broader as the elites of the
world became larger and more diverse and the reputation for exceptional
quality evolved in well-established brands: today the brand image and
characterization have become one of the most relevant aspects in order to get
a positioning into the luxury market. The emotional factors have been getting
more and more importance, as todays customers are looking for goods that
are characterized by reliable performances, high quality level and perfection
of details but at the same time they want to be emotionally involved and feel a
complete and memorable experience of shopping.
Most of the authors agree that luxury doesnt actually identify a category
of products rather than a conceptual and symbolic dimension, defined by
values which are strongly related with the cultural elements that characterize a
society in a particular historical period. This is the reason why it is important
to define the main characteristics of luxury brands. Reddy and Terblanche
(2005) divide luxury brands into two categories: those which, in the eyes of
the customer, are primarily symbolic and those which are primarily
recognized for their technical features. In fact some luxury brands are valued
for their functional aspects: people buy Porsche, for instance, because of the
vehicles world-class performance and engineering. Other luxury brands, like
Louis Vuitton, are valued more for the lifestyle they project than for the
particular expertise or functionality they embody.
Antoni et al. (2004) suggests that success in the luxury market is mainly
related to the following aspects:
- Excellence: the strongest association with luxury in the consumers
mind is with excellent quality, both in product and service. It is the
necessary condition that justify the premium paid by customers. The
obsession with excellence has to be found in every luxury-goods
company.
- Brand aura: by achieving excellence, companies gained through the
years a strong reputation and positioned their brands at the top level in
consumers mind. To achieve luxury status, brands need to have a
strong aura that has to be legitimate and identifiable.
- Desirability: a common element in luxury-goods companies is the
capacity to create and maintain desirability. One element is a strong
aesthetic appeal, modern but related to traditional values; another
element is the high price of items that gives strength to the social

Cecilia Castelli

symbolism of the product; scarcity and uniqueness of the product are

also elements that increase desirability.
2.2 Supply Chain Strategy
Many authors dealt with supply chain management topics and proposed
several different approaches in order to improve knowledge and practices in
this field. Among them Shewchuk (1998) says that one size does not fit all,
meaning that theres a need to find the most fitting SCM approach depending
on the business and the context in which a firm is operating.
The main contributions to the literature so far in terms of strategy are
related to the dichotomy lean vs. agile: the former is mainly focused on
eliminating waste, reducing costs and increasing efficiency in general, while
the latter is strongly oriented toward customer responsiveness. The lean
paradigm was developed within manufacturing (Womack et al., 1990), but
was soon extended to supply (Lamming, 1993) and many additional
contributions have been proposed (e.g. Hines, 1994). The main focus is
efficiency, which is pursued through waste elimination and activity
streamlining, and the typical domain of application is a predictable and non
volatile environment. The agile model has been built upon lean concepts, but
focused mostly on speed, flexibility, and responsiveness, i.e. effectiveness
more than efficiency, and is suitable for highly volatile and unpredictable
environments. Also other authors agreed on the need to formulate a focused
supply chain management strategy (Towill et al., 2002), coherently with the
product/market considered (Lee, 2004) and with the critical success factors.
Product features indeed influence supply chain configuration and
management choices; a well established classification is the one proposed by
Fisher (Fisher, 1997): functional products and innovative products. Functional
products match with a physically efficient supply chain management strategy,
while innovative ones match with a market-responsive strategy. It is evident
that luxury goods cannot be classified into functional products, since in the
luxury segment cost issues are not as relevant as for functional products, nor
into innovative ones where the stress is on reactivity performances: in fact
some luxury products could be classified as innovative but this is not
necessary related to supply chain reactivity, while many other luxury products
are not innovative at all, since they are valued for being classics.
More recently researchers introduced other categories for the purpose of
identifying the most appropriate supply chain configuration and strategy. A
relevant category refers to unique products (Lamming et al., 2000):
uniqueness is often caused by the reputation of its brand, especially in market

Supply Chain Management strategies in the luxury industry

segments (e.g. apparel/fashion industry) in which the brand name is a

determinant of success (Bruce et al., 2004; Byrnes, 2004). Such uniqueness
should be created, supported and maintained by managing in an appropriate
way the various steps of the supply chain (Bowman, 2004). A further category
introduced by Lamming et al. (2000) deals with product complexity. Such
dimension takes into account the physical structure of the product, so that two
classes can be identified, simple products and complex products, which can be
combined with Fishers classification in order to define more precisely the
most suitable supply chain management strategy.
Many models have been proposed with the aim of indicating the correct
matching of the company goals and success factors to the most suitable supply
chain strategy (Fisher, 1997; Lamming et al., 2000; Towill et al., 2002; Lee,
2002; Cigolini et al., 2004). However such models are mainly developed for
companies operating in the mass consumer goods industries and they find low
correspondence in the luxury industry. Indeed the industrial segment of luxury
goods seems to be one of the less studied by the operations and supply chain
literature, although it could reveal interesting aspects. The literature regarding
the luxury goods industry indeed is often focused on sociological, marketing
and branding aspects, so disregarding almost completely the field of
operations and supply chain management.
From this short review of the available literature, it comes out that there is
almost no intersection between research on operations and supply chain
management and research on luxury goods management. This is the reason
why it becomes even more interesting to merge the two fields in order to
explore the relevance of operations and supply chain management for the
luxury goods industry. Furthermore, the need of studying specifically the
luxury segment seems to be even more interesting in the Italian context,
where many of the worldwide known luxury firms have been established and
still operate.
3 Research goals
3.1 The SNS project
A long run research program, named Supply Network Strategy (SNS), is
ongoing at Politecnico di Milano1. The program aims at developing a
1

The research group that developed the SNS project includes Alessandro Brun,
Federico Caniato, Maria Caridi, Giovanni Miragliotta and Stefano Ronchi and is
coordinated by professor Andrea Sianesi and professor Gianluca Spina

Cecilia Castelli

framework model to analyze critical decision areas in the strategy formulation

process. The goal of SNS project is to provide a support for the definition of
the suitable supply chain configuration and practices according to the
competitive priorities of the supply network. In order to overcome traditional
limitations of previous research, the unit of analysis is the complete network
of companies and relationships involved. In particular, the program is made of
six different research streams strongly correlated among each other. The six
streams, forming the overall research project and shown in figure 1,
correspond to six steps in the strategy formulation process, which is
considered as an iterative cycle.
Stream 0 - VI: the first stream aims at analysing the critical success factors
(CSF) of the supply network overall in its final market and how these factors
propagate themselves across the network. Besides, critical success factors will
be linked with the key performance indicators monitored, considering both the
contribution of each single actor and the overall result as seen by the final
customer. This stream consequently deals with the fundamental problem of
evaluating performance at supply network level, which is a very open and
debated issue in both research and practice (Brun et al., 2005). This is both the
first and the last step of the strategy definition cycle.
Stream I: this part of the project aims at investigating the relationship
between the relevant key performance indicators (KPI) and the choices in
terms of configuration of the network.
Stream II: this stream aims at measuring the impact of supply network key
performance indicators on the bottom lines of companies profit and loss
accounts and on other non financial performances.
Stream III: this part of the project aims at investigating specific practices
and techniques adopted, thus identifying existing supply network strategies,
which are coherent combinations of network configuration techniques,
practices and tools with regard to the observed critical success factors of the
chain.
Stream IV: this project stream deals with suitable benefit and risk sharing
tools and techniques in order to support real cooperation among the
companies involved (Miragliotta et al., 2005).
Stream V: this project aims at comparing two different strategic options,
namely that of adopting a unique strategy for the entire network, which is
made up of different products, channels, and brands, and that of adopting a
focused strategy for each combination of the above variables (within the same
supply network). Pros and cons of these options will be analysed in order to
figure out in which industry / scenario each should be used.

Supply Chain Management strategies in the luxury industry

0 VI

Link between
CSF and KPI

Link between
KPI and SC
configuration &
management

II

Unique or
focused
strategies?

Impact of KPI
on business
performance

IV

III

Risk and benefit

sharing

Cluster of
practices /
taxonomy of SC
strategies

Fig. 1: The SNS circle

3.2 Application to the luxury segment

As it emerges from the previous description, the SNS project has been
conceived in order to have the potential to cover many different industrial
contexts. This is the reason why it can be applied to the luxury goods
segment, which is indeed a very particular field, transversal to the traditional
industrial sectors.
In particular, within the luxury goods segment, only the industrial luxury
goods (so excluding antiques, collection objects, artworks, services and real
estate) which are produced and sold under an internationally known brand
will be taken into account along the present research. The considered segment
is composed by a wide variety of companies: there are large established
groups, as well as small family run businesses.

Cecilia Castelli

The specific goals of the present research consist of investigating the

above defined luxury goods segment on the basis of the SNS project, in order
to workout a specific supply chain strategy model that could be detailed into
the different streams of the SNS circle.
In the following section the research objectives are presented in details.
Objective 1: Assess to what extent operations and supply chain
management issues are relevant in the Italian luxury goods industry.
As said above, luxury is commonly considered as an industry where
branding, marketing and design are the strategic areas, while operations are
just ancillary to them and not critical. The first question of this study is to test
whether this is actually true in todays luxury industry.
Objective 2: Find out which are the critical success factors in the luxury
segment market and how they propagate themselves along the supply chain.
In order to respect the SNS project in which the present research is
included, it is necessary to identify which are the specific CSF for the luxury
goods market, if they correspond to those suggested by the literature and how
they are perceived and targeted (even in terms of KPI) at the customer level
and in the upstream parts of the supply chain.
Objective 3: Identify the presence of different strategy requirements
among the luxury goods segment and within a single company.
Given the transversal nature of luxury segment, it can be expected that
some aspects of SC strategy requirements will be common while others will
present differences depending on the business sector or on differences in the
critical success factors. Differences in SC strategy requirements could even be
identified within a single company, for instance when different target
objectives are settled for different products or different distribution channels.
Objective 4: Propose a model to identify the specific strategy, in terms of
practices and techniques, to adopt in the various levels of the supply chain.
The final goal of the research is the release of a model that could help
managers and practitioners, operating in the luxury products segment, in (1)
understanding whether SCM could drive improvements for their business and
(2) identifying the most appropriate set of choices regarding the different
levels of any considered supply chain; such model should include indications
about contracts with customers and suppliers as well as risk and benefit
sharing.
4 Research methodology
Given the research objectives, different methodologies are taken into
account in order to pursue the various goals:

Supply Chain Management strategies in the luxury industry

First of all, the available international literature will be constantly

monitored and analysed, in order to have an updated framework of the
state-of-the-art.
Case studies are used to explore the various issues and investigate
such complex themes in depth. Case studies are performed in
companies operating in the luxury segment of different industries, in
order (1) to assess to what extent operations issues are regarded as
relevant and (2) to catch different approaches to supply chain
strategies. Besides, case studies are performed at different stages and
nodes of the same supply network in order to get a proper network
perspective, thus overcoming the limitations of traditional research.
A dedicated questionnaire was developed in order to support the
interviewer during the case studies and in order to keep a common
analysis path so to allow a comparison between the different case
studies.
Survey research is also adopted, to look for a broader empirical
evidence, thus allowing to generalize the results emerged from the
case studies. In particular, survey will be used to (1) identify the
critical success factors of luxury product from the customers point of
view and (2) to identify which alternative strategies are adopted as
clusters of firms compete / cooperate under the same set of goals,
operating conditions and markets.
Finally, action research is envisaged as a tool to investigate the actual
implementation of advanced supply network strategies in real cases,
thus expanding the research interest also to the adopting process of
new management solutions.

5 Provisional findings
The research is currently in its exploratory stage: several case studies in
worldwide known Italian companies have been conducted; different industrial
sectors were involved, i.e. automotive, apparel, shoes and leather goods,
nautical, watches, jewellery, furniture. The aim of this first set of case studies
consisted in understanding how the involved companies have structured and
manage their supply chain. The interviews were conducted by means of a
focused questionnaire appositely developed for this purpose: exploring the
supply chain configuration and management choices of companies and the
relationship of such choices to the critical success factors of the luxury goods
segment. Considering the available literature, the investigation framework
adopted was structured in following areas: product characteristics; Critical

Cecilia Castelli

Success Factors; Supply chain configuration and management; Supply chain

processes (New product development, Supply, Production, Distribution).
The descriptive case studies which were obtained, were then analysed in
depth on the basis of the research objectives and of the SNS circle steps in
order to have a first set of answers and to identify more issues to be addressed
by means of a series of further company visits.
Along the case studies, particular attention has been paid to the
identification of those factors that each of the involved companies considered
as critical for its success into the luxury market. The main critical success
factors indicated by companies are:
Quality: this aspect is to be considered both in terms of compliance
with the specifics and in terms of superior material quality;
Service level: this aspect is becoming more and more important as the
customer requirements increase;
Country of origin: there are products that are appreciated for being
manufactured in a specific geographic area (e.g.: Champagne from
France);
Product display: customers require to have a complete shopping
experience, in which even the shop atmosphere reflects the values of
the brand;
Design and aesthetic: superior material aspects are not enough for
the luxury goods market, products must also convey emotions to the
customer. Product design and aesthetic are very often the mean to
make customers associate emotions to the products.
Technical performance: the communication of emotions can be due
also to a different source: best in class technical performance, which
distinguish luxury products from ordinary ones.
Creation of a lifestyle: the customer has to feel that hes part of a
unique style, which can be recreated in everyday life by possessing
special luxury products;
Innovation: in many cases luxury products need to be constantly the
best-in-class in terms of technical performance, innovative solutions
and state-of-the-art technologies. Therefore continuous innovation
can become the way to sustain the product positioning.
5.1 Some cases from the fashion industry
Not only critical success factors were investigated: supply chain configuration
and management choices were explored in order to identify distinctive
patterns for the luxury segment. Some examples can be reported from the

Supply Chain Management strategies in the luxury industry

fashion industry. A sample of ten Italian companies from the luxury segment
of the fashion industry was involved in the research, as reported in Table 1.
Managed
brands
(owned)

Size
(turnover)

(1)

5 (5)

Medium
30-40 M

(2)

1 (1)

Small
<10 M

Shoes in
exotic
leather

Yes
(Belts)

Yes

(3)

3 (1)

Small
<10 M

Leather
shoes

No

No

(4)

1 (1)

Medium
50-60 M

Apparel
(cashmere
wool)

Yes
(Bags)

Yes
(Classic
colours)

(5)

1 (1)

Big
>100 M

Yes
Handbags,
(Keyrings,
leather
accessories belts, shoes)

Yes

(6)

7 (1)

Medium
20-30 M

Yes
Handbags;
(Keyrings,
leather
accessories belts, shoes)

Yes

(7)

9 (1)

Medium
20-30 M

Handbags

No

No

(8)

2 (2)

Medium
60-70 M

Shoes

Yes
(Bags,
belts)

Yes

(9)

3(3)

Medium
30-40 M

Shoes

No

No

(10)

1(1)

Medium
30-40 M

Handbags
and
suitcases

No

No

Company

Main
Product

Accessories

Evergreen
products

Yes
Yes
(Classic
Beachwear,
(Sunglasses,
white/black
lingerie
perfumes)
lingerie)

Table 1: Companies from the fashion industry included in the sample

Collections
per year

Cecilia Castelli

Their supply chain configuration choices have been investigated, such as

geographical extension of the supply chain, geographical location of the
actors, number of echelons of the supply chain, size and type of the actors in
the various echelons, upstream and downstream integration, outsourcing
choices (See table 2).
All the companies involved highlighted that the most relevant core
competences to be kept in house are those related to the design phase, which
defines material specific, aesthetic aspect and style of the product. This is the
reason why these companies relies on a qualified design team and often
collaborate with external designers or brand owners design team (when they
are licensee for other superior brands), in order to create products which are
compliant with brand image as well as with customers requirements.
In the luxury segment products must be guaranteed, so that high material have
to be sourced every phase of the manufacturing process must be compliant to
the desired quality level. As a consequence, often materials have to be sourced
in particular countries (e.g.: leather in Italy, cashmere wool in India) and from
specialized reliable suppliers. Likewise the most critical production phases
(e.g.: the cutting phase) are to be kept in house while only the most labour
intensive phases (e.g.: sewing) can be outsourced. Anyway even for those
phases that dont take place in house, outsourcer companies are carefully
selected and the focal company usually applies some kind of control or
monitoring on their operations.
As regards the upstream part of the supply chain, several sourcing and
manufacturing levels can be identified: apart from the focal companies,
several tiers of suppliers and outsourcers exist. On the contrary, the
downstream section of the chain is often very short: companies prefer (when
possible) to sell their product directly to the final points of sale, so bypassing
any kind of wholesaler or distributor. This allows companies to have a better
control on the retailing stage, which is critical in reaching the end customers.
In fact, most of the companies involved in the present research agree on one
point: it is essential to build a direct contact with the consumer and this could
be obtained by means of some kind of downstream integration. Consequently
many companies establish at the retailing stage a network of mono-brand
boutiques, partly owned and partly in franchising. Such points of sale are
usually located in the city centre of major towns and they are characterized by
an interior design that convey the style of the brand: this combination of
design and exclusive location contributes to satisfy the need to guarantee a
strong coherence with brand image and brand values. This allows companies
not only to better understand customers needs and improve the relationship

Supply Chain Management strategies in the luxury industry

with them but also it is useful to obtain reliable sales information on which
forecasting activities are based.
Case
study

Design

(1)

In house

(2)

Co-design

(3)

In house

(4)

In house
Co-design

Suppliers
(localization)

Production
(localization)

Consumables (Italy and

abroad)
Fabrics (Italy)
Accessories (Italy)

Cutting in house.
Outsourcing of labor
intensive phases
(Italy)

Leather and shoe

components (Italy)

Outsourcing
(Italy)

Leather (Italy)

(5)

In house

(6)

In house
Co-design

(7)

In house
Co-design

Raw material (abroad)

Cashmere wire (Italy)

Leather and accessories

(Italy)

Leather and special

components(Italy)
Fabrics (Abroad
Leather (Italy)
Fabrics (Italy and
abroad)
Leather (Italy)

(8)

(9)

(10)

In house

In house

In house

Leather (Italy)
Special components
(specific countries)
Leather (Italy)
Other components
(Abroad)

Retailing
Mono-brand boutiques
Multi-brand shops
Department store
corners
Worldwide

Multi-brand shops
Europe USA
Inside
Multi-brand shops
(Italy)
Department stores
Europe, USA, Japan
Cashmere products: Mono-brand boutiques
in house.
Multi-brand shops
Clothes: outsourcing Department stores
(Italy)
Worldwide
Outsourcing to
Mono-brand boutiques
specialized
Department store
companies
corners
(Italy)
Worldwide
In house
Mono-brand boutiques
(Italy and abroad) Multi-brand shops
Worldwide
Outsourcing
Mono-brand boutiques
(Italy and abroad) Multi-brand shops
Department stores
Worldwide
In house
Mono-brand boutiques
Outsourcing of labor Multi-brand shops
intensive phases
Department store
(Italy)
corners
Worldwide
In house
Mono-brand boutiques
Outsourcing to
Multi-brand shops
specialized
Department stores
companies (Italy)
Worldwide
Abroad
Mono-brand boutiques
Multi-brand shops
Department stores
Worldwide

Table 2: Supply chain configuration for the presented sample

Cecilia Castelli

Anyway not only mono-brand boutiques are requested to keep safe the values
of the brand: multi-brand shops and department stores are carefully selected
on the base of their willingness to display the products in a proper way,
following the guidelines provided by the focal company.
Supply chain management choices were investigated as well, as briefly
reported in the following lines.
For all the study cases, demand is influenced by fashion trends and the selling
season is very short: this is the reason why design activities begin very early
(on average 9 months before the product is available for the consumer) and
the first production launches take place soon after (7-8 months before the
product is available in the points of sale). In order to avoid excessive stock,
manufacturing companies often prefer to produce only on the basis of order
received by the point of sale, so pursuing a make to order strategy. But the
choice of a pure make to order strategy leads to an increased stockout risk due
to long manufacturing lead times: in order to reduce such risk many
companies chose to produce some lines (those supposed to be best sellers)
in advance. Make to stock strategy is preferred also for those items for which
manufacturing phases are outsourced in low cost countries, due to long
delivery lead times: anyway along the presented sample the choice of
outsourcing in low cost countries is uncommon and it is regarded as a
possibility to be considered only for non critical products or process phases.
On the retail side of the supply chain the companies involved in the research
expressed a wish for downstream integration, as this is universally recognized
as a critical aspect for success in the considered segment. The major efforts
are aimed at creating a direct relationship between the consumer and the
company through the redesign of the retailing system: this means creating a
network of mono-brand company-controlled (owned or franchised) boutiques
as well as improving the service to this kind of retailing channel in terms of
delivery lead times, product availability, direct communication with the focal
company, replenishment programs, support to the sales people, information
sharing.
In order to better match production and demand, information exchange on
sell-out data and forecasts between focal companies and retailers is very
frequent: some companies register very detailed information not only about
the products but also about the customers, e.g. day and time of the transaction,
sex and age of the customer, weather conditions. In many cases retailers can
access a reserved area of the company website and put replenishment orders
that will be registered on-line.

Supply Chain Management strategies in the luxury industry

Information exchange is less frequent in the upstream part of the supply chain
where production plans are made by the focal company and communicated to
suppliers and outsourcers only trough specific orders: this is due to the fact
that outsourcers and suppliers are mainly small or artisan companies, and the
focal company believes they are not yet ready to understand a wider point of
view and deal with supply chain planning and management. Anyway some of
the studied companies are introducing some collaboration programs in order
to increase the level of integration with first tier suppliers and improve
coordination with outsourcers (see details in Table 3). In some cases this gave
place to a performance measurement system which overcomes the boundaries
of the company and includes KPI related to the logistic performances of the
supply, outsourcing and retailing network.
6 Final remarks and conclusions
This first exploratory phase led to a set of considerations that allow to
suppose that supply chain and operations management have been found to be
very important for the success of companies that operate in the luxury
segment of all the industrial sectors considered:
Most of the companies involved, stressed the fact that in their
business sector a product can access the luxury segment only if it is
manufactured into a particular geographical reason, namely Italy for
apparel, leather goods, shoes, jewellery, furniture and Switzerland for
watches; offshoring some product lines to low cost countries means
reducing the target positioning of the brand.
As well, raw materials and components, subassemblies and
competences have to be supplied from particular geographical zones
(e.g. mechanical components from Germany, design competences
from Italy), which are specific for each business sector. In addition,
suppliers have to be selected mainly on the basis of quality of
materials and operational processes, in order to guarantee a very high
quality level which is considered a market qualifier factor for the
luxury market.
On the distribution side, the importance emerged of having flagship
stores that can transmit the values of the companys brands. In many
cases also the choice of points of sale location is an essential aspect.
It is worth noticing that differently than in the mass consumer goods
industry supply chain practices are mostly aimed at increasing business
effectiveness than at reducing costs. For instance, in most of the case studied,
supplier selection is not based on cost performances but on quality, reliability

Cecilia Castelli

and innovativeness. However, this does not mean that costs are neglected;
indeed also luxury firms need to manage their profitability accurately. For
instance, the low volumes of these products do not allow economies of scale.
Also the relevant investments in innovation, communication and marketing
cannot be split among a high number of units sold. Finally, the need for high
quality, reliability and customer service easily makes costs raise. Therefore
also luxury firms need to take care of their costs and to manage their supply
chains coherently. Efforts are mainly aimed at aligning the overall supply
chain management and configuration to the brand values as well as at
corresponding to the customer feelings. This is a clear signal that the choice of
the appropriate operations and supply chain strategy could be the base on
which the brands excellence promises will be kept and supported.
REFERENCES:
Antoni F., Burgelman R. A., Meza P., (2004) LVMH in 2004: the challenges of strategic integration,
Harvard Business School case
Bowman R. J., (2004) Using Supply Chain excellence to build brand reputation, Global Logistics and
Supply Chain Strategies, August
Bruce M.,Daly L.,Towers N., (2004) Lean or agile. A solution for Supply Chain Management in the
textile and clothing industry, International Journal of Operations and Production Management, 24 (2)
151-170
Brun, A., Cagliano, R., Caniato, F., Fahmy Salama, K., Sianesi, A, Spina, G., (2005) Supply Chain
Performance Measurement Systems: how to evaluate their performance?, Proceedings of the 2nd European
Forum on Market Driven Supply Chain, Milan, April, 5-6.
Byrnes J., (2004) Supply Chain Management in a Wal-Mart world, HBS Weekly Publication, August
Castaldo S., Boni S., (1999) La dimensione emozionale dello shopping: una ricerca esplorativa sul ruolo
del punto vendita, Economia & Management (in Italian)
Cigolini, R., Cozzi, M., Perona, M., (2004) A new framework for Supply Chain Management: conceptual
model and empirical test, International Journal of Operations and Production Management, 8, 1-13
Dubois, Czellar, Laurent, (2005) Consumer segments based on attitudes towards luxury: empirical
evidence from twenty countries, Marketing Letters 16 (2)
Fisher M. L., (1997) What is the right Supply Chain for your product?, Harvard Business Review,
March-April, 105-116
Lamming R.,Harland C., Zheng J., Johnsen T., (2000) An initial classification of Supply Networks,
International Journal of Operations and Production Management, 20, 675-694
Lee, H. L., (2002) Aligning supply chain strategies with product uncertainties, California Management
Review, 44, 105-119
Lee H. L., (2004 ) The triple-A Supply Chain, Harvard Business Review, October, 102-112
Kwak M., Yoffie D. B., Gucci Group N.V., Harvard Business School case, 2001
Reddy M., Terblanche N., (2005) How not to extend your luxury brand, Harvard Business Review, May
Shewchuk P. J., (1998) Agile manufacturing: one size does not fit all, Proceedings of the IFIP WG 5.7
Conference on Strategic Management of the Manufacturing Value Chain, Kluver Academic Publishers
Towill D. R., Childerhouse P., Aitken J., (2002) Analysis and design of focused demand chains, Journal
of Operations Management, 20 675-689.