Levis Personal Pair Jeans

Submitted By: Group 10

PGP/19/065 ANISH KUMAR AGARWAL anishk19@iimk.ac.in

PGP/19/072 BORUGADDA LAKSHMAN PRATAP borugaddal19@iimk.ac.in

PGP/19/076 DHARMANSHU BINANI dharmanshub19@iimk.ac.in

PGP/19/083 MALEKAR RUTVIK RAVINDRANATH malekarr19@iimk.ac.in

PGP/19/087 N D SIDDHARTH PRAKASH siddharthpnd19@iimk.ac.in

PGP/19/095 PRATIKSHA RAJENDRA INGOLE pratikshar19@iimk.ac.in

1. Calculate the pre-tax ROIC for Levi Strauss for both channels. So What?

Wholesale channel estimate OLS channel estimate

Operations, per pair

Gross revenues 35 50
Less markdowns -3 -5
Net revenue 32 45

Costs
Total COGS 19 20
Gross margin 13 25
SG & A 9 19
Profit before tax 4 6
 Investment
Inventory 4 12
less A/P -1 -1
Accounts receivable 4 0
Net working capital 7 11
Factory PPE 5 5
Distribution PPE 1 2
Retail Store 0 20
Total Investment 13 38
Profitability% 30.77 15.79

Profitability of wholesale channel is 30.76% whereas for OLS channel is 15.78%. From a financial
perspective it is prudent to focus on the wholesale channel and expand its business in that particular
segment, but if we see the dynamics of this particular business OLS channel provides many intangible
benefits. 76% of the women customers are not fully satisfied with the purchase which shows there is gap
in understanding the requirements of the customer and OLS channel helps Levi to stay abreast with the
changing trends and requirements of the industry by interacting with the customer directly. OLS channel
improves the brand presence of Levis and it establishes a point of parity with the competitors.
Q2) What Impact will the Personal Pair system have on the value chain shown in exhibit 3?
Personal Pair is a customized type of service offered to the customers in order to increase the sales
and hence profit of the company. Exhibit 3 is a summary of the normal supply chain for jeans sold
through the Original Levis store distribution channel, which is different from the supply chain of
Personal Pair in the following ways:

Demand
Forecasting

Raw
Market Production
Material Production
Research Planning
Logistics
Design
Research

Ship to Retail
Stores
| Truck Fleet

The
Customer

The immediate impact on each step would be:

Demand Forecasting As the production is done after the orders are placed, so reliability on
production forecast is also. Also forecasting can now be done accurately with the help of real time
customer data being generated by the kiosks.
Market Research and Design research: Because of the customer data from the kiosks, real time
preferences of customers can be collected. So the personal pair will give idea about the customer
needs and requirements and will act as another data point for market research.
Production Planning - Needs to be flexible to accommodate for demand variation in order to
meet their 3 week timeline.
Raw Material Logistics - Does not change much.
CCTC: This will be new entrant to value chain. They will provide the customer measurement in
production terms.
Production - Takes longer time because each pair of jeans in individually cut, hand sewn and
inspected. There is a high raw material WIP inventory because of uncertain production as
compared to completely planned production. Proper planning will be reduced to keep the set up
time at check. (As the production is done when the order arrives)
Factory Warehousing - Since the jeans are pre-ordered, Warehousing would reduce as the
delivery destinations are already known. This implies that finished goods inventory will reduce.
Reduction in distribution charges- Since the order will be sent directly to the retail store or the
customer, the distribution charges will be reduced as the uncertainty of sales projection is not there.
The distribution centre inventory will reduce considerably from 100 days.
Easy reordering- Each produced jeans has a unique bar code, which helps the customer in re-
ordering at the store.
Ship to Retail Store
If the customer chooses for home delivery, then shipping charges are paid by the customer and so
the cost of shipping charge reduces for the company. Otherwise, shipping charges for retails store
destinations remain same. Thus, effective shipping charges reduce as the no. of home deliveries
increases.
Retail Outlets: if considerable demand routes through the personal pair channel, then the micro
demand uncertainty for retail stores is also reduced.
Customer satisfaction- Customer satisfaction increases with customization

Q3) what is your advice to management regarding the personal Pair experience in:
1) Further expansion - Based on the success of current trail, the number of outlets with kiosks
can be expanded. Other geographies with similar production abilities can be also considered based
on feedback and profitability analysis. The women at the kiosk could be interviewed as to whether
they face similar size/fitting problems with respect to other products of Levis.
2) Extension to other products Based on interviews, the facility of customization should be
further extended to other similar products. The extension should be limited to standardized
production (customization with respect to sizes) to reduce production issues. There is additional
threat of increased requests for money-back option .But there is also an opportunity since the
system is already in place.
3) Changes to system - The existing system is well thought and promises to be effective. Efforts
can be taken to reduce the delivery time and it wold be imperative to increase customisation in
terms of different models, colour etc. For creative customers, they can also offer specialised
products at a premium price by producing personalised designs. The company needs to keep up
with the changes in fashion trends to remain competitive
4) Overall initiative - The initiative from Levis is remarkable. Since the dissatisfaction levels
were high amongst the customers, it was important for the company to stay competitive. They
should try to infuse more innovation in the system. Looking at the increasing fashion sensitivity,
incorporating further facilities by managing costs sustainably, would further strengthen their
competitive advantage.
4. In general, how will the personal pair change the various elements of the financial footprint? Is
the overall result a higher or lower ROIC?
Elements Change Reason
Gross Margin Increases due to increase in selling price
due to specially trained sales clerks and CCTC
SG&A Increases software and equipment
Operating Profit Increases
Net Income Increases
Inventory Turnover Increases Increases for finished goods
Days sales No Change Remains same
Accounts Receivable No Change Remains same
Inventory Days Decreases
Payable days No Change
Working capital turnover Increases as WC reduces due to inventory reduction
Fixed Asset Turnover No Change
Increases as working capital turnover
Investment Turnover Increases increases
ROIC Increases

Q5) how would you price the personal pair jeans (versus $50 for standard, off-the-shelf
jeans)? Would you lower the price, since the customer must wait up to three weeks for
delivery? Would you raise the price, since the fit will be much better?
According to Market research, only 24% of the total women were fully satisfied with the purchase
of a jeans costing $50. Moreover Levis is an established brand. So customer would be insensitive
to a bit price rise for a better fit (personalized) jeans. Personal Pair will definitely provide
customer with quick and satisfactory shopping experience. Also the distribution cost for the
company reduces due to home delivery option. Because of all these factors, the Personal Pair
jeans should be priced $10 higher than the original $50 jeans with free home delivery. Thus the
customer will be happy to wait for their perfect jeans. Also this services reduces our requirement
of working capital.
By looking at the response of customers, we might change the pricing on a later stage.