Founded in 1899, VF Brands is a leading apparel company that is home to popular brands like The North

Face, Wrangler and Lee. The company is considering a shift from its current supply chain because it has
certain drawbacks. Chris Fraser, President of the Supply Chain International for VF Brands, is also
worried that it will not be able to meet future demand of customers in the Asia-Pacific market. A new
strategy called the “Third Way” aims to create true partnerships between VF and its suppliers. The
company has three possible solutions to choose from: shift to full outsourcing, refrain from further shift
and continue current supply chain strategies, or engage in the “Third Way”. The three criteria for the
solution are: cost, growth outside the US, and relationship with the suppliers.

Firstly, VF can continue the accelerated shift from integrated manufacturing to full outsourcing. This
alternative will lower production costs. The company will “chase quota” so the flexibility to respond to
changes in tariffs/quotas will save on costs. Also, some countries have cheap labor and specialization in
one field. With outsourcing, VF Brands will have more time and resources for marketing. Apparel is a
field where design and marketing is the most important, especially when it comes to fashion clothing,
most people will care more about the design than price. Depending on the contract and supplier,
outsourcing could be risk-sharing. It helps the organization to shift certain responsibilities to the
outsourced vendor. Since the outsourced vendor is a specialist, they plan risk-mitigating factors better.
In addition, competition among suppliers to get the deal will lower costs. In addition, VF can clean up its
balance sheet by eliminating assets, and have a more stable cash flow. However, this alternative also
has drawbacks. With production being shifted to a completely separate firm, there will be lack of
customer focus and loss of control. An outsourced vendor may be catering to the expertise-needs of
multiple organizations at a time. In such situations vendors may lack complete focus on VF’s tasks. If the
outsourced function involves sharing proprietary company data or knowledge (e.g. product drawings,
formulas, etc.), there is threat to security and confidentiality. Because the supplier is seeking profit, it
might not invest much and reduce quality to cut on expenses

The second alternative is to refrain from outsourcing further and keep the current supply chain or even
rebuild internal manufacturing capability. In case of failure to choose the right partner for outsourcing,
some of the common problem areas include stretched delivery time frames, sub-standard quality output
and inappropriate categorization of responsibilities. It is easier to regulate these factors inside an
organization rather than with an outsourced partner. Some companies opt for outsourcing because of
the specialized workers but the skills needed for an apparel factory are generic so experienced workers
are not needed and workers can be easily trained. Also, the supply chain will become responsive. If an
item is more demanded, the company can stock more within weeks. For an out sourced vendor, VF will
need to put in the order 8 months before so if a product stocks-out, there is no way to restock.
However, the costs are very high for this alternative. Not only the construction and maintenance of the
factories are high, but also the raw materials and transportations will be costly. There is not cheap and
steady supply of fabric in the US and supplying from other countries will have high transportation costs.
One of goals in VF’s “Growth Plan” is to expand sales outside the US. Most of the current factories are in
Mexico and the Caribbean so to enter the Asian market, VF will have to build factories or export to Asia
with high costs. VF’s board members stated that they want to minimize investments in fixed plant and
equipment and even if building a factory is cheap, it’s better to invest that money in brands and retail
operations.

The last and third alternative is to engage in the “Third Way” strategy, which means to make an
agreement with a supplier for a specific product for a longer time and create trust between VF and its
supplier. By implementing Third Way, VF can bring efficiency to its supply process and it will result in a
long term and sustainable relationship. The supplier agrees not to produce the same category of
product for competitors and will invest in the building, machinery, logistics so the relationship and
quality of the products are as good as that of internal manufacturing. Also, VF will make its engineering
resources available, thus creating efficiency. Nevertheless, there will be loss of flexibility, leakage of VF
technology, and other losses that will not benefit the company. For a company like VF with60000 SKUs,
flexibility and response to changes in trend are important but the supplier will produce only one specific
product line. Finding engineers who are willing to go abroad and suppliers that wants to engage in the
Third Way is time-consuming and costly. As Fraser stated, “It’s hard to convince that this is a good idea”.
After analyzing the three alternatives, shifting to full outsourcing seems to be the best option for VF
Brands. It is crucial for the company to satisfy various consumer needs while supplying products as
quickly as possible through efficient production. The criteria are cost, growth outside the US, and
relationship with the suppliers. Outsourcing is the most cost-effective solution and it gives VF the
highest potential to growth outside the US. Although it doesn’t foster trust between the company and
its suppliers, the benefits outweigh the drawbacks. The benefits of outsourcing include lower costs,
cheap labor, competition among suppliers, flexibility to respond to changes in tariffs, exchange rates,
possible specialization, risk-sharing, and more time to concentrate on management and marketing. The
VF board members stated that the company is currently happy with the quality from outsource vendors.
Third Way is a possible option but it uses more money and time to make production efficient. The
apparel market is fast-paced and changes quickly and VF has limited financial resources, so cost and
time are more important than efficiency. Also, although the internal plants are performing good, one of
VF’s main goals is to expand outside the US. It is better to concentrate resources into the Asian market
and outsourcing vendors than on internal plants around the US area. The current factories in Mexico
and the Caribbean can be sold. As many products continue to be manufactured by normal suppliers in
region A, sent to region B, and then sent back to region A, regional centers should be created. These
centers could manage how many products manufactured stay in their region and how many are sent to
other regions, which will increase reactivity in local and regional markets. In order to match supply with
demand, there must be an efficient communication system between the regional centers and
headquarters of each brand. Regional centers can also be directly linked with suppliers as the company
should know what the suppliers can produce and which supplier is the best one for each product. The
regional centers could be linked with global design centers, which could be in charge of creating easy
customizable products. Each product will have several brands of the group. Jeans, for example, is always
in demand all over the world, so it would be cheaper to make all the jeans in one place because lead
time will not affect the customers whether in Asia or USA. To conclude, given VF’s long-term goals and
current situations, the company should shift its supply chain to full outsourcing, like many other large
apparel companies. Giving more attention to design and marketing is preferable in this technological
era.