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Louis Vuitton tries modern methods on factory lines
By Christina Passariello, The Wall Street Journal
www.post-gazette.com
PARIS -- A year ago, it took 20 to 30 craftsmen to put together each Louis Vuitton "Reade" tote bag. Over the course of about eight days, separate workers would sew together leather panels, glue in linings and attach handles.
Then, inspired by car maker Toyota Motor Corp. and egged on by outside management consultants, the venerable French luxury-goods house discovered efficiency. Today, clusters of six to 12 workers, each of them performing several tasks, can assemble the $680 shiny, LV-logo bags in a single day.
The factory-floor changes are part of a sweeping effort by Louis Vuitton to serve customers better by keeping its boutiques fully stocked with popular merchandise -- to operate, in other words, more like a successful modern retailer. Its supply-chain overhaul includes changes to its distribution system and to the way salespeople serve customers in its tony stores.
For years, high-end fashion houses like Louis Vuitton -- best known for its expensive brown-and-gold logo bags -- paid far more attention to product design, craftsmanship and image than to the mechanics of keeping their stores stocked. When new designs caught on, they often sold out and the companies were often ill-prepared to speed up production and distribution.
Chic but less-expensive fashion labels such as Zara and H&M have thrived by spotting trends quickly and filling shelves with new products every fortnight. Their success has forced higher-end rivals to rethink how they do business. After decades of relying solely on their designers' instincts, for example, some luxury fashion houses, including Italy's Gucci Group, are now using focus groups to find out what consumers actually want.
Louis Vuitton, a unit of LVMH Moet Hennessy Louis Vuitton, the world's largest luxury-goods company, is pursuing a more-fundamental overhaul. With help from management consultants at McKinsey & Co., Vuitton set out to make its manufacturing process more flexible, borrowing techniques pioneered by car makers and consumer-electronics companies. "Behind the creative magic of Louis Vuitton is an extremely efficient supply chain," boasted Yves Carcelle, the brand's chief executive officer, at a recent news conference.
Tampering with Vuitton's production poses a risk to the brand's image. Customers pay hundreds of dollars for its logo canvas bags, for example, partly because they have bought into the notion that skilled craftsmen make them the old-fashioned way. Although the company has been modernizing gradually for some time, that reputation is still vital to the company's success.
The public image of Louis Vuitton, which was founded in 1854, has been shaped by celebrity advertising, lavish fashion shows and the star-power of its top designer, Marc Jacobs. (Its spring collection was unveiled at a show Sunday in Paris.) Although it designs apparel, the bulk of its sales come from accessories such as handbags, wallets and suitcases. The company has long regarded limited-edition products as a way to bolster its cachet. As a result, customers often found themselves on waiting lists for popular merchandise.
That thinking is changing. "What do our clients want? Products that are always available in stores," said one company document outlining the changes.
The new factory format is called Pegase, after the mythological winged horse and a Vuitton rolling suitcase. Under the new system, it takes less time to assemble bags, in part because they no longer sit around on carts waiting to be moved from one workstation to another. That enables the company to ship fresh collections to its boutiques every six weeks -- more than twice as frequently as in the past, according to one Vuitton official.
"It's about finding the best ratio between quality and speed," says Patrick-Louis Vuitton, a fifth-generation member of the company's founding family, who is in charge of special orders.
Other luxury-goods companies are taking similar steps. Versace SpA recently hired a division of Computer Sciences Corp. and Giorgio Armani SpA hired Oracle Corp. to help make their supply chains more efficient. Burberry PLC, Cartier and Prada SpA have retained German software firm SAP AG for the same purpose.
Many high-end fashion houses "had the image, but they couldn't compete on execution," says Rick Chavie, SAP's senior vice-president for retail and wholesale. Adds Gladys Lau, Oracle's senior industry director for retail: "Like Zara, luxury brands are all about speed-to-market."
For years, luxury-goods makers have thought about supply and demand differently than do other consumer-goods companies. In most sectors, running out of a product when demand is strong is considered disastrous. But production is limited for some high-end fashion items. A waiting list for the Paddington bag made by French fashion brand Chloe created such an aura of desirability last year that it became a cult item -- and established Chloe as a hot brand.
The industry has begun to rethink that approach. French fashion house Hermes International has hired another 300 factory workers to reduce waiting lists for best sellers like its $7,000 Kelly bag, named after the late actress Grace Kelly. Hermes craftsmen still stitch most of its bags by hand, signing them when they finish.
To increase production, Gucci recently took on more suppliers near its Florence headquarters. Gucci and Prada are among the brands that rely on outside suppliers to produce much of their merchandise.
Louis Vuitton, which has annual sales of nearly $5 billion, hopes the supply-chain changes will help it meet a goal of at least 10 percent annual sales growth for the next several years. That's important to its publicly traded parent company, LVMH, which is dependent on the Vuitton brand for more than half of its profit. LVMH does not break out income from its various units. In the first half of this year, LVMH's net income climbed 46 percent to $1.03 billion on sales of $8.78 billion.
Louis Vuitton expanded internationally in 1978 when it opened stores in Tokyo and Osaka to sell its LV-logo trunks, suitcases and handbags. By the late 1970s, its sole factory in Asnieres, near Paris, where the Vuitton family began making trunks in 1860, wasn't big enough to sustain the growth.
"When the first electrical sewing machines arrived 30 years ago, people saw it as the devil," says Mr. Vuitton, who abandoned his veterinary studies to work at Asnieres in 1973.
The company started buying up factories, or ateliers, across France. Over the years, on average, it opened a new one every two years. Today, there are 13 factories producing accessories.
Thanks to a big marketing and store-opening push in the U.S. and Asia, annual sales rose to about $3.2 billion in 2000 from about $760 million in 1990.
In 1998, the fashion house moved into the ready-to-wear apparel business by hiring Mr. Jacobs, an American designer. Mr. Jacobs's production of a new Louis Vuitton clothing line each season prompted the company to reconsider its approach to accessories. In addition to classic designs such as the LV-logo shoulder bag, Vuitton began producing bags like the graffiti bag and the cherry-print bag, which were in stores one season and gone the next.
The Sept. 11 attacks, the SARS virus in Asia and the onset of war in Iraq together cast a three-year pall over the luxury-goods industry, in part by crimping global tourism. When the recovery began, Louis Vuitton launched an advertising campaign featuring celebrities such as Jennifer Lopez and Uma Thurman and opened stores on Manhattan's Fifth Avenue and elsewhere.
Vuitton was releasing a new handbag each season. But the factories, which were working on long-term schedules, remained out of step. If a seasonal bag became a hit, the company wasn't capable of ramping up production. When a denim monogram bag caught on last year, for example, customers cleaned out store shelves, and would-be buyers were turned away.
Vuitton executives grew intrigued with the lean production process developed by Japanese car makers, which enabled their factories to react quickly to changes in vehicle orders. The Japanese approach seemed to offer a way for Vuitton to shift production to the handbags that were selling best, senior Vuitton executives say. The "zero-defect policy" of the car makers -- all problems are supposed to be corrected before cars left the factory -- also seemed appealing.
But Vuitton's manufacturing procedures weren't conducive to such flexibility. Each factory had about 250 employees, and each worker specialized in one skill such as cutting leather and canvas; preparing, gluing and sewing it; making pockets and stitching the lining; and assembling the bag.
Specialists worked on one batch of bags at a time. Half-completed purses would sit on carts until someone wheeled them to the next section of the assembly line. Because craftsmen were specialized, it was nearly impossible for Vuitton to quickly switch workers from one type of handbag to another.
In early 2005, Vuitton hired consultants from McKinsey to help, according to people familiar with the matter. After visiting several factories and measuring lag times between production phases, the consultants arrived at a simple conclusion: there was too much wasted time.
The consultants helped Vuitton draft its Pegase plan, which the company began to roll out in factories in November 2005, these people say. The first step was to train workers to handle multiple parts of the assembly process. Gluing, stitching and finishing the edges of a pocket flap, for example, became the job of one worker, not three. To minimize wasted time, the production process for each product was divided so that each worker would need the same amount of time to complete his or her allotted tasks.
The factory floor was reorganized accordingly. Mimicking the small-team format used by Japanese electronics makers, Vuitton organized workers into groups of six to 12, depending on the complexity of the bags or wallets they are making, according to Vuitton officials and company documents. For maximum efficiency, Vuitton arranged the groups in clusters of U-shaped workstations that contain sewing machines on one side and assembly tables on the other. Workers simply pass their work around the cluster.
Because workers are less specialized now, they can make more types of bags, which gives Vuitton more production flexibility. Last month, for example, the company shifted more workers to its new $770 Lockit bag, which was selling faster than expected, to boost production.
The system also has enabled workers to detect flaws earlier. At one factory, under the old production system, one of every two $1,240 Tikal shoulder bags had frayed inside seams and needed to be repaired, according to a company document. Under the new production system, those flaws are recognized earlier and can be fixed more easily.
Stitching problems on the credit-card pocket of Vuitton's Viennois wallet used to mean that 4 percent of each batch of pockets had to be discarded, another document indicates. Under the new cluster format, that problem has been fixed.
At Vuitton's Issoudun and Conde plants near the Loire Valley, returns of faulty handbags and wallets fell by two-thirds last year, a company document indicates. The company's goal this year is to reduce returns by at least another 50 percent, according to the document.
The production changes left some workers concerned that efficiency improvements would eventually lead to job cuts, workers say. "Pegase has caused job insecurity," says one worker. "Already they are limiting hiring." Vuitton currently employs about 12,000 people world-wide, 4,000 of them in production. Mr. Carcelle, Vuitton's chief executive, has met with hundreds of factory team leaders to explain the company's efforts to improve efficiency and quality. Vuitton executives use the Japanese word kaizen, which means "continuous improvement," to describe their training of factory managers.
The reorganization extended beyond the factory floor. A distribution center in France used to send products directly to Vuitton's stores around the world. Now, the company is building a global distribution hub outside of Paris that will ship to six regional distribution centers: two in Japan, two elsewhere in Asia, one in the U.S. and one near Paris for European orders. Within a week of a product launch, stores around the world feed sales information to France and production is adjusted accordingly. Factories work on a daily schedule, compared to a weekly one before the reorganization.
The reorganization's final stage -- named Keepall after a Vuitton duffel bag from 1930 -- unfolded in the stores. In the past, salespeople advising customers would disappear into stockrooms when products weren't available on the shop floor. McKinsey consultants saw this as a waste of time.
"The boutiques could be twice as effective if instead of the salesperson disappearing to get a bag for a customer, you separate the task," says Concetta Lanciaux, executive vice president of synergies at LVMH.
Now, Vuitton assigns a few employees at each store to the stockroom. At a large new store on Paris's Champs-Elysees, items are sent via service elevator from a basement stockroom to the cash register. They arrive wrapped in tissue paper.
Early indications that the reorganization is working have prompted LVMH officials to consider extending the new factory format to other divisions.
"There are ways in which we can cross-fertilize," says LVMH Chief Executive Bernard Arnault. "One of the major advantages of the group is that everything we learn at Vuitton, we also use with the other brands."
By Christina Passariello, The Wall Street Journal
www.post-gazette.com
PARIS -- A year ago, it took 20 to 30 craftsmen to put together each Louis Vuitton "Reade" tote bag. Over the course of about eight days, separate workers would sew together leather panels, glue in linings and attach handles.
Then, inspired by car maker Toyota Motor Corp. and egged on by outside management consultants, the venerable French luxury-goods house discovered efficiency. Today, clusters of six to 12 workers, each of them performing several tasks, can assemble the $680 shiny, LV-logo bags in a single day.
The factory-floor changes are part of a sweeping effort by Louis Vuitton to serve customers better by keeping its boutiques fully stocked with popular merchandise -- to operate, in other words, more like a successful modern retailer. Its supply-chain overhaul includes changes to its distribution system and to the way salespeople serve customers in its tony stores.
For years, high-end fashion houses like Louis Vuitton -- best known for its expensive brown-and-gold logo bags -- paid far more attention to product design, craftsmanship and image than to the mechanics of keeping their stores stocked. When new designs caught on, they often sold out and the companies were often ill-prepared to speed up production and distribution.
Chic but less-expensive fashion labels such as Zara and H&M have thrived by spotting trends quickly and filling shelves with new products every fortnight. Their success has forced higher-end rivals to rethink how they do business. After decades of relying solely on their designers' instincts, for example, some luxury fashion houses, including Italy's Gucci Group, are now using focus groups to find out what consumers actually want.
Louis Vuitton, a unit of LVMH Moet Hennessy Louis Vuitton, the world's largest luxury-goods company, is pursuing a more-fundamental overhaul. With help from management consultants at McKinsey & Co., Vuitton set out to make its manufacturing process more flexible, borrowing techniques pioneered by car makers and consumer-electronics companies. "Behind the creative magic of Louis Vuitton is an extremely efficient supply chain," boasted Yves Carcelle, the brand's chief executive officer, at a recent news conference.
Tampering with Vuitton's production poses a risk to the brand's image. Customers pay hundreds of dollars for its logo canvas bags, for example, partly because they have bought into the notion that skilled craftsmen make them the old-fashioned way. Although the company has been modernizing gradually for some time, that reputation is still vital to the company's success.
The public image of Louis Vuitton, which was founded in 1854, has been shaped by celebrity advertising, lavish fashion shows and the star-power of its top designer, Marc Jacobs. (Its spring collection was unveiled at a show Sunday in Paris.) Although it designs apparel, the bulk of its sales come from accessories such as handbags, wallets and suitcases. The company has long regarded limited-edition products as a way to bolster its cachet. As a result, customers often found themselves on waiting lists for popular merchandise.
That thinking is changing. "What do our clients want? Products that are always available in stores," said one company document outlining the changes.
The new factory format is called Pegase, after the mythological winged horse and a Vuitton rolling suitcase. Under the new system, it takes less time to assemble bags, in part because they no longer sit around on carts waiting to be moved from one workstation to another. That enables the company to ship fresh collections to its boutiques every six weeks -- more than twice as frequently as in the past, according to one Vuitton official.
"It's about finding the best ratio between quality and speed," says Patrick-Louis Vuitton, a fifth-generation member of the company's founding family, who is in charge of special orders.
Other luxury-goods companies are taking similar steps. Versace SpA recently hired a division of Computer Sciences Corp. and Giorgio Armani SpA hired Oracle Corp. to help make their supply chains more efficient. Burberry PLC, Cartier and Prada SpA have retained German software firm SAP AG for the same purpose.
Many high-end fashion houses "had the image, but they couldn't compete on execution," says Rick Chavie, SAP's senior vice-president for retail and wholesale. Adds Gladys Lau, Oracle's senior industry director for retail: "Like Zara, luxury brands are all about speed-to-market."
For years, luxury-goods makers have thought about supply and demand differently than do other consumer-goods companies. In most sectors, running out of a product when demand is strong is considered disastrous. But production is limited for some high-end fashion items. A waiting list for the Paddington bag made by French fashion brand Chloe created such an aura of desirability last year that it became a cult item -- and established Chloe as a hot brand.
The industry has begun to rethink that approach. French fashion house Hermes International has hired another 300 factory workers to reduce waiting lists for best sellers like its $7,000 Kelly bag, named after the late actress Grace Kelly. Hermes craftsmen still stitch most of its bags by hand, signing them when they finish.
To increase production, Gucci recently took on more suppliers near its Florence headquarters. Gucci and Prada are among the brands that rely on outside suppliers to produce much of their merchandise.
Louis Vuitton, which has annual sales of nearly $5 billion, hopes the supply-chain changes will help it meet a goal of at least 10 percent annual sales growth for the next several years. That's important to its publicly traded parent company, LVMH, which is dependent on the Vuitton brand for more than half of its profit. LVMH does not break out income from its various units. In the first half of this year, LVMH's net income climbed 46 percent to $1.03 billion on sales of $8.78 billion.
Louis Vuitton expanded internationally in 1978 when it opened stores in Tokyo and Osaka to sell its LV-logo trunks, suitcases and handbags. By the late 1970s, its sole factory in Asnieres, near Paris, where the Vuitton family began making trunks in 1860, wasn't big enough to sustain the growth.
"When the first electrical sewing machines arrived 30 years ago, people saw it as the devil," says Mr. Vuitton, who abandoned his veterinary studies to work at Asnieres in 1973.
The company started buying up factories, or ateliers, across France. Over the years, on average, it opened a new one every two years. Today, there are 13 factories producing accessories.
Thanks to a big marketing and store-opening push in the U.S. and Asia, annual sales rose to about $3.2 billion in 2000 from about $760 million in 1990.
In 1998, the fashion house moved into the ready-to-wear apparel business by hiring Mr. Jacobs, an American designer. Mr. Jacobs's production of a new Louis Vuitton clothing line each season prompted the company to reconsider its approach to accessories. In addition to classic designs such as the LV-logo shoulder bag, Vuitton began producing bags like the graffiti bag and the cherry-print bag, which were in stores one season and gone the next.
The Sept. 11 attacks, the SARS virus in Asia and the onset of war in Iraq together cast a three-year pall over the luxury-goods industry, in part by crimping global tourism. When the recovery began, Louis Vuitton launched an advertising campaign featuring celebrities such as Jennifer Lopez and Uma Thurman and opened stores on Manhattan's Fifth Avenue and elsewhere.
Vuitton was releasing a new handbag each season. But the factories, which were working on long-term schedules, remained out of step. If a seasonal bag became a hit, the company wasn't capable of ramping up production. When a denim monogram bag caught on last year, for example, customers cleaned out store shelves, and would-be buyers were turned away.
Vuitton executives grew intrigued with the lean production process developed by Japanese car makers, which enabled their factories to react quickly to changes in vehicle orders. The Japanese approach seemed to offer a way for Vuitton to shift production to the handbags that were selling best, senior Vuitton executives say. The "zero-defect policy" of the car makers -- all problems are supposed to be corrected before cars left the factory -- also seemed appealing.
But Vuitton's manufacturing procedures weren't conducive to such flexibility. Each factory had about 250 employees, and each worker specialized in one skill such as cutting leather and canvas; preparing, gluing and sewing it; making pockets and stitching the lining; and assembling the bag.
Specialists worked on one batch of bags at a time. Half-completed purses would sit on carts until someone wheeled them to the next section of the assembly line. Because craftsmen were specialized, it was nearly impossible for Vuitton to quickly switch workers from one type of handbag to another.
In early 2005, Vuitton hired consultants from McKinsey to help, according to people familiar with the matter. After visiting several factories and measuring lag times between production phases, the consultants arrived at a simple conclusion: there was too much wasted time.
The consultants helped Vuitton draft its Pegase plan, which the company began to roll out in factories in November 2005, these people say. The first step was to train workers to handle multiple parts of the assembly process. Gluing, stitching and finishing the edges of a pocket flap, for example, became the job of one worker, not three. To minimize wasted time, the production process for each product was divided so that each worker would need the same amount of time to complete his or her allotted tasks.
The factory floor was reorganized accordingly. Mimicking the small-team format used by Japanese electronics makers, Vuitton organized workers into groups of six to 12, depending on the complexity of the bags or wallets they are making, according to Vuitton officials and company documents. For maximum efficiency, Vuitton arranged the groups in clusters of U-shaped workstations that contain sewing machines on one side and assembly tables on the other. Workers simply pass their work around the cluster.
Because workers are less specialized now, they can make more types of bags, which gives Vuitton more production flexibility. Last month, for example, the company shifted more workers to its new $770 Lockit bag, which was selling faster than expected, to boost production.
The system also has enabled workers to detect flaws earlier. At one factory, under the old production system, one of every two $1,240 Tikal shoulder bags had frayed inside seams and needed to be repaired, according to a company document. Under the new production system, those flaws are recognized earlier and can be fixed more easily.
Stitching problems on the credit-card pocket of Vuitton's Viennois wallet used to mean that 4 percent of each batch of pockets had to be discarded, another document indicates. Under the new cluster format, that problem has been fixed.
At Vuitton's Issoudun and Conde plants near the Loire Valley, returns of faulty handbags and wallets fell by two-thirds last year, a company document indicates. The company's goal this year is to reduce returns by at least another 50 percent, according to the document.
The production changes left some workers concerned that efficiency improvements would eventually lead to job cuts, workers say. "Pegase has caused job insecurity," says one worker. "Already they are limiting hiring." Vuitton currently employs about 12,000 people world-wide, 4,000 of them in production. Mr. Carcelle, Vuitton's chief executive, has met with hundreds of factory team leaders to explain the company's efforts to improve efficiency and quality. Vuitton executives use the Japanese word kaizen, which means "continuous improvement," to describe their training of factory managers.
The reorganization extended beyond the factory floor. A distribution center in France used to send products directly to Vuitton's stores around the world. Now, the company is building a global distribution hub outside of Paris that will ship to six regional distribution centers: two in Japan, two elsewhere in Asia, one in the U.S. and one near Paris for European orders. Within a week of a product launch, stores around the world feed sales information to France and production is adjusted accordingly. Factories work on a daily schedule, compared to a weekly one before the reorganization.
The reorganization's final stage -- named Keepall after a Vuitton duffel bag from 1930 -- unfolded in the stores. In the past, salespeople advising customers would disappear into stockrooms when products weren't available on the shop floor. McKinsey consultants saw this as a waste of time.
"The boutiques could be twice as effective if instead of the salesperson disappearing to get a bag for a customer, you separate the task," says Concetta Lanciaux, executive vice president of synergies at LVMH.
Now, Vuitton assigns a few employees at each store to the stockroom. At a large new store on Paris's Champs-Elysees, items are sent via service elevator from a basement stockroom to the cash register. They arrive wrapped in tissue paper.
Early indications that the reorganization is working have prompted LVMH officials to consider extending the new factory format to other divisions.
"There are ways in which we can cross-fertilize," says LVMH Chief Executive Bernard Arnault. "One of the major advantages of the group is that everything we learn at Vuitton, we also use with the other brands."
