Strategic Cost Management Fashion Manufacturing Industry

Question: Describe about the Strategic Cost Management for Fashion Manufacturing Industry. Answer: 1. In the case of a Fashion Manufacturing Industry, the factors are discussed as under, as explained by Gibson Fraser, (2013). Political Political stability of the operational area Governments policies connected with the trade Garment Import / Export policies Economical Global economic impacts Impact of customer demand Impact on Price due to currency fluctuation Social It is a fast changing fashion Every season sees a new consumption pattern Consumers are sensitive to company values Technological Internet is ushering faster technologies 52% of production damages occur during the stitching New production methodologies are emerging Legal Garment industry being a cross-country operation, faces legal challenges from many countries Labour laws vary from country to country Trade Unions with vested interests are unreliable Enovironmental Cotton crops use 2.5% of cultivable land but use 25% of insecticides and 11% of pesticides worldwide Producing 1kg of cotton uses 15 litres of water From production to selling a jean requires 25 litres of oil, as detailed by Gibson Fraser, (2013). In the case of Levi, says Richard (ed.), (2014), the important threats are Cross-country legal implications Currency fluctuations Policies of different governments Domestic entrants in countries where Levi sells Factors affecting the Personal Pair jeans are Change in fashion choice of consumers Competition from cheaper jeans Time factor in producing the pair 2. Profitability per Pair of Levi Jeans Particulars Wholesale Retail Gross Receipt $35 $50 LESS: Markdown $3 $5 Net Receipt $32 $45 COGS Cotton Cost $5 $5 Manufacturing Conversion $5 $5 Distribution Costs $9 $11 Total COGS $19 $21 Gross Margin $13 $24 Selling, General Administrative Costs $9 $19 Profit before Tax $4 $5 3. Levi is trying to enter the field of personal tailoring and for that it plans to make the dependency of its product on three factors, as per Richard (ed.), (2014) The knowledge, experience and judgment of the Sales Clerk managing the kiosk and who is the prime source of information about the customers fitment measures. The interpretation of this fitment measure by the software provided by the CCTC and subsequent selection of the right material and stitching instructions to the manufacturing base. The correct understanding and more important, the accurate implementation of these measures by the individual tailor who will be stitching the pair. All these factors have elements of risk, thereby increasing the chances of creating a pair of tailor-made jeans which eventually are not to the satisfaction of the customer who has ordered. The biggest success factor of tailor-made clothes is that the person who takes the measurements has met the customer physically and knows the customers build. Eventually this makes the garments fitting very accurate, as described by Richard (ed.), (2014). 4. Levi should increase the sale price of the customised jeans by 50% to $75 because of the factors discussed hereunder. The Personal Pair of Jeans which Levi has introduced is a personalised service, which involves the cost of maintaining a specialised cabin for the customer, a Sales Clerk exclusively trained for such customers, a software company to manage the data and a separate section of tailors who will stitch each pair as per the customised measures given. This will increase the production cost, will require more space at the retail outlets and the manufacturing units will have to maintain a separate section for this customised segment, as explained by Moens Jones (ed.), (2013). Based on these estimated factors, the COGS and S, G A will go up by about 30% and another 5% will have to be added for the increased investment on the retail and manufacturing space. Levi has also to take into account the additional cost of 10% which it will be paying to the software company. Another 5% is the anticipated costs related to contingencies, returned orders and taxes, say Moens Jones (ed.), (2013). 5. Profitability per Personal Pair of Levi Jeans Particulars Retail Gross Receipt $75 LESS: Markdown $5 Net Receipt $70 COGS Cotton Cost $5 Manufacturing Conversion $13 Distribution Costs $12 Total COGS $30 Gross Margin $40 Selling, General Administrative Costs $25 Profit before Tax $15 6. Marketing Strategy Objective The foremost objective is that of marketing strategy so as to make the company profitable. For Levi this is important as Levi Jeans has lost out to many a start-up companies and it is important for the company to attract customers. Attracting new customers is possible only if the company becomes known for innovative products and newer marketing strategies in the jeans-market, assert Gibson Fraser, (2013). Positioning Objective The companys marketing strategy is based on innovation, targeting new products and positioning itself to numero uno position. Positioning can be attained by designing a new offering to the customers with an image which can place the company back to its distinctive position in the minds of the large target market. The ultimate goal of the company is to relocate the brand in the minds of those customers who need to be targeted for generating maximised potential benefit for the company, assert Schaffer, Agusti Dhooge, (2014). A better positioning of the companys established brand can help the companys marketing strategy because it will generate a renewed interest in the brand. Target Objective The companys targets can be achieved through this unique way by introducing the new concept of Personal Pair Jeans. For the customers of Levi Jeans, the essence of this new concept will be to emphasize that Levi Jeans are being custom made. It will also send a strong message to the customers that they need not go through the long process of trying several pairs of regular jeans. The customer will be treated uniquely at the companys retail outlet and they can walk-in and order a customised jean of their choice, liking and fitting. As per Schaffer, Agusti Dhooge, (2014), ushering in a new unique experience for the large number of already existing Levi Jeans customers, who have tried the old process of purchasing a pair of jeans, this easiness of getting a customised jeans will definitely bring about an ever changing demand in the market with numerous choices available at the point of sale. The biggest advantage of this Target Positioning Strategy will be that the similarities and diff erences between Levi and its rival brands will be more clearly defined. Levi, with its long market positioning, its dedicated customer base across the globe has the potential to take a decision on the positioning required by determining and identifying the target markets, the competition and the differences and similarities between the rival brands and what Levi can offer, explains Richard (ed.), (2014). Levis Advantage Objective Levi Strauss Co. has commanded a worldwide market dominance during the 80s when it introduced its 501 Product Line. But with profits continuing to nose dive due to a decrease in its product demand and the continuous rise of the competition. During the period from 2000 to 2007, Levis faced the toughest of competition when the competitors were successful in taking away a large portion of Levis market share because of their heavy advertising and branding techniques. The new starters were able to chip away Levis market share because they were able to capture selective segments. Companies such as Calvin Klein were successful in their brand positioning as they were able to target the high-end consumers, as detailed by Richard (ed.), (2014). Levis biggest competitor, VF Corp. decided to purchase Seven For All Mankind as its market entry product. Thus, VF Corp captured the low-end jean customer, whereas Calvin Klein began capturing the high-end customers. In 1996, Levi reported revenues of $7.6 billion and had 18.7% of the U.S. jeans market share. By 2001, the revenues dropped to $4.25 billion and the company had a 12.1% of U.S. jeans market share. Since then, the company has been trying to raise its market share and increase its revenues and this concept of Personal Pair Jeans is the signature campaign of Levis jeans. Forced at re-evaluating itself after years of declining revenues, say Moens Jones (ed.), (2013), Levis is confident that it has been able to find a way of achieving success by introducing this signature campaign on a largescale with streamlining of costs. Levis is sure that it will get help from its international presence and is also confident that the current impact of the global currency exchange market will prove to be beneficial for the company as it shall benefit from the weak dollar. The company is hopeful that it will find a way into the ever increasing and lucrative premium jeans market by introducing this new signature campaign, assert Moens Jones (ed.), (2013). The company has plans to hire famous international stars, artists and personalities to liven up the Levi brand. List of References Gibson, A. and Fraser, D. 2013, Business Law 2014. Pearson Higher Education AU, Frenchs Forest, NSW. Moens, G. and Jones, R. (ed.). 2013, International Trade and Business Law Review, Volume 10. Routledge, Oxon. Richard, T.A. (ed.). 2014, Professional Business Law Essays. Richard TA, New York. Schaffer, R., Agusti, F. and Dhooge, L. 2014, International Business Law and Its Environment, 9th ed. Cengage Learning, Stamford, CT.