New product introductions vs. product availability
Louis Vuitton is a part of the Louis Vuitton Moet Hennessy Group. Being the core business, Louis Vuitton is the most famous brand not only in the group, but also in the fashion industry. It is well-known for its quality and design. Most of the Louis Vuitton consumers are wealthy people, who expect premium products regardless to the price.
Considering this fact, Louis Vuitton may implement a strategy, which ensures availability of the products at any time and provide the clients with the best possible customer service.
In the past, Louis Vuitton faced the out-of-stock problem and it has not been solved yet. As a consequence, the company loses not only sales but also reduces its reputation.
Managers realized that consumers’ satisfaction is one of the most important aspects for a company in order to continue being successful, gain high profits and reputation.
The source of the out-of stock problem in Louis Vuitton causes some disagreements between the company’s vice president for marketing and sales and the vice president for manufacturing and logistics. The first one states his opinion that the lack of flexibility and responsiveness is the base of the problem, while the second one blames the recent increase in new product introductions and the poor forec asting of demand.
We will investigate these different problems and how Louis Vuitton can solve them by aligning the manufacturing process and marketing activities in the most efficient way.
Supply Chain Strategy
Consumers of luxury products have high expectations regarding the products´ quality and design. Furthermore, the consumers want to be provided with a complete shopping experience, when they purchase a Louis Vuitton handbag for 3 000 Euros or a pair of Louis Vuitton shoes for 1 000 Euros. An essential part of this shopping experience is the product itself. Therefore, Louis Vuitton´s supply chain has to be set up in making demanded products available, wherever and whenever they are demanded by a consumer.
Unfortunately, Louis Vuitton is able to have around 98% of all demanded products from classic product lines available at their store . But if consumers request a product of one of Louis Vuitton´s fashion lines, which are newly and less frequently introduced product lines, the rate of available products decreases roughly to 80%.
Louis Vuitton products are bought due to the quality of the goods. Thanks to online stores, consumers use to easily purchase a desired good on the Internet. On the one hand, it saves consumer’s time; on the other hand, the probability of a potential out-of-stock problem is reduced, because o nce the purchase is realized, the company is able to react in a several ways to deliver the product. It can send the product from a store or from different warehouses, depending on where the consumer is located and where the item is available at that time. Moreover, Louis Vuitton could improve its capacity strategy. Managers have to decide how to organize manufacturing in the most efficient way that a maximum number of units are produced for a time period. Currently, employees working for Louis Vuitton are divided into groups and each group is able to produce 120 hand bags per day. However, considering the out-of-stock problem, one can assume that it is not the sufficient quantity to meet the demand and a solution has to be found.
In order to increase the capacity, Louis Vuitton has to increase the labor force. In that way, Louis Vuitton will be able to increase its manufacturing capacity and potentially solve the out-of-stock problem.
Louis Vuitton has to decide whether to reduce the inventory in order to avoid additional costs induced by required inventory space in the stores or to increase the availability of demanded products.
Undeniably, inventory must be as close to the stores as possible. This implies that if a...