Walmart & Pepe Jeans Operations
Case: Pepe Jeans
Pepe Jeans began to produce and sell denim jeans in the early 1970s in the United Kingdom and has achieved enormous growth. The company maintains contact with its independent retailers via group of 10 agents and each agent is responsible for retailers in a particular area of the country. Pepe is convinced that a good relationship with the independent retailers is vital to its success. The survey of the independent retailers indicated some problems. It was felt that Pepe’s variety of styles and quality was the company’s key advantage over the competition. However the independents were unhappy with Pepe’s requirement to place firm orders six months in advance with no possibility amendments, cancellation, or repeat ordering. Some claimed that the inflexible order system forced them to order less, resulting in stock outs. Pepe felt that a change was going to be needed soon. The easiest solution would be work with the Hong Kong sourcing agent to reduce the lead time associated with orders but this was going to increase the cost significantly. Even with the significant increase in cost, consistent delivery schedules would be difficult to keep. Another suggestion was to build a finishing operation in United Kingdom. Pepe was interested to see how system worked at U.S. operations. They found that they would have to keep about six weeks’ supply of basic jeans on hand in the United Kingdom and they have to invest £1,000,000 worth of equipment. They also estimated that it would cost about £500,000 to operate the facility each year. They could locate the facility in the basement of current office building, and the renovations would cost £300,000. Today’s operations management many companies outsource. Companies have variety of reasons for outsourcing but primarily the reasons are to reduce costs and create a competitive advantage. Companies tend to outsource in logistics area. This includes complete cycle of material flow; from the purchase and
Pepe Jeans began to produce and sell denim jeans in the early 1970s in the United Kingdom and has achieved enormous growth. The company maintains contact with its independent retailers via group of 10 agents and each agent is responsible for retailers in a particular area of the country. Pepe is convinced that a good relationship with the independent retailers is vital to its success. The survey of the independent retailers indicated some problems. It was felt that Pepe’s variety of styles and quality was the company’s key advantage over the competition. However the independents were unhappy with Pepe’s requirement to place firm orders six months in advance with no possibility amendments, cancellation, or repeat ordering. Some claimed that the inflexible order system forced them to order less, resulting in stock outs. Pepe felt that a change was going to be needed soon. The easiest solution would be work with the Hong Kong sourcing agent to reduce the lead time associated with orders but this was going to increase the cost significantly. Even with the significant increase in cost, consistent delivery schedules would be difficult to keep. Another suggestion was to build a finishing operation in United Kingdom. Pepe was interested to see how system worked at U.S. operations. They found that they would have to keep about six weeks’ supply of basic jeans on hand in the United Kingdom and they have to invest £1,000,000 worth of equipment. They also estimated that it would cost about £500,000 to operate the facility each year. They could locate the facility in the basement of current office building, and the renovations would cost £300,000. Today’s operations management many companies outsource. Companies have variety of reasons for outsourcing but primarily the reasons are to reduce costs and create a competitive advantage. Companies tend to outsource in logistics area. This includes complete cycle of material flow; from the purchase and