Example1 Assignment
Example1 Assignment
Please complete and insert in the front of your assignment before submitting to ELE.
Module Code: BEMM126
Candidate Number: 065824
Your candidate number can be located via iExeter, Student Record System (SRS),
collect candidate number for 2018/9 and it’s 6 digits long
Mark:
Sustainable Supply Chain Management in a De-Materialized Company: An
Analysis of Levi Strauss & Co.’s Global Supply Chain
Maximilian Biesalski
University of Mannheim
University of Exeter
Over the past few decades, virtually all major clothing companies have outsourced their
production to low-wage countries, leading to more complex and intransparent global supply
chains. However, the need to implement sustainability related activities into the supply chain is
bigger than ever these days, making a successful combination of these two circumstances a
challenging and difficult endeavour. By looking at a leading apparel company, this paper
complements the phenomenon of outsourcing with sustainability and analyses the successful
integration into a complex global supply chain while identifying relevant key characteristics
and success factors. The main findings include a holistic approach with sustainability related
activities in all three dimensions of the triple bottom line, detailed (sub-)supplier assessment
and collaboration as well as direct governance mechanisms.
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1. INTRODUCTION
As a highly competitive market with high price competition and cost pressure, the apparel
market forced companies in the past decades to adjust their business strategy by expanding their
global outsourcing activities to cut down their manufacturing costs (Jaramillo and Teng, 2005,
p. 504). However, on the other hand, companies are increasingly being held responsible by the
public to act sustainably and thus need to step up sustainability related efforts in order to remain
competitive. As this responsibility does not end with outsourcing the manufacturing process to
third parties who typically produce for multiple brands at the same time, the management and
implementation of sustainable activities into the supply chain (SC) is getting increasingly
complex and challenging (LS&Co., 2018a). Therefore, this paper is focusing on the major topics
of outsourcing and especially sustainability, with the aim of analysing successful sustainability
implementation into a global apparel supply chain of a leading de-materialized apparel
company: Levi Strauss & Co. (LS&Co.). By reviewing relevant literature, I will analyse the
motivation of outsourcing and characteristics of a de-materialized company before elaborating
success factors for developing a sustainable SC. Based on this, I will analyse sustainability
management in LS&Co.’s SC with focus on its core business of jeanswear under the light of
current literature. Lastly, I will critically reflect my results and give recommendations for further
improvement.
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2. LITERATURE REVIEW
Outsourcing
Evidenced by an increasing interest by academics worldwide, outsourcing has become
inevitable for most companies in today’s competitive market environment and, beyond that, can
be a key enabler for global supply chain success (Schoenherr, 2010, p. 343). While several
theoretical approaches have been used to study outsourcing as a phenomenon, the theory of
transaction cost economics (TCE) and the resource-based view (RBV) are the predominant
theories for the analysis of outsourcing decisions (Ashenbaum et al., 2013, p. 91). TCE suggests
that transaction costs can erode the cost advantage of using vendors and therefore focuses
primarily on the boundaries of the firm (Balakrishnan et al., 2008; Billinger and Jacobides,
2006; Coase, 1937). Williamson (1981) identifies asset specificity, uncertainty and frequency
of transactions as the critical dimensions for describing transactions and suggests that, if these
factors are high, outsourcing is not recommended. However, innovations and the use of
information technology can significantly reduce transaction costs and thus encourage
outsourcing (Balakrishnan et al., 2008, p. 290).
On the other hand, RBV provides a more internal perspective and suggests that competitive
advantage can be achieved from successfully utilizing resources that are valuable, rare,
inimitable and non-substitutable (Ashenbaum et al., 2013; Barney, 1991). With increasing
global competitive pressure, companies should focus on their core competencies and make use
of outsourcing of non-core (i.e. non-strategic) activities to benefit from the expertise of others
(Domberger, 1998; Porter, 1990; Prahalad and Hamel 1990; Schoenherr, 2010; Tate et al.,
2009). This core competency concept is not only related to RBV (Schoenherr, 2010, p. 345),
but also complements TCE perfectly by adding a long-term perspective to the rather short-term,
cost-based approach of TCE (Arnold, 2000, p. 27). The logical consequence of the
recommendations of these approaches is the so called de-materialized company with only
marketing and supply network management remaining within the company and delegating all
manufacturing activities to suppliers (Arnold, 2000, p. 28).
Sustainability
Most of the early research related to sustainability in the field of SCM dealing with topics such
as environment, human rights and safety has occurred in a standalone fashion without
consideration of their relationships to each other and other aspects of social responsibility
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(Carter & Jennings, 2002, p. 149). Carter and Jennings (2002, 2004) as well as Murphy and
Poist (2002) were one of the first researchers to fill this gap by viewing these standalone
activities within a broader conceptualization of CSR (Carter and Easton, 2011, p. 47). In 2008,
Carter and Rogers synthesized literature at the time and integrated complementary theoretical
bases to create a theoretical framework of supply chain sustainability called sustainable supply
chain management (SSCM). Based on Elkington’s (1998) triple bottom line, which
encompasses environmental, social and economic performance, Carter and Rogers (2008)
suggest that, instead of engaging in sustainability activities discretionarily, companies should
see SSCM as a requirement that improves an organization’s economic performance while
engaging in social and environmental activities (Carter and Easton, 2011, pp. 48), which is
consistent with findings by Markley and Davis (2007).
According to recent research by Koberg and Longoni (2019), SSCM configuration and
governance are the two key elements of SSCM in global supply chains. Hence, SSCM
configurations can affect SSCM by allowing firms to collaborate with sub-suppliers and third
parties when developing and adopting sustainability activities. The authors distinguish between
open (engagement in sustainability efforts with first-tier suppliers only), closed (formal links
with both first-tier suppliers and sub-suppliers) and third-party (presence of non-traditional
actors such as NGOs) configurations. While different configurations have been associated with
different outcomes, recent literature points toward the joint utilization of both closed and third-
party configurations for the improvement of sustainability outcome dimensions, with buyer
interaction with third-parties having positive outcomes in particular (Koberg and Longoni, 2019,
p. 1094). As the second key element, SSCM governance mechanisms to achieve sustainability
outcomes cover practices, initiatives and processes used by the focal firm to manage
relationships with supply chain stakeholders with the aim of successfully implementing their
corporate sustainability approach (Formentini and Taticchi, 2016, p. 1921) and have been
grouped into direct and indirect mechanisms (Gimenez and Sierra, 2013). As opposed to direct
mechanisms, indirect mechanisms do not require the focal firm to invest time and resources to
manage relationships with suppliers as they are based on third-party standards (Gereffi et al.,
2005; Klassen and Vachon, 2003). Related to direct mechanisms, the literature agrees on the
need for firms to complement supplier assessment with collaboration to improve sustainability
outcomes. However, indirect governance mechanisms are almost never associated with
performance improvements (Koberg and Longoni, 2019, p. 1095).
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3. Findings
Levi Strauss & Co. (LS&Co.) is one of the world’s largest brand-name apparel companies and
a global leader in jeanswear. While designing and marketing jeans, casual wear and related
accessories for men, women and children, the company operates under the Levi’s, Dockers,
Signature by Levi Strauss & Co. and Denizen brands with a net revenue of $4.9 billion in 2017
(LS&Co., 2018b).
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Own analysis based on LS&Co.‘s official factory and mill list published in June 2018
(https://levistrauss.com/wp-content/uploads/2018/07/Levi-Strauss-Co-Factory-Mill-List-June-2018.pdf).
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Thereafter, finished products are delivered to distribution centres in the United States, Europe
and Asia, before selling them through a combination of department stores, chain retailers, online
sites and approximately 2,900 retail stores to customers in more than 110 countries worldwide
(LS&Co., 2018b). When it comes to the end of a jean’s lifecycle, which is, as stated by the
company, on average about three years long, LS&Co. aims to establish an infrastructure that
fully supports closed-loop products by 2020. However, by working closely together with a
company called I:Collect GmbH, the company is already able to offer the consumer the
opportunity to bring old clothes and shoes to any Levi’s store in the US, where they are
collected, reused, repurposed or recycled (LS&Co., 2015).
Sustainability Approach
LS&Co. determined its carbon footprint by calculating the total Greenhouse Gas (GHG)
emissions across all phases of the value chain, reaching from cotton cultivation through fabric
production to consumer use and disposal. The vast majority (99%) of GHG emissions, which in
total mount up to 5.24 million metric tonnes of carbon dioxide, occur outside the company’s
owned-and-operated facilities and direct influence (LS&Co., 2018a). This makes reducing
emissions in the supply chain a challenging task and requires a holistic approach to
sustainability. For these reasons, LS&Co. implemented a considerable number of sustainability
activities into all stages of its SC, from fabric mills to customer distribution, and clustered them
into the major topics of people, planet, products and production (see figure 2).
All factories and third-party contractors and subcontractors who manufacture or finish products
for LS&Co. must comply with the company’s code of conduct relating to supplier working
conditions as well as environmental and employment practices. Furthermore, the company
employs full-time assessors, located around the world where suppliers are to guarantee that
every factory contracted to manufacture LS&Co. products adhere to the sustainability principles
stated in the company’s Sustainability Guidebook (LS&Co., 2018c; LS&Co., 2019a).
To ensure sustainability in the cotton extraction process, LS&Co. created alliances with other
large cotton consumers and NGOs to form the Better Cotton Initiative with the goal of “making
global cotton production better for the people who produce it, better for the environment it grows
in and better for the sector’s future” (Better Cotton Iniative, 2019; LS&Co., 2019b).
Sustainability activities integrated into the manufacturing process have a direct impact on the
environment and reflect themselves in LS&Co’s SC in diverse ways. Examples of such activities
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include sophisticated and innovative finishing techniques, which can save up to 96 percent of
water in the denim finishing process, collections of products that are made of 20 percent post-
consumer recycled plastic bottles, and the commitment to achieve zero discharge of hazardous
chemicals by 2020.
Concerning global logistics, LS&Co. uses all common modes of transportation, i.e. ships,
planes, rail and trucks, following the principle of water over air and rail over truck. In order to
ensure environmentally sustainable movement of the products, the company carefully chooses
its carriers, favouring those with demonstrably sound environmental sustainability
performances – from ship hull and engine design to the use of responsible fuel. Additionally,
sophisticated global consolidation and deconsolidation programs guarantee the optimization of
freight movement on each leg of transportation (LS&Co., 2014).
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4. Analysis & Evaluation
Outsourcing
Employing TCE on LS&Co., cost advantages of outsourcing the manufacturing process are
mainly achieved through cost savings in low-cost and low-wage countries such as China and
India. Consequently, transactions costs do not erode cost advantages of outsourcing and with
the critical dimensions – asset specificity, uncertainty and frequency of transactions – being
rather low than high, TCE recommends outsourcing in this case, which is nowadays further
facilitated by the use of information technology such as real-time communication and ERP
systems.
From RBV perspective, LS&Co makes itself stand out from other competitors by having over
100 years of experience in the apparel industry selling and designing timeless, high-quality jeans
and other apparel. During this time, the company was able to develop strong brand recognition,
memorability and deep industry expertise. Consequently, its core competency can nowadays be
defined as the processes of designing and marketing high-quality apparel and jeans.
The company has outsourced the manufacturing process to make use of the expertise of fabric
mills and product suppliers, which solely focus on textile manufacturing and finishing, allowing
them to pool resources for only one specific task and gain tremendous economies of scale.
Hence, “only” marketing activities – from product designing through pricing and the
management of distribution channels to promotion activities – purchasing and supplier
management are left within the company, what identifies LS&Co. as an entirely de-materialized
company, also considered to be the “optimum of outsourcing” (Arnold, 2000, p. 27).
Sustainability
As outlined above, LS&Co. has clustered its sustainability activities into four major dimensions,
that can be transferred to the SSCM framework of Carter and Rogers (2008) (see figure 2).
While social performance covers all activities related to the people dimension, environmental
performance encompasses activities in the dimensions of planet, products and production.
According to Carter and Rogers (2008), LS&Co. is able to benefit from its approach to
sustainability as social performance together with environmental performance can lead to long-
term economic sustainability in different ways. Hence, LS&Co.’s SC may be more difficult to
imitate and be able to eliminate opportunistic behaviour through improved social sustainability,
which leads to shorter lead times and lower costs, ultimately leading to economic sustainability.
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Furthermore, organizations such as LS&Co. who seem to be able to more effectively adapt to
dwindling natural resources and social changes, e.g. increased diversity and better human rights,
Figure 2 SSCM Framework by Carter and Rogers (2008) adapted to Levi Strauss & Co. (LS&Co. 2019c)
both addressed in the people dimension through equality programs and an extensive working
conditions code of conduct, will be more economically sustainable (Carter and Rogers, 2008,
pp. 374).
Analysed from Koberg and Longoni’s (2019) recently developed theoretical perspective, who
identified SSCM configuration and governance mechanisms as the two key elements of SSCM
in global supply chains, LS&Co. is performing similarly well. First, LS&Co.’s SSCM
characteristics follow a closed and third-party configuration. LS&Co. developed formal links
with both first-tier suppliers and sub-suppliers through precise definitions of its terms of
engagements that apply for both of them. Along with it, LS&Co. is closely working together
with approximately 40 non-traditional actors or NGOs such as the Better Cotton Initiative and
the United Nations (LS&Co., 2019b). Second, LS&Co.’s SSCM approach follows direct
governance mechanisms, which is evidenced by detailed supplier assessments and close
collaborations with suppliers, thus investing significant time and resources to ensure suppliers’
sustainability outcomes. In practice, this is shown through the above-mentioned continuous
factory assessments as well as only working together with suppliers who comply with LS&Co.’s
sustainability requirements.
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Evaluation
By analysing LS&Co.’s SC under the light of recent SSCM literature, one can see that LS&Co.
is meeting all respective characteristics as recommended by academic SSCM research.
Although it is a major challenge for de-materialized companies with complex global supply
chains and no own manufacturing sites to guarantee sustainability in all relevant courses of
business, LS&Co. has successfully tackled this challenge by viewing SSCM as a holistic
endeavour and deeply embedding the comprehensive topic of sustainability into the firm’s
overall strategy, organizational culture as well as the complete product lifecycle. In particular,
LS&Co. puts in great efforts to ensure that not only tier 1, but also tier 2 and 3 suppliers act
sustainably. At that point, LS&Co. follows a strict “profits through principles” philosophy, even
if that means forfeiting profits to do the right thing (LS&Co., 2014).
While outsourcing can lead to competitive advantage through, e.g., cost savings, purchase price
reduction and defect rate reduction (Cho and Kang, 2001; Kusaba et al., 2011; Petersen et al.,
2000, p. 36; Trent and Monczka, 2003a, b), engaging in sustainability activities proactively can
further strengthen this competitive advantage and improve economic sustainability as shown
above. Furthermore, LS&Co. is currently planning to digitize the design and development of
denim finishing, addressing both agility and sustainability at the same time to refine sustainable
competitive advantage in the future. By automating the jeans finishing process through the use
of lasers and replacing manual techniques, LS&Co. will be able to radically reduce time to
market and eliminate thousands of chemical formulations simultaneously (LS&Co., 2018).
Although LS&Co. is performing exceptionally well in terms of SSCM, its SC has some
limitations, too. First, the analysis of LS&Co.’s official mills and factory lists reveals that the
vast majority of relevant facilities is located in low-cost countries, where wages are still many
times lower. Even though this effect is attenuated through increased purchasing power in
respective countries, living and working conditions are still far below western standards.
Second, LS&Co. was indeed a pioneer when it comes to SC transparency by being one of the
first corporations to publish its entire mills and factory list. However, making the manufacturing
and distribution process completely transparent is also not the case with LS&Co.
Third, closed-loop SC efforts do not really appear to be strategically oriented. In fact, customers
do have the opportunity to return their used products to LS&Co., however, specific incentives
for customers to ultimately choose this option over conventional ways of disposal are still
missing.
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5. Conclusion
As the example of LS&Co. illustrates, successful and well performed SSCM in a de-
materialized company is indeed very challenging. However, with a sophisticated, holistic
approach and the implementation of sustainability into the overall business strategy across all
SC members, this undertaking is possible. Beyond that, engagement in environmental and social
sustainability activities can ultimately lead to sustainable economic performance. This effect
may not be directly observable, but the very recent and highly successful initial public offering
of LS&Co. as well as the increasing revenues since the kick-off of the major sustainability
campaigns in 2015 underpin this proposition (Reuters, 2019; Statista, 2019).
Key aspects of successful implementation include both closed and third-party SSCM
configuration, characterised through continuous supplier assessments as well as close
collaboration with suppliers, sub suppliers and non-traditional actors. Furthermore, direct
governance mechanisms with significant time and resource investment are also superior to
indirect mechanisms.
However, as the limitations in the last chapter showed, there is still room for potential
improvement. By making the complete production process fully transparent, LS&Co. could
further increase the customers’ trust in its brand and further enhance its public image.
Additionally, the company could create various incentives to promote the utilization of its
closed-loop supply chain, such as loyalty programs, significant discounts or other marketing
activities.
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