Gucci s case study feedback notes

What are the unique features of a luxury goods supply chain In terms of demand characteristics? Product design and innovation drives demand Low visibility of future demand leads to order based rather than forecast based replenishment High value & margin products High level of new product Introduction Short campaign cycles with high level of new product Introduction Question 2: Analyzing Gucci Supply Strategy

Gucci supply strategy is focused on local sourcing: the supply network is located in the leather district around Florence, a tight-knit & high quality capability region – but also very expensive. Strengths: Give that the market is willing to pay a premium price which has to cover high-cost production in Tuscany, Gucci supply strategy Is based on local sourcing with three major strengths: quality responsiveness security This allows Gucci to be both fast and reliable In developing & Introducing new collection. High level of quality.

The local supply base allows Gucci to maintain a strong control on quality, starting from the quality of the raw materials that are forwarded to Gucci, inspected by Gucci and then sent to its suppliers. The set up of any new model can be strongly supported by Gucci technical staff to allow the suppliers be quick to attain the high standards company requires. Gucci traditional suppliers in the Florence region are basically craftsmen.

So In addition to the product specification, they are able to maintain the ‘craftsman touch’ that is a key element of the Gucci offer.

High level of responsiveness. The local supply base allows Gucci to be fast and reliable in developing the prototypes and later in managing changes to product design. Changes in production planning can be handled much faster and more effectively with a local supplier – Informal procedures can work more smoothly than formalized contracts. In general, keeping raw materials In-house and assigning them the company to postpone the DOC, reducing the overall stock level while maintaining high flexibility. High level of security.

The local supply base, having a long-term (and profitable) relationship with Gucci, is very supportive in preserving Gucci exclusive designs. This issue is really critical in the design phase off new collection, where the few suppliers involved in preparation of the prototypes handles very sensitive data about new shapes, new materials/accessories and new colors. It is also very important in the production phase to limit, or at least to postpone, counterfeit production. Other companies have found that some of their foreign appliers have supported counterfeit reproduction directly or indirectly.

The local sourcing strategy helps to differentiate a luxury brand with respect to a fashion brand.

Several fashion brands – even highly positioned such as Pravda – are sourcing part of component production in low-cost countries. The thinking is that the brand (“Made by Pravda”) is considered to be stronger than a generic “Made in Italy’. However luxury brands are more conservative and they are maintaining a strong link with their ‘high class’ country of origin as an important element of their market consisting.

This is very effective also towards the new developing markets such as China, India or Russia where wealthy buyers of luxury products are willing to pay a premium price to buy the status and the image of ‘made in Italy products, and do not appreciate the original product having low-cost sourced components. Weaknesses: Given that local sourcing has many advantages, one could question whether Gucci is doing enough to increase the managerial and IT competences within these local firms.

The fact that most of the supplier base is located very close to Gucci headquarters, with the possibility of direct communication and direct leads, has not given strong incentives in strengthening management tools and IT infrastructure across the supply network. In spite of the close relationships & proximity of the supply base, Gucci contractual arrangements with its suppliers appear to be surprisingly short-term. While custom & practice implies that suppliers are kept for the longer term, there is always the possibility that contracts could be terminated.

There is still a great divide between the way Gucci is managed internally and the way its supply network works. Gucci is now bridging this gap by strengthening its inter- organizational IT system but it will take time before its new supply network will acquire a more structured managerial culture, without losing its craftsmen touch! Gucci is exposed to unexpectedly high demand for particular ski’s. The ‘built in’ flexibility is effectively В± 20% which would not cope if there is unexpectedly high sales growth during a given season.