100-year-old apparel manufacturer VF is overhauling its IT architecture to keep up with changing times
A few miles outside of sleepy downtown Greensboro, N.C., a four-story brick building on a quiet road houses the headquarters of the world's largest apparel manufacturer. VF Corp., a $5 billion-a-year company whose brands include Lee and Wrangler jeans, The North Face outdoor gear, and Vanity Fair lingerie, took over the building a little more than a year ago from struggling textile maker Cone Mills Corp. The work it has done gutting the building to create a home for previously scattered executives and IS and support personnel parallels work going on within VF's IT services group, as the team methodically unwinds legacy software and stitches together a common systems architecture to encourage growth in a dramatically changing industry.
It's one thing to rip out carpeting and burnish hallway floors to a dark patina that looks as old as VF itself, which began life in 1899 as the Reading Glove and Mitten Manufacturing Co. in Pennsylvania and grew through more than a dozen acquisitions in the last 15 years. It's quite another to replace the legacy systems of five operating divisions (or coalitions, as VF calls them) with packaged software from as many as eight vendors; work with those software providers to build applications specifically for this industry and customize that software with scores of programs; and reengineer processes to support a changing business model, as the company outsources more and more of its manufacturing offshore.
It's been seven years since VF deployed i2 Technology Inc.'s Supply Chain Planner software, the first key piece of its technology stack, and today i2 is used to plan 90% of VF's domestic supply-chain operations. VF won't roll out SAP's sales and distribution module, the last piece of the company's enterprise resource planning implementation, to all coalitions until 2005. But the years spent on the technology strategy are critical to VF's efforts to thrive. "VF historically has been a very decentralized company," chairman and CEO Mackey McDonald wrote in an E-mail to InformationWeek. To keep its competitive edge, VF recognized it had to take steps to change that, so that all its divisions could "share information more easily and manage [the] business more efficiently," McDonald said.
The company is reaching milestones, if not finish lines: This month, VF implemented its common systems architecture in the second of its five coalitions, and hopes to go live with it in all divisions in the next couple of years. Its $2.5 billion cash-cow jeans business was the first to implement the architecture, which continues to evolve as VF adds functionality and fine-tunes existing installations. For instance, IT staffers are rolling out new demand-fulfillment software to the Jeanswear group.
By knowing in real time if a third-party contractor misses a manufacturing milestone, VF will be able to make adjustments, VP Martin says.
There's good reason for the slow-and-steady approach. "There's only so much you can bite off at a time without sending a company into total chaos," says Ellen Martin, VP of supply-chain services, who came over to VF when it purchased Blue Bell Inc. in 1986. Martin has been in the thick of the IT transformation since it began, overseeing the tremendous task of rebuilding the systems that support VF's backbone: the supply chain. But the challenge doesn't intimidate her. "This isn't about making my job easier," she says.
What it is about is living with shrinking margins in a down economy. VF is faring better than many other apparel makers. Sales for its first quarter, ended April 5, were nearly flat, but belt-tightening, consolidated operations, and simplified IT systems have helped. Gross margins improved nearly 3 percentage points to 37.5% compared with the same quarter a year earlier, and operating margins went up almost half a percentage point to 12.2%. VF expects that the rest of the year will track in the same direction, with earnings per share and operating margins increasing. Still, the company doesn't expect an upturn in sales for at least another year.
Meanwhile, retailers--struggling with their own declining revenues--are more demanding of suppliers like VF and expect them to know exactly what sells best and deliver those items just when they need them, so they can avoid under-or overstocking. In its recent earnings report, VF cited retail customers' aggressive actions to control inventories as contributing to a 7% decline in U.S. jeans sales. "Apparel manufacturers are getting squeezed," says Nate Herman, international trade adviser for the American Apparel & Footwear Association.
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