VFC » Topics » Manufacturing, Sourcing and Distribution

These excerpts taken from the VFC 10-K filed Mar 3, 2009.
Manufacturing, Sourcing and Distribution
 
Product design, fit, fabric, finish and quality are important in all of our businesses. These functions are performed by employees located within each of our branded businesses across the globe.


8


 

VF’s centralized global supply chain organization sources product and ultimately bears the responsibility to deliver product to our customers. VF is highly skilled in managing the complexity associated with the supply chain. VF’s revenues are comprised of approximately 500 million units representing 500,000 SKUs spread over 30 brands. VF operates 30 manufacturing facilities and utilizes over 1,600 contractor manufacturing facilities. We manage over 30 distribution centers and nearly 700 retail stores. Managing this complexity is made possible by our use of information systems technologies — with best-of-breed systems for product development, forecasting, order management, warehouse management, etc. attached to our core enterprise resource management platform.
 
Today, 23% of our global Net Sales are of products manufactured in VF-owned facilities in Mexico, Europe and Central America and 77% are of products obtained from contractors, primarily in Asia. We believe a combination of VF-owned and contracted production from different geographic regions provides flexibility and a competitive advantage in our product sourcing. We will continue to manage our supply chain from a global perspective and adjust as needed to changes in the global production environment.
 
Our domestic Jeanswear and Imagewear businesses operate owned manufacturing facilities (primarily cutting, sewing and finishing) located in Mexico and Central America. Our international jeanswear businesses operate manufacturing facilities located in Poland and Turkey. A significant percentage of our denim bottoms are manufactured in these plants. For these owned production plants, we purchase raw materials from numerous domestic and international suppliers to meet scheduled production needs. Raw materials include fabrics made from cotton, synthetics and blends of cotton and synthetic yarn, as well as thread and trim (product identification, buttons, zippers and snaps). In some instances, we contract the sewing of VF-owned raw materials into finished product with independent contractors in the United States, Mexico and Central America. While we obtain fixed price commitments for denim and certain supplies for up to one year in advance, specific purchase obligations with suppliers are typically limited to the succeeding two to six months. Our only long-term contract for the purchase of raw materials or finished products is a commitment in connection with the sale of VF’s childrenswear business in 2004. This agreement requires VF to purchase a remaining total of approximately $77.5 million of finished product for sale through our VF Outlet stores, with a minimum of $15 million per year. No single supplier represents more than approximately 3% of our total cost of sales.
 
For the U.S. market, our current sourcing strategy includes a balance of VF-owned production and contracted production in the Western Hemisphere and contracted production from Asia. Owned production generally has a lower cost than contracted production. Product obtained from contractors in the Western Hemisphere generally has a higher cost compared with production obtained from contractors in the Far East but gives us greater flexibility and shorter lead times and allows for lower inventory levels. Approximately 33% of units sold in the United States and 27% of the dollar value of domestic Net Sales in 2008 were manufactured in VF-owned facilities, primarily in Mexico and Central America, with the balance obtained from contractors, primarily in Asia. This combination of VF-owned and contracted production, along with different geographic regions and cost structures, provides a balanced approach to product sourcing.
 
To an increasing extent, we are using independent contractors who own the raw materials and ship only finished, ready-for-sale products to VF. These contractors are engaged through VF sourcing hubs in Hong Kong (with several satellite offices across Asia) and Miami. These hubs are responsible for product procurement, product quality assurance, supplier management, transportation and shipping functions in the Eastern and Western Hemispheres, respectively. Substantially all products in the Outdoor and Action Sports and Sportswear Coalitions, as well as a growing portion of product requirements for our Jeanswear and Imagewear Coalitions, are obtained through these sourcing hubs. For most products in our Contemporary Brands Coalition, we currently contract the majority of sewing and finishing of VF-owned raw materials through a network of independent domestic and international contractors. Some of this volume is being shifted to the VF sourcing hubs. VF does not directly or indirectly source any products from suppliers in countries that are identified by the State Department as state sponsors of terrorism and are subject to U.S. economic sanctions and export controls.
 
Management continually monitors political risks and developments related to duties, tariffs and quotas. We limit VF’s sourcing exposure through, among other measures, (i) extensive geographic diversification with a mix of VF-operated and contracted production, (ii) shifts of production among countries and contractors, (iii) allocation of production to merchandise categories where the free flow of product is available and (iv) sourcing from countries with tariff preference and free trade agreements.


9


 

Through its contractor monitoring program, VF oversees the activities of the many independent businesses and contractors that produce VF-branded goods at locations across the globe. Each of the over 1,600 independent contractor facilities that manufacture VF-branded products must be pre-certified prior to performance of any production on behalf of VF, including contractors of our independent licensees. This pre-certification includes passing a factory inspection and signing a VF Terms of Engagement agreement. These requirements provide strict standards covering age of workers, hours of work, health and safety conditions and conformity with local laws. We maintain an ongoing audit program to ensure compliance with these requirements by using dedicated internal and outsourced staff. Additional information about VF’s Global Compliance Principles, Terms of Engagement, Factory Audit Procedure and Factory Compliance Guidelines, along with a Global Compliance Report, are available on the VF website at www.vfc.com.
 
VF did not experience difficulty in filling its raw material and contracting production needs during 2008, and we do not anticipate difficulties in meeting our raw materials and contracting production requirements during 2009. The loss of any one supplier or contractor would not have a significant adverse effect on our business.
 
Product is shipped from our independent suppliers and VF-operated manufacturing plants to many distribution centers in the United States and international markets. In limited instances, product is shipped directly to our customers. Product is inspected, sorted and stored in our distribution centers until needed for packing and shipping to our wholesale customers or our retail stores. Most distribution centers are operated by VF. Some support multiple brands. A small portion of our distribution needs are met by contract distribution centers. Our distribution centers use computer-controlled inventory management technology for efficient tracking and movement of products.
 
Manufacturing,
Sourcing and Distribution



 



Product design, fit, fabric, finish and quality are important in
all of our businesses. These functions are performed by
employees located within each of our branded businesses across
the globe.





8





 






VF’s centralized global supply chain organization sources
product and ultimately bears the responsibility to deliver
product to our customers. VF is highly skilled in managing the
complexity associated with the supply chain. VF’s revenues
are comprised of approximately 500 million units
representing 500,000 SKUs spread over 30 brands. VF operates 30
manufacturing facilities and utilizes over 1,600 contractor
manufacturing facilities. We manage over 30 distribution centers
and nearly 700 retail stores. Managing this complexity is made
possible by our use of information systems
technologies — with
best-of-breed
systems for product development, forecasting, order management,
warehouse management, etc. attached to our core enterprise
resource management platform.


 



Today, 23% of our global Net Sales are of products manufactured
in VF-owned facilities in Mexico, Europe and Central America and
77% are of products obtained from contractors, primarily in
Asia. We believe a combination of VF-owned and contracted
production from different geographic regions provides
flexibility and a competitive advantage in our product sourcing.
We will continue to manage our supply chain from a global
perspective and adjust as needed to changes in the global
production environment.


 



Our domestic Jeanswear and Imagewear businesses operate owned
manufacturing facilities (primarily cutting, sewing and
finishing) located in Mexico and Central America. Our
international jeanswear businesses operate manufacturing
facilities located in Poland and Turkey. A significant
percentage of our denim bottoms are manufactured in these
plants. For these owned production plants, we purchase raw
materials from numerous domestic and international suppliers to
meet scheduled production needs. Raw materials include fabrics
made from cotton, synthetics and blends of cotton and synthetic
yarn, as well as thread and trim (product identification,
buttons, zippers and snaps). In some instances, we contract the
sewing of VF-owned raw materials into finished product with
independent contractors in the United States, Mexico and Central
America. While we obtain fixed price commitments for denim and
certain supplies for up to one year in advance, specific
purchase obligations with suppliers are typically limited to the
succeeding two to six months. Our only long-term contract for
the purchase of raw materials or finished products is a
commitment in connection with the sale of VF’s
childrenswear business in 2004. This agreement requires VF to
purchase a remaining total of approximately $77.5 million
of finished product for sale through our VF Outlet stores, with
a minimum of $15 million per year. No single supplier
represents more than approximately 3% of our total cost of sales.


 



For the U.S. market, our current sourcing strategy includes
a balance of VF-owned production and contracted production in
the Western Hemisphere and contracted production from Asia.
Owned production generally has a lower cost than contracted
production. Product obtained from contractors in the Western
Hemisphere generally has a higher cost compared with production
obtained from contractors in the Far East but gives us greater
flexibility and shorter lead times and allows for lower
inventory levels. Approximately 33% of units sold in the United
States and 27% of the dollar value of domestic Net Sales in 2008
were manufactured in VF-owned facilities, primarily in Mexico
and Central America, with the balance obtained from contractors,
primarily in Asia. This combination of VF-owned and contracted
production, along with different geographic regions and cost
structures, provides a balanced approach to product sourcing.


 



To an increasing extent, we are using independent contractors
who own the raw materials and ship only finished,
ready-for-sale
products to VF. These contractors are engaged through VF
sourcing hubs in Hong Kong (with several satellite offices
across Asia) and Miami. These hubs are responsible for product
procurement, product quality assurance, supplier management,
transportation and shipping functions in the Eastern and Western
Hemispheres, respectively. Substantially all products in the
Outdoor and Action Sports and Sportswear Coalitions, as well as
a growing portion of product requirements for our Jeanswear and
Imagewear Coalitions, are obtained through these sourcing hubs.
For most products in our Contemporary Brands Coalition, we
currently contract the majority of sewing and finishing of
VF-owned raw materials through a network of independent domestic
and international contractors. Some of this volume is being
shifted to the VF sourcing hubs. VF does not directly or
indirectly source any products from suppliers in countries that
are identified by the State Department as state sponsors of
terrorism and are subject to U.S. economic sanctions and export
controls.


 



Management continually monitors political risks and developments
related to duties, tariffs and quotas. We limit VF’s
sourcing exposure through, among other measures,
(i) extensive geographic diversification with a mix of
VF-operated and contracted production, (ii) shifts of
production among countries and contractors,
(iii) allocation of production to merchandise categories
where the free flow of product is available and
(iv) sourcing from countries with tariff preference and
free trade agreements.





9





 






Through its contractor monitoring program, VF oversees the
activities of the many independent businesses and contractors
that produce VF-branded goods at locations across the globe.
Each of the over 1,600 independent contractor facilities that
manufacture VF-branded products must be pre-certified prior to
performance of any production on behalf of VF, including
contractors of our independent licensees. This pre-certification
includes passing a factory inspection and signing a VF Terms of
Engagement agreement. These requirements provide strict
standards covering age of workers, hours of work, health and
safety conditions and conformity with local laws. We maintain an
ongoing audit program to ensure compliance with these
requirements by using dedicated internal and outsourced staff.
Additional information about VF’s Global Compliance
Principles, Terms of Engagement, Factory Audit Procedure and
Factory Compliance Guidelines, along with a Global Compliance
Report, are available on the VF website at www.vfc.com.


 



VF did not experience difficulty in filling its raw material and
contracting production needs during 2008, and we do not
anticipate difficulties in meeting our raw materials and
contracting production requirements during 2009. The loss of any
one supplier or contractor would not have a significant adverse
effect on our business.


 



Product is shipped from our independent suppliers and
VF-operated manufacturing plants to many distribution centers in
the United States and international markets. In limited
instances, product is shipped directly to our customers. Product
is inspected, sorted and stored in our distribution centers
until needed for packing and shipping to our wholesale customers
or our retail stores. Most distribution centers are operated by
VF. Some support multiple brands. A small portion of our
distribution needs are met by contract distribution centers. Our
distribution centers use computer-controlled inventory
management technology for efficient tracking and movement of
products.


 




EXCERPTS ON THIS PAGE:

10-K (2 sections)
Mar 3, 2009
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