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The End of Cheap Labour: Levi's New Supply Chain Strategy

According to Demographic Destiny, a labour shortage will force retailers, especially Western brands to remake their China operations or pack up and leave! “The changes will mark a new chapter in the history of globalization, where automation is king, nearness to market is crucial” and lives around the world are scrambled.

Laser technology are replacing dozens of workers who use to scrub Levi’s jeans with sandpaper to give them that American worn out look. Automated sewing machines and digital printers have cut the numbers of seamstresses and pattern makers. This is because in short, “Labour is getting more expensive and technology is getting cheaper,” says Andrew Lo.

Low cost production in China has helped suppress inflation in the US, Europe and at home. The real question is whether or not, automation can keep down the costs as effectively as Chinese labour has in the past.

One of the most fascinating and evolutionary ideas is the invention of 3-D printing – where essentially printers can replicate solid objects like copiers and produce a limitless selection of orders. “In 2050, you could possibly have a 3-D printer at home that could produce all the fabrics you want,” said Roger Lee, chief executive of Hong Kong’s TAL Group.

The shift in consumer demand is also leading to the diminishment of China’s role as a global manufacture. The growing trend towards customized goods are making huge quantities of goods less attractive and slow delivery time is placing an increasing role as well.

Already, China’s rising labour costs of now $14.60 an hour, compared with $22.68 an hour in the U.S., according to BostonConsulting Group – after factoring in the cost of energy, China is now a more expensive place to manufacture than Indonesia, Thailand, Mexico and India.

Levi has since abandoned the idea of “chasing the needle” – whereby the company’s strategy was to relocate from one impoverished country to another, in favor of other forms of cutting costs. However, none of this means Levi is going to pull out of China, as it lists about 200 Chinese factories in which they do business – about five times as many as any other country. 

In recent years, Levi has improved the efficiency of its manufacturing process and introduced the WaterLess method of production, since then Levi has saved more than one billion litres of water since 2011. Currently, Levi has cut costs in the number of suppliers by 40% and the number of fabrics by 50%. Also, Levi has adapted their production to utilize laser technology fro pattern making, reducing the cost of buying fabric – as each pattern can be made to look like another.

Since, Levi is already experimenting with more localized production. “When a line of so-called skinny jeans, which it made in China, became a big hit in Europe, it turned to factories in Poland and Turkey to fill the unanticipated demand and cut shipping time,” said O’Neill.

Most recently, Levi has launched its revolutionary jeans for women in Asia Pacific. Presently, our strategy includes expanding female consumer markets in the Asia-Pacific region. "We believe there is significant potential in this sector especially in the greater China markets. Levi's Revel is a new collection which builds on our successful Levi's Curve ID Collection. Our women's design team is especially proud of the revolutionary jeans technology of Levi's Revel," said Roy Bagattini, Levi Strauss's Asia-Pacific president.

Fast forwarding to the future, we will see a dramatic change in how supply chain operations are carried out. The shift towards more localized supply chain's - closer to home - will lead to smaller more specialized manufacturing in all retail businesses.

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