To most business organizations, the cost of logistics is a major expenditure that significantly impacts on the price of the products sold. The term logistics characterizes the management process for the transportation of products from one region to another, locally or internationally. On the other hand, the mismatch by a corporation between its products demanded and supplied is also a significant factor affecting the market productivity of an organization. This report offers a description of Louis Vuitton (LV)s solution in regards to its problems of increased logistics costs and the mismatch between its products demand and supply.
This report is based on the LV in 2005, the most profitable subsidiary of the Moet Hennessy-Louis Vuitton. During that year, the corporation was experiencing problems attributed to increased logistics costs as well as the poor in-store availability of its highly successful products. Additionally, the corporation was also experiencing a diminished growth in its volume of unsold products. Consequently, this problem resulted in a reduced profitability for the organization. It also resulted in the development of a conflict between the companys vice president of sales and marketing and vice president for manufacturing and logistics.
Critical Discussion of the Issues That Were Affecting LV in 2005
Increased Logistics Costs
This was the first primary problem that affected LV in 2005. It was a significant problem because the corporation relied on retailing most of its products in international markets that were situated in Europe, Japan, and the United States. Moreover, the number of LV stores worldwide had substantially increased between 1998 to 2005 from 230 to 340 stores (Dussauge2008). Consequently, this meant that the volume of the products that the company had to move across all its subsidiaries had also increased tremendously. Initially, the corporation was using sea and land transport to ship all its products. This mode of transport was priced at 300 per ton within a duration of three weeks.
Nevertheless, in order to supply some of the stock that was already overdue, LV would often use air transport for its logistics purposes. This mode of logistics would, however, be expensive, at it ranged around five times more than the cost incurred by using water or road transport. In this case, air freight charges incurred were totaled at 1500 per ton but within a reduced transportation period of one week. Ultimately, the regular choice of air transport for overdue ordered costs doubled the total costs incurred by LV for the movement of its products. It was also a primary factor that contributed to the conflict between LVs vice president of marketing and vice president for manufacturing and logistics.
Mismatch Between LVs Products Demanded and Supplied
This is the second problem that contributed to the development of a conflict between the two managers in the corporation. In this case, LV suffered from the opportunity cost of a significant volume of lost sales in 2005. This would occur when the orders made by the customers could not be supplied on time, and as a result, such customers would result in buying other products from LV or other competitor stores. Additionally, the mismatch between LV and its customers would often make the corporation suffer from the opportunity costs attributed to the discounting of some its products to its employees.
This occurred for seasonal products, which were retailed to the LV employees at the cost of 70 percent below their actual listed price when the products could not be retailed at their retail price in the market. Moreover, LV could also suffer from the costs of scrapped products. In this case, the products that could not sell through the right channel and those that could not be bought by LV employees at a discounted price were disposed. Consequently, this also adds a significant cost to the LV corporation, which ultimately reduced its profitability ratio.
Long Term and Short Term Strategies to Alleviate the Issues Identified
This is among the long-term strategies that LV could use to reduce the costs they incur when transporting goods across its numerous subsidiaries. In this case, LV could use reputable consolidating corporations who offer their services at a price that is lower than the logistics costs currently incurred by the corporation. In this case, the choice of consolidators should be dependent on the mode of transport used by the consolidating firm to transport its goods. For example, in supplying its urgent orders, LV should use consolidators that use air transport for their transportation.
Consequently, this will ensure that LVs products arrive at their designated destinations on time to meet the customers demand. Furthermore, through using consolidators for logistics needs, LV will also secure other three distinct advantages. First, LV will attain a reduced burden of managing its transportation needs. This is because consolidating firms are capable of managing the whole distribution system of an organization (Hall 1987; Gupta & Bagchi 1987). Second, due to the delicate nature of some of the LVs products, by using consolidating firms, LV will reduce the risk of product destruction during freight.
This will be possible because most consolidating firms insure themselves against loss or destruction of clients products during transit. For instance, if some of LVs products get distorted due to poor storage by the consolidating firm, LV can legally seek compensation for those products. Moreover, such insurance covers will not be charged as an additional expense to the LV corporation. Lastly, by using consolidating corporations for logistics, LV will be in a position to choose their best-preferred transportation mode for their products. This is because consolidators offer multi-mode transportation options for their clients (Greve et al. 2007; International Civil Aviation Organization 2017).
Develop a Product Distribution Plan
This is a short-term strategy that can be utilized by the LV corporation to manage its logistic problem. In this case, the heads of the sales and marketing, and manufacturing and logistics in LV should create a plan for delivering all ordered products to clients from the manufacturing centers to distribution centers. Additionally, such a plan must incorporate factors such as the time incurred in processing, manufacturing, and shipping to the distribution centers. According to Song and Panayides (2012), proper planning and design is a key logistics element in a transportation chain. By developing a good plan, LV will reduce the opportunity costs of all lost sales that would otherwise have been made by the corporation.
Use Advanced Product Designing Strategies That Incorporates Logistics Consideration
Also, LV should shift from using designing and packaging considerations for marketability to more efficient methods of product designs that also incorporates shipability considerations. Such measures could be inclusive of better packaging designs that reduce the volume of space that the corporations products use during transit. Moreover, the designing of the corporations products should also be inclusive of recent exotic materials that weigh less in their average mass. In the long run, this can reduce the bulkiness of the products transported via any modes of transport. For instance, the total weight in tons transported per the fixed rates of transportation will reduce. Subsequently, during a financial period, this could significantly reduce the total logistics costs incurred by the LV corporation.
Use of Lean Inventory Strategies
These are strategies that are focused on reducing the inventory costs incurred by the LV corporation when the goods are in transit. This strategy evolved when the pricing of oil was approximately US $25 per barrel (Henthorn 2017). The strategy was enacted due to the reason that, at the time, oil accounted for over 98 percent of all transportation costs (Henthorn 2017). Today, LV can use methodologies that greatly reduce such costs, which include bulk transportation to benefit from the economies of scale. In this case, LV can make larger and less frequent shipments to reduce the average costs incurred by the company to reduce logistics problems.
Economic Consequences of Using Airfreight for All Distant Destinations
In the featured case study, the vice president of marketing and sales in LV corporation was suggesting that the corporation should use airfreight for all international products supply needs. Nevertheless, this could impact the economic performance of the LV in several ways. First. The cost of using air transport for the companys logistics is estimated to be approximately five times more the cost of using water and land mode of transportation. As such, if LV is to use air transport for transportation needs, it will also need to raise the selling price of all its products retailed in its international subsidiaries.
Currently, LVs products are more expensive compared to other rival products in the market. As such, adding the retail price of the corporations products further might impact negatively on their demand. This is because the price of a product is a major determinant of its demand (Welch & Welch 2009; Musgrave & Kacapyr 2009). Additionally, the increased prices could reduce the demand for the products and a consequential decline in the companys profitability (Portney & Stavins 2010; Baumol & Blinder 2008). Additionally, the increased logistics costs could create a reduction in the funds available for the corporation to use in other aspects of its development. This is because the company deals with the production of limited high-cost products that requires aggressive market research for their development.
As such, to create luxurious products that attract a significant demand in the market, LV requires investing a substantial amount of capital in research and employment of professionals to design its products. As such, if a lot of the companys returns are employed for the logistic expenses, the institution might attain limited revenue for other essential expenditures and still retain its profit margin. Subsequently, this could affect the quality performance of the LVs products and a sequential elevation in the competition offered to the company by its rivals. Ultimately, this can affect the gross economic viability of the corporation in the market in reference to its revenue generation.
Final Recommendations That Should Be Given to Yves Carcelle
From the case analysis, Carcelle should use the four outlined strategies to curb the issues of the increased logistics costs and the mismatch between LVs products demanded and supplied. In this case, Carcelle should seek the services of price effective consolidation firms to transport LVs products to different destinations. He should also develop an effective product distribution plan that allows enough time from production to distribution of LVs products to the corporations customers. Lastly, Carcelle should also use lean inventory strategies and advanced product designing strategies that incorporate logistics consideration.
In conclusion, the conflict between LVs vice president of sales and marketing and vice president for manufacturing and logistics was caused by two factors. These included the increased logistics costs by the corporation as well as the mismatch between LVs products demanded and supplied. Additionally, there are three long-term and short-term strategies that could be employed to alleviate the two issues that faced LV corporation. These included the usage consolidation services, development of an effect...
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