Louis Vuitton:New Product Introductions vs ProductAvailability
- Critically discuss the issues the company is facing and the nature of the conflict between the VP for Marketing & Sales and the VP for Manufacturing & Logistics;
- Discuss the various short term and longer term options that you would suggest to alleviate the issues identified;
- What are your final recommendations to Yves Carcelle?
Nature of the Conflict
This report will focus on the issues within Louis Vuitton Company, arguably the world’s best luxury brand, where a conflict has been raised between Vice president for marketing and sales and VP for manufacturing and logistics. The problem is associated with increasing cost of logistics and stores are running out of products, which are on high demand. This report will critically analyse the issue and suggest some long term and short-term remedies to resolve the issue (Yu, Lin and Wang, 2013). Further, a detail recommendation will be made to mitigate the ongoing conflict.
The most profit-oriented subsidiary of LVMH, Louis Vuitton concentrates on the core business of luxury handbags. With the progression of time, they have differentiated the product range by launching, shoes, clothes and jewellery as well. The problem occurs when it has been reported to both the managers of marketing and sale as well as manufacturers and logistics that their 340 company owned stores across the world have been facing with the ‘out-of-stock’ problem. Acknowledging the seriousness of the matter, VP of marketing and sales has accused the supply chains, as those are both less responsive and not flexible according to the market demand (Sarkar 2016). On the other hand, VP of manufacturer and logistics has highlighted the fault of new products, which have been launched without following the emerging market demand. Therefore, a conflict has occurred between the two managerial head. The CEO is in a confusing state yet realises that both of the analysis carry importance in terms of solving the issue. Additionally, he has observed that the cost of logistics is increasing at a rapid rate. As far as Louis Vuitton’s traditional manufacturing process is concerned it is entirely focused on providing quality thus, procedure is time consuming. However, the market trend of last two decades indicates that target market of luxury goods has expanded. Not only the elite customers but also young generation who are highly quality and statement conscious, opting for branded products while shopping for festivals. Most probably, it is one of the major reasons of company growth in between 1999 to 2000 (Liu, Li and Hu 2013). Therefore, as per the managerial report submitted from both the departments, two chief issues have been recognised within the subsidiary.
- Lack of synchronisation between the demand and supply: Marketing executives are not efficient enough while drafting the market report and their wrong assumption about the demand has led to overproduction of products and launch of some new product scales.
- Increasing cost of logistics: Logistics costs has been increased twice due to higher cost of shipping the items through Airfreight (Rezaei, Hemmes and Tavasszy 2017). Inventory cost are now greater than before, as the number of products are increasing, which have failed to appeal the market. The estimation is 20% more than the previous record.
While analysing the nature of conflict, it can be stated that it is very natural to confront with certain disagreements while working as a manager in a multinational company. The area of operation is ever expanding and analysis of a critical situation may differ from one manager to another. A situation of interpersonal conflict is common yet in a serious situation like Louis Vuitton; it demands to be resolved as soon as possible. In order to solve such frequent occurrence of conflicts, managers must consider each other views and must try to take charge before the situation goes out of hand.
Managers must communicate and try to mitigate the existing disagreement between them. In order to response against the issue, some immediate action must be taken. In this situation of emergency managers might consider following short-term options. These options must be implemented within 6 months after proposing the suggestion (Tao and Hutchinson 2013).
- Managers are mature enough to understand that; work place is about professionalism and not about emotions. Meetings will be conducted to frame the plan of further market research Pondeville, Swaen and De Rongé (2013). It will help to break the ice between managers considering the shared objective of company.
- In order to ensure efficiency of workforce, necessary trainings and development process will be announced for workers who need further professional edge.
- Short term operations are time bound and target oriented. Plan of next six months regarding the mismatch of demand and supply must be framed within a week.
- According to the plan, Louis Vuitton may provide moderate monthly discount on new products, which are responsible for increased inventory cost. Simultaneously, young generation is as conscious about the budget as they are of brand name. Therefore, it will grab their attention first.
- Marketing communication process needs to be revised by considering contemporary marketing tools to increase buyers’ knowledge on debutant product ranges (Hung and Lin 2013).
Options, which need time to be implemented and suggestions that must be transformed into a sustainable practice those are considered as long-term options.
- As the shipment cost through Airfreight has become higher than before, the management can wait for a stable situation until the company’s balance sheet comes in order by clearing up the stock with the help of discount strategy (Smith 2014). After that, the plan of establishing local manufacturing units can be implemented.
- Establishment of local manufacturing unit will be feasible as products will be manufactured according to the market demand locally and shipment cost of surface was already affordable.
- As described in Leon-Perezet al. (2015), maintain a friendly atmosphere within workplace to build a work culture where people share opinions on their own professional ground without creating any interpersonal conflict.
- According to Blázquez (2014), maintaining effective marketing communication channels, HR process and adoption of several advanced technological tools, which help to keep synchronisation between various units, will be helpful in terms of avoiding such situation in future.
Corporate headquarter of LVMH is pressuring the CEO to increase or as a minimum, sustain the present profit rate of Louis Vuitton. The entire company is highly dependent on the revenue generated by the luxury handbags by this subsidiary. As per Kurata (2014), customers are highly disappointed as they have to choose some other option or have to wait for a long span in order to have the product of their choice. In this situation, CEO has asked for recommendation from his managers and business consultants.
According to the business consultants, a reading of Kouvelis, Li, and Ding (2013) suggests, Louis Vuitton can think for converting some of their storage space into shopping area in order to cut out inventory cost and it will increase their sale as well. However, increase of only 3% sale will not contribute much to the elevated amount of manufacturing, as the company has to depend on outsourcing now a days. Another reason of increasing cost can be the trend of overtime. It has emerged among employees to meet the market requirement.
On the other hand, two different recommendation have been received from VP for marketing and sales and VP for manufacturing and logistics. Whereas, the first one is saying it would be better to stick on the market demand without considering the Airfreight and inventory cost with highest priority; the departmental manager of manufacturing and logistic unit presents a practical dimension. As per his opinion, if the recommendation of marketing team will be adopted then it will double the logistics cost by affecting the profit of the company greatly.
It would be highly professional of him, if he chooses to listen to the managers of manufacturing unit, as it is the core of business. Marketing comes as a secondary component. The company cannot compromise with the quality of the brand to satisfy the market demand in a hurry. There is no point of pressuring the manufacturing units and adjust with an increased operational costs. As per Coelho and Laporte (2014), it would be a sustainable strategy to take orders from the customers and deliver the products within promised timeline until the establishment of local manufacturing hubs. Maintaining this process, the company can balance the supply of products, which are on high demand. Clearance of stocks is dependent on marketing communication team as they will circulate and influence the market in favour of newly introduced products. Although, shipment costs are needed to bare until the establishment of proposed manufacturing and business hubs locally.
Therefore, to conclude it can be stated that the entire process needs time to be implemented properly. The CEO requires the support of managers of every department in order to mitigate the ongoing problem within a proposed timeline. Conflict between managers are common yet acknowledging the shared objective of the organisation with highest priority, they must act as a team to confront with the ongoing issue of demand and supply.
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