Louis Vuitton: Luxury handbags coming off an assembly line?
Louis Vuitton revolutionized its operating model to better serve its clients and enhance its luxury image.
Louis Vuitton shop in Hong Kong [1]
Louis Vuitton – part of the LVMH group – is the illustration of a French company that successfully managed to align its operating model with its business model. This example of effectiveness proves that adopting a modern operating system is not necessarily contradictory with the business of manufacturing hand-made luxury goods. On the contrary!
Louis Vuitton’s business model
Louis Vuitton is one of the largest luxury-goods firm in the world. Established in France in 1854 and specialized in leather luggage, their products were revolutionary at the time because of the combination of both lightness and storage capacity. They were recognizable with the famous “LV” logo and the monogram canvas. In 1893, the firm started its expansion by participating in the Chicago World Fair and promoting the brand in the US [2].
The expansion strategy continued in the 20th and 21st century with a focus on the Asian markets. Vuitton also expanded its product line with smaller leather goods such as purses and wallets and started creating limited-edition collections to refresh the brand from time to time.
Louis Vuitton bag designed in collaboration with Japanese artist Takashi Murakami [3]
Louis Vuitton’s success relies on a few key principles:
- Stores located in the most prestigious locations in the world (e.g. on Fifth Avenue in New York or on the Champs-Elysées in Paris)
- Glamorous brand image with an advertising strategy focused on travel, famous models and actresses with a recent shift towards celebrities in general
- Quality products
Presentation of Louis Vuitton by CNN Money [4]:
Louis Vuitton’s operating model
In 2005, Louis Vuitton was still operating under a traditional operational model. It would usually take 8 days and between 20 to 30 craftsmen to produce a “Reade” tot bag.
Although this traditional process was synonym of quality and luxury for customers, it was not efficient nor adapted to the growing demand. New designs were often sold out quickly and the company was not prepared to speed up production in this situation [5].
With the help of McKinsey, a strategy consulting firm and inspired by the lean processes used in the Japanese auto industry, Louis Vuitton revolutionized its operating model. Under the new system, Louis Vuitton was able to assemble bags in less time and in a more efficient way.
Changes in the manufacturing procedures
In 2005, McKinsey measured lag time in the different production phases and realized that there was a lot of wasted time that could be eliminated:
Workers who were originally specialized in only one operation are now trained to be able to accomplish different tasks in the assembly process. For example, a worker who was specialized in stitching would now be in charge of cutting, stitching and finishing the edges of a pocket. Workers were also organized into small teams of 6 to 12 following the example of workers in the Japanese electronics industry.
Workstations were re-arranged in U-shape, with the sewing machines on one side and the assembly on the other in order to minimize time to pass the work from one station to the other [6]. This led to freeing-up space in factories which allowed to hire more workers and therefore becoming more efficient thanks to a better use of assets.
Louis Vuitton also uses computer programs to help leather workers identify flaws in the skin they receive, reducing earlier the number of defects and the amount of faulty products returned. Similarly, robots are now smartly used to help workers focus on their core competencies: for example, in a shoe factory, robots are sparing workers walking back and forth from their workstations to the shelves [7].
Changes in the distribution procedures
Vuitton also redesigned its distribution system in hubs and spokes to meet customers demand faster: with a global distribution center near Paris, they are now able to ship products to six regional distribution centers in the world. Stores around the world send sales information to the French headquarter a few days after product launch in order to adjust demand appropriately.
Even in stores, the operating model has become more efficient and aligned with Vuitton’s business model: In the past, salespeople were going to the stockrooms to find the products, leaving their customers alone. Now, products are sent – wrapped! – with an elevator from the basement stockroom to the cash register [5]. Customers are therefore better served with the same number of employees.
The right balance between automation and “human-work” reinforces LV’s luxury image
Although scarcity is generally a good thing in luxury because it creates an aura around the product, this has a certain limit: you don’t want to frustrate your clients!
LV’s operating & business models work well together [8]: by being able to provide products to their customers on time, ramping up production if a bag becomes popular, LV does not exasperate their customers by turning them down.
Because workers are cross-trained, they identify defects earlier, which leads to fixing flaws more quickly and reducing returns of faulty handbags. This improves the quality image of the brand. Furthermore, the automation of the processes allowed to reduce costs and maintain jobs in France in order to keep the “Made in France” label, further contributing to the brand value.
Finally, less specialization enables workers to make more types of bags – you can shift workers more easily to producing a more popular bag when needed, depending on demand. This allows to create more collections every year and to ship them once every six weeks, twice as fast as before.
In conclusion, LV managed to reach a smart combination of automation and hand-made processes leading to a better ratio between quality and speed, enhancing the reputation of the brand.
Sources:
[1] LV Hong Kong shop, http://www.flickr.com/photo_zoom.gne?id=132784241&size=l, kentwang
[2] Louis Vuitton in Japan, Richard Ivey School of Business, 2010-10-15
[3] http://www.highsnobiety.com/2015/07/17/louis-vuitton-murakami-pieces/
[4] Inside Louis Vuitton’s Success, https://youtu.be/UfyOpfSRLdE, CNN Money
[5] Louis Vuitton tries Modern Methods on Factory Lines, The Wall Street Journal, 2006-10-09
[6] At Vuitton, Growth in Small Batches, The Wall Street Journal, 2011-06-27
[7] Louis Vuitton shoe making in Fiesso d’Artico, https://youtu.be/pvcgSjA86Ik
[8] Leading by Example, New Zealand Apparel, Vol. 42 Issue 4, 2009-05, Dan Ahwa
TOM process improvements in luxury goods? I had no idea! This is a really interesting read. It does actually beg the question: how much automation would consumers accept and still consider a product luxury?
Thanks for your comment mhan128, that’s actually the million-dollar question: how far do you invest on automation without jeopardizing your brand image? My article is trying to give an answer but I believe that another approach would be to ask customers what their views are. And it seems that a company like Hermes, that relies more on manual processes than LV is able to charge higher prices because it is not “diluting” its luxury image.
Great post, Remi! I am curious, what your view is on their digital merchandising and market customization (store display, selection, branding, etc.) as their customers became younger, more tech-savvy and more international? It also appeared that the production/operating model hasn’t changed that much since its inception (Is there a standard process to improve their operating procedures beyond an one-off redesign like the project in 2005?). Given what we know about the luxury market commoditization today, what part(s) of their operating model do you think contributed to adapting quickly to a changing customer base?
Thank you Lily for your comment, I actually had the same questions when I wrote the article. Unfortunately Vuitton’s representatives only gave interviews to newspapers regarding their 2005 modernization project and tend to maintain a culture of confidentiality when it comes to their operating models. However, I believe that this one-off transformation allowed them to create more collections every year and adapt quickly to an ever changing demand.
You should check their new app, called “Louis Vuitton City Guide”: they just launched it last month. It’s a sign that LV is doing a great job at understanding their customers: targeting the young, international & tech-savvy.
Very interesting! I am surprised there is so much disclosure regarding redesign of the manufacturing process and introduction of automation… LV has always been reluctant to share details about its production process and especially about which steps are done by hand! As many other luxury brands, they advertise hand crafting as a way to stress their superior quality in the eyes of the customers…
Thanks Daly! I was surprised as well by how much information I could find online. By way of comparison, Hermès is not disclosing anything unless they want to emphasize hand crafting, as you mentioned.
I’d be curious to have others’ opinions but I think that LV was trying to justify their investments in automation by making it clear that they were not replacing workers by machines, but on the contrary helping them focus on their core competencies.
Thanks for your post, Remi. It was refreshing to hear that scarcity has its limits, and really interesting that such a luxury good company could model its production off of the Japanese electronics industry.
Your post reminded me of the TOM simulation and what we learned in class about assembly lines, cross-training, and physical layouts. I learned that LV improved efficiency by cross-training its employees to reduce lag time between production steps and made use of the physical U-shaped layout to minimize the time of moving the product between stations. It’s also interesting how they use technology in order to catch defects in the material as early in the production process as possible.
Thank you Sam for reading my post! I’m glad that it reminded you of the Shad simulation!
I also find it interesting to see how operating models can be relevant in very different industries (car manufacturing or luxury goods) but the example of Vuitton also shows that copying an operating model is not enough: one has to adapt it to the specificities of its industry.