"The whole world is moving towards a partnership model," says Thomas

"The whole world is moving towards a partnership model," says Thomas

US apparel giant VF Corp is extending its Third Way manufacturing programme to strategic suppliers in sub-Saharan Africa as it continues to build long-term relationships with key partners.

The company behind brands such as Timberland, The North Face, Lee, Wrangler and Vans already works with factories in Bangladesh, Cambodia, the Dominican Republic and Nicaragua on its Third Way programme, and its target is to increase production at these facilities to 40% of its total manufacturing.

And in Africa, where the Third Way initiative is "just getting started" in Kenya and Ethiopia, according to Alex Thomas, VF's VP of supply chain and manufacturing/engineering strategy, some of the biggest benefits are likely to be seen in improved efficiencies.

Confirming that Africa is becoming a rising star in the apparel and footwear sourcing basket, "we're investing quite heavily in sub-Saharan Africa," he told delegates at the WFSGI Manufacturers Forum organised by the World Federation of Sporting Goods Industries in Hong Kong earlier this month.

Working closely with existing manufacturing partners from China, Taiwan and India as it expands its sourcing from the continent, "one of the biggest opportunities we have is efficiency," Thomas notes.

"Because it's duty-free to the West, Africa's lower efficiency today still makes it profitable to do business with. We have a five-year plan towards building efficiencies from 20% to 70-80%, and once we do that then it becomes very profitable for us.

However, he explains, the product mix is critical. "The level of efficiencies and the level of complexity that's able to be handled is not what we have today in China or Vietnam or Cambodia, so the product mix is critical."

How the Third Way works

First piloted in 2007 and running to scale for the past two to three years, the Third Way leverages VF Corp's own internal manufacturing and factory engineering expertise to help participating suppliers to control costs, improve labour efficiencies and productivity, and elevate environmental and social responsibility standards.

Across its supply chain, VF makes 1.3m units of apparel and footwear every day or 530m pieces a year. Products range from jeans and shoes, to bags and luggage, equipment like sleeping bags and tents, and uniforms – adding up to a staggering level of complexity.

Around one-third of production takes place in the 32 jeans and footwear manufacturing facilities that VF owns and operates in Mexico, the Americas, Europe, Honduras and the Caribbean. This the company describes as the 'First Way'.

The 'Second Way' is contract manufacturing with external suppliers; while the Third Way is a combination of the two, a long-term strategic alliance with key suppliers where "we bring everything we know about making product into a factory that's owned and operated by somebody else."

This includes insight "into how we manufacture, process engineering, process innovations – and the level of the relationship means we are able to use our knowledge [so that systems like] progressive bundling, warehousing match our own internal manufacturing structures."

Drilling down into the details, the Third Way programme is further divided into 'light', 'medium' and 'heavy' categories.

The 'light' Third Way is "more of a consultative approach, where we work with our partner vendors on product issues; engineers will visit a couple of times a week and [carry out] project work on a product basis."

The 'medium' Third Way involves having "engineers on site, we have long-term projects and we also have capacity commitment with our partners."

And the 'heavy' Third Way ramps up to profit-share and full open-book costing. "We have a full team of engineers in the factory and we share R&D with our partners; some of the factories are actually run by the engineers so we schedule down to the last minute for capacity planning." Any gains are shared with the partner.

Partnerships "begin with the basics: quality, compliance, delivery," Thomas explains. As part of the initial analysis, an engineering team works with the partner to establish benchmarks. "And once we have a benchmark then we start with a pilot line approach and we build on process efficiencies and cost.

"At each stage we allocate a certain number of time and benchmarks to what we need to achieve before we move to the next step. And part of the negotiation is shared benefit."

Among the achievements of the arrangement are reduced labour turnover and increased productivity, "which comes from an engaged workforce, which forms the foundation for what we do with Third Way. Second, sustainable operations, which comes from risk mitigation. And price. We're able to maintain and mitigate cost increases, cost avoidance, through these activities."

Challenges and opportunities

However, Thomas also acknowledges that the programme's start-ups "haven't always been easy." The biggest issue has been trust, he says. "Things like open-book costings can be a very touchy topic. One of the problems we've had also is having the right people on the bus; talent and skills are so important, and the right people managing the right product."

Indeed, trust is a big thing within the whole Third Way relationship. "Having the vision and not just thinking beyond the next quarterly reporting makes a big difference. You need to have an open relationship, and a lot depends on personalities, so a lot needs to come together."

He also believes that in factories where VF is not the only client, the positives of the Third Way programme are helping to elevate the whole industry.

"We do have factories we work with where it's not entire VF product, and in a lot of cases the factory would apply our learnings to other brands and product categories, which is fantastic in our view because everybody gains."

The relationship – and level of engagement – with individual supplier factories also varies depending on product category and complexity, with a "vigorous allocation process" deciding on the best fit between "our own plants, the Third Ways, and the transactional" suppliers.

"Our most mature [product] is denim jeanswear, and this is where we're able to contribute the most to a partner.

"If we have large, capital intensive investment we'll do it [first] at our factories, lay production lines down, and then bring our Third Way partners to our factories and show that it works, for them to transplant [the ideas] as well."

Ideas flow the other way too, with some Third Way partners used to trial automation, robotics and process efficiencies. "And if something works really well we then sell the story to our brands," thereby feeding the interface between product innovation and process innovation.

At the end of the day, Thomas explains: "There's no more chasing the cheaper dollar. The whole world is moving towards a partnership model, and either you're on the bus or you're off. And this is our way of moving forward."