Chapter 16 Outline

Closing Case Timberland

Timberland, a New Hampshire-based manufacturer of rugged, high-quality shoes is one of the world's fastest-growing companies. From small beginnings in the late 1970s, Timberland has grown into a global business with sales of $797 million in 1997. The company's global expansion began in 1979 when an Italian distributor walked into the then small US outfitter and expressed an interest in shoe #100-81, a hand-sewn moccasin with a lug sole. The Italian thought the shoe would sell well in Italy--land of high-style Gucci shoes. He was right; Timberland quickly became a phenomenon in Italy where Timberland shoes often sold for a 60 percent premium over prices in the United States. Expansion into other countries followed, and by the mid-1990s Timberland was generating 50 percent of its sales from 50 foreign countries, including Italy, Germany, France, Britain, and Japan.

Ignored during this rapid growth phase, however, was any attempt to build a tightly managed and coordinated global manufacturing and logistics system. By the early 1990s, Timberland was confronted with an extremely complex global manufacturing and logistics network. To take advantage of lower wage costs outside the United States, the company had established manufacturing facilities in the Dominican Republic and Puerto Rico (by 1997, 27 percent of its shoes were made at these locations). Timberland had also found it cost-efficient to source footwear and apparel from independent suppliers based in dozens of other low-wage countries in Asia, Europe, and Latin America. At the same time, Timberland's distribution network had grown to serve consumers in over 50 countries. To complicate things further, the average shipment of footwear to retailers was for less than 12 pairs of each type of shoe, which made for an enormous volume of individual shipments to track.

Timberland found that its logistics systems was breaking down under the strains imposed by rapid volume growth, a globally dispersed supply and distribution chain, and a large volume of individual shipments. The company simply lacked the information systems required to coordinate and control its dispersed production and distribution network. No common information systems linked suppliers, Timberland, and retailers. Nor was there any attempt to consolidate shipments from

different regions of the world in order to realize shipping economies. Products were shipped from six countries in Southeast Asia to the United States and Europe, as opposed to being consolidated at one location and then shipped.

In the mid-1990s, Timberland decided to reorganize its global logistics system by streamlining its logistics information pipeline first and then its cargo pipeline. The information challenge was to come up with a system that would enable Timberland to track a product from the factory to its final destination. As Timberland's director of distribution explains it: "At every link in the chain, you can make a decision about cargo that would make it flow better, but only if you have the information about the product and the ability to communicate with that location in real time to direct the product." For example, when a product leaves the factory, Timberland can in theory direct a freight forwarder to send the product by air or by ocean carrier, depending on the urgency of the shipment. When a shipment lands in say Los Angeles, it can be shipped to a distribution center or shipped directly to a customer, again depending on need. These kinds of choices, however, can be made only if Timberland has the requisite information systems. Until 1994, the company lacked such systems.

The company developed the required information system in conjunction with ACS, a freight forwarder, and The Rockport Group, a software house. To simplify its system at the level of physical distribution and to make implementation of its information systems easier, Timberland moved rapidly toward consolidated regional warehousing. Timberland had separate warehouses in a dozen Asian countries, several in the United States, and three in Europe. Under the new system, sources in Asia feed into one warehouse. The company also switchted to single continental distribution centers in North America and Europe. By centralizing its warehousing at three locations, the company can better track where the product is located so that it can be routed quickly and flexibly to where it is needed. The result should be a dramatic improvement in Timberland's ability to deliver products to customers exactly when they need them, as opposed to delivering products too late or too soon. By consolidating warehousing, Timberland can consolidate shipments from a region into one transoceanic shipment, which should enable the company to negotiate much better shipping rates.

http://www.timberland.com

Source: P. Buxbaum, "Timberland's New Spin on Global Logistics," Distribution, May 1994, pp. 33 - 36; A. E. Serwer, "Will Timberland Grow Up?" Fortune, May 29, 1995, p. 24; M. Tedeschi, "Timberland Vows to Get on the Ball," Footwear News, May 22, 1995, p. 2; and Timberland Annual Report, 1997.

Case Discussion Questions

1. What caused Timberland's logistical problems in the 1990s? What do you think were the competitive and financial consequences of these problems?

2. What was the key to solving Timberland's logistical problems? Why? What are the consequences of this solution likely to be for Timberland's competitive position and financial performance?

3. Timberland makes almost no products in the United States. Instead, it manufactured some products in the Dominican Republic and Puerto Rico, while outsourcing the remaining products from third-party manufacturers. Explain the probable thinking behind this strategy. Why does the company not outsource all its production? Why does the company make shoes in the Dominican Republic and Puerto Rico, but not the United States?