Field Research

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Centennial College *

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Business

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Feb 20, 2024

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1. Identify a Canadian firm that imports whether raw material or finished goods from any other country. Answer: When it comes to homegrown Canadian firms, one of the first ones that comes to mind is Lululemon Athletica Inc. Lululemon relies heavily on imports of raw materials, including synthetic fibres like cotton, and wool, as well as a handful of others such as content labels, elastics, buttons, clasps and drawcord for their business operations. Lululemon's supply chain involves working closely with suppliers, with a considerable amount of its products and materials coming from a range of countries, primarily in the Asia Pacific area. 2. Describe the product(s). How are they used in the manufacturing process and what percentage of the final product do they account for? Answer: Lululemon's primary products are articles of apparel and clothing accessories; knitted or crocheted Women's or girls' suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches, and shorts and many more. These products are first- handedly designed for athletic activities such as yoga, running and training. Lululemon's manufacturing process involves a rigorous process to ensure quality, sustainability, and ethical standards. The company works with approximately 45 vendors, with the top five contributing a significant portion of the final products. In 2022, these top vendors collectively accounted for 56% of Lululemon's apparel output, with the largest manufacturer alone producing 15% of the total. Similarly, when it comes to sourcing fabrics, the top five suppliers supplied 56% of the materials, with the largest fabric manufacturer contributing 21%. This demonstrates a diversified yet focused approach to sourcing and manufacturing. Geographically, Lululemon's manufacturing operations span across countries such as Vietnam, Cambodia, Sri Lanka, Bangladesh, and Indonesia, among others, reflecting its global supply chain strategy. 1. To what extent has the firm diversified their supply source and taken steps to mitigate the associated risks? Lululemon Athletica Inc. since ages has relied on international suppliers, predominantly from the Asia Pacific region, for both manufacturing and sourcing raw materials. The company has taken several steps to address and mitigate the risks associated with its supply chain: 1. Geographic Diversification: o The firm has diversified its manufacturing sources across different countries in the Asia Pacific region. In 2022, products were manufactured in Vietnam (39%), Cambodia (14%), Sri Lanka (12%), Bangladesh (8%), Indonesia (7%), and other regions. This geographic diversification helps in spreading the risk and minimizing the impact of disruptions in any single location. o Fabric sourcing is also geographically diversified, with materials originating from Taiwan (43%), China Mainland (19%), Sri Lanka (16%), and other regions. This strategy makes the supply chain less vulnerable to problems in specific regions.

2. Vendor and Supplier Network: o Lululemon works with approximately 45 vendors for manufacturing and 60 suppliers for fabric sourcing. While a relatively small number of vendors and suppliers are involved, the company's collaboration with multiple entities provides some level of diversification. o The company discloses that during 2022, the top five vendors produced 56% of the products, and the top five fabric suppliers contributed to 56% of the fabrics. Lululemon states that it is aware of the potential risks associated with this and is likely taking measures to manage these relationships effectively. 3. Risk Awareness and Mitigation: o The company explicitly recognizes various risks in its supply chain, including trade restrictions, political instability, natural disasters, public health crises, and changes in diplomatic or trade relationships. Lululemon acknowledges that disruptions could have a material adverse effect on its operating and financial results. o Lululemon tries to mitigate these risks by collaborating with suppliers and manufacturers, focusing on sustainability, ethical practices, and building long- term relationships. This suggests a proactive approach to risk management. 4. Ethical and Compliance Standards: o Lululemon prioritizes ethical standards by enforcing its Vendor Code of Ethics. Though it doesn't directly oversee suppliers, it mandates compliance with labour, health, safety, and environmental standards, reflecting its dedication to responsible sourcing. In summary, Lululemon has implemented a degree of supply chain diversification by spreading manufacturing and sourcing across different countries and suppliers. The company demonstrates awareness of associated risks and takes steps to mitigate them, emphasizing long-term relationships, ethical standards, and strategic collaborations. 1. Discuss the major challenges facing this company as an importer? Lululemon faces several significant challenges as an importer: 1. Supply Chain Disruptions: o Disruptions to Lululemon's supply chain, stemming from factors like trade restrictions, weather events, or public health crises, could significantly impact its financial performance. 2. International Dependency: o Lululemon heavily depends on international suppliers, especially in the Asia Pacific region for both manufacturing and sourcing raw materials., which exposes it to risks associated with geopolitical events and trade relations. 3. Concentration of Suppliers: o Although Lululemon works with many vendors, its reliance on a small number of suppliers for production and fabric supply poses a risk if disruptions occur with these key partners. 4. Labour and Production Costs:

o With a significant portion of production in South Asia and Southeast Asia, Lululemon faces risks of rising labour and production expenses due to factors like labour shortages and transportation costs. 5. Commodity Price Fluctuations: o Fluctuating raw material costs, especially petroleum-based products for synthetic fabrics and external factors such as weather conditions, consumer demand, and geopolitical events can influence raw material costs, potentially impacting the company's cost of goods sold. 6. Ethical and Compliance Risks: o Despite having a Vendor Code of Ethics, Lululemon faces risks associated with supplier compliance, which could damage its reputation and sales if not managed effectively. 7. Distribution System Vulnerabilities: o Relying on distribution facilities, Lululemon faces vulnerabilities like security breaches, system failures, and natural disasters that could disrupt product delivery and inventory management. In conclusion, Lululemon faces challenges like supply chain disruptions, international dependencies, supplier concentration, labor costs, commodity price fluctuations, and ethical compliance risks as an importer. Addressing these requires a robust risk management approach and ongoing efforts to maintain a resilient supply chain. 5.Suggestions to Alleviate Challenges: 1. Diversification Strategies: o Encourage more variety in suppliers and manufacturers to lessen reliance on a few key players. Partnering with suppliers from different regions can help reduce risks from events like geopolitical issues or regional instability. 2. Risk Mitigation and Response Plans: o Develop thorough plans to handle potential disruptions, including trade restrictions, political turmoil, or natural disasters. Establish clear communication with suppliers for swift responses to unexpected situations. 3. Supply Chain Visibility and Transparency: o Improve transparency across the supply chain by using technology to track shipments and production. This helps identify and address issues before they become major problems. 4. Long-Term Contracts and Relationships: o Secure stable supply by negotiating long-term contracts with key suppliers. Building strong relationships fosters trust and reduces the risk of sudden disruptions. 5. Ethical Compliance Audits: o Regularly audit suppliers to ensure they follow ethical standards. Collaborate with third-party auditors to assess labor and environmental practices, reducing reputational and legal risks. 6. Cost Hedging Strategies:

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o Use strategies to manage fluctuating raw material prices, like fixed-price contracts or exploring alternative materials. 7. Supply Chain Resilience Training: o Provide training to suppliers on risk management and disaster recovery. This empowers them to contribute to a more resilient supply chain. Reflection on Business Model: Based on the information provided and the conversation with the representative from Lululemon Athletica Inc., there are both opportunities and weaknesses in their business model. Opportunities: 1. Global Reach and Market Presence: o Lululemon has a strong global presence, serving customers worldwide. This provides an opportunity for continued expansion into new markets, capitalizing on the growing demand for athletic apparel and the company's brand reputation. 2. Focus on Sustainability and Ethical Practices: o The company's commitment to sustainability and ethical practices in its supply chain aligns with evolving consumer preferences. There is an opportunity to further leverage and communicate these initiatives to enhance brand loyalty and attract environmentally conscious consumers. 3. Innovative Product Offerings: o Lululemon is known for its technically advanced fabrics and innovative product offerings. The company can capitalize on its expertise in creating high-quality, performance-oriented apparel to stay ahead of industry trends and maintain a competitive edge. 4. E-commerce Growth: o The increasing trend of online shopping presents an opportunity for Lululemon to further invest in its e-commerce platform. Embracing digital channels and enhancing the online shopping experience can cater to changing consumer behaviors. 5. Strategic Supplier Relationships: o Despite concentration, the company's long-term relationships with suppliers and manufacturers provide stability. Strengthening and expanding these relationships could contribute to a more resilient supply chain. Weaknesses: 1. Dependency on International Suppliers: o Heavy reliance on international suppliers, particularly in the Asia Pacific region, exposes the company to geopolitical and regional risks. Diversification of suppliers may be needed to reduce vulnerability to disruptions in specific countries. 2. Concentration of Key Vendors:

o The concentration of production among a relatively small number of vendors poses a risk. Losing one or more of these key vendors could impact the company's ability to meet demand. Exploring additional vendor partnerships may address this concentration risk. 3. Vulnerability to External Factors: o External factors such as geopolitical events, trade relations, and climate change directly impact costs, supply chain operations, and raw material availability. Developing proactive strategies to adapt to these external influences is essential. 4. Lack of Long-Term Contracts: o The absence of long-term contracts with suppliers and manufacturers may expose the company to uncertainties in the supply chain. Exploring opportunities for more extended contractual commitments could enhance stability. 5. Commodity Price Fluctuations: o The fluctuating cost of raw materials poses a challenge. Implementing effective cost management strategies, including hedging or exploring alternative materials, may mitigate the impact of price volatility. In conclusion, while Lululemon has positioned itself as a prominent player in the athletic apparel industry, there are opportunities to strengthen its business model by addressing weaknesses related to supply chain dependencies, vendor concentration, and external factors. Proactive measures and strategic initiatives can further enhance the company's resilience and sustainability in a dynamic market.

Field Research

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