E-fulfilment at Reebok Int. Ltd.

01. September 2001

At the heart of the Reebok model is an Internet-based application programme. Its purpose is to support cooperation in the creation of value chain. Here, the focus is on increased efficiency. Reebok offers its partners the company’s own connections for data exchange, integration, and for corporate resource planning. The companies have access to data, a dealer-independent trade platform, and a host computer. The Reebok model is operated as an ASP solution (Application Service Provider).

1. The Company

Reebok International Ltd. was founded in 1979 and has its headquarters in Canton (Massachusetts, USA). The company operates worldwide in the sports shoe and sportswear sectors.

Reebok has a workforce of 6000, mainly in the USA. Reebok products are marketed in 170 countries using company-independent retailers. Turnover is USD 2.8 billion. It is the second largest company in the sportswear sector in the USA.
The company’s headquarters are in the state of Massachusetts and production is in South Korea. By 1981, turnover had reached the USD 1.5 million mark. In the years 1982 and 1983, Reebok launched a new ladies sports shoe called "Freestyle" as well as a number of men's sports shoes. "Freestyle" became one of the best selling shoe brands in history. In 1985, Reebok's IPO brought in USD 307 million. Over the years Reebok has bought several other companies. The most notable acquisitions were Rockport (1986), a leisure and hiking shoe manufacturer, and the footwear division of Ralph Lauren (1993).

Through a strategy of outsourcing manufacturing to third parties around the world, Reebok was able to significantly reduce capital requirements for operative investments. Nevertheless, in 2000, distribution costs reached the 64 percent mark and thereby exceeded the average of the previous five years by 3%. However, the profit margin of 5% was considerably below the 9.4% average for the sector.

Industry Sector
Reebok operates in the consumer goods sector in the areas of clothing, footwear, and accessories. Turnover in these segments is put at USD 375 billion.

Reebok has five major brands:

  • The “Reebok Division” owns the REEBOK brand. This division designs, produces, and markets footwear and clothing as well as accessories for sports, condition training, and leisure, which combine style with the need for sportiness.
  • The Rockport Company, LLC, is a subsidiary of Rockport International and is responsible for the ROCKPORT brand.
  • Ralph Lauren Footwear Co., inc., is a subsidiary of Rockport International and markets footwear under the brand names RALPH LAUREN and POLO.
  • The “Greg Norman Division” is responsible for the GREG NORMAN brand.

The “Reebok Division" is subdivided into five strategic business units (SGE), of which each product is developed and marketed in line with the Reebok brand strategy.

  1. Lifestyle: classical footwear and footwear for children, including the child's shoe "Traxtar" (from "track star") as well as other lifestyle products.
  2. Sports: products for sports such as netball, cross training (endurance sports), running, adventure sports/outdoor sports, European football, tennis, and American sports such as American football or baseball.
  3. Fitness: hiking shoes and ladies footwear for fitness training.
  4. Clothing: clothing for the sports and fitness sectors, worldwide distribution.
  5. Distribution: retail shops and factory outlets that sell the brand name products of Reebok, Rockport, Greg Norman and specific products from the Ralph Lauren Division.

Target Group
Reebok is targeting various consumer segments via the four major divisions and their brands. The company is developsing various brand products that are sold to a broad class of consumers through various distribution channels, thus providing a certain degree of protection against the risk of erratic fashion trends in the market.

2. e-business Vision and e-business Strateg

Reebok sees more potential in e-business than the conventional electronic exchange of data. The objective is to develop and implement global, Internet-based control of all business processes, which accompanies orders throughout the entire creation of value chain, accomplishes the greatest possible integration of all business processes, makes rapid reactions possible along the creation of value chain, and both lowers management costs and reduces manual input. According to this concept, the entire creation of value chain is integrated into the electronic order processing system.

Reebok’s strategy is aimed at putting the company in a position to become the industry leader as regards operating efficiency, and to implement new technological concepts and process structures at low cost.

The Supplier’s e-business Concept
Reebok’s concept is aimed at the global use of Internet-based technology in order to increase the efficiency of the creation of value chain and operating efficiency at low cost.

Scope of Services
Reebok offers members of the global creation of value chain its own corporate connections for electronic data exchange, integration of corporate resource planning (ERP systems; “enterprise resource planning”), and secure, Internet-based task solutions.

Reebok’s creation of value chain includes 40 shoe factories in eight different countries, 600 clothing manufacturers in 29 countries, 450 suppliers of raw materials, 27 freight forwarding agents (ships, lorries, trains and aircraft are used for transport), and 34 customs brokers.
Over 5000 orders pass through the creation of value chain each month. The communication resources are fax, postal courier, onsite visits, electronic data exchange, and the company’s own data transfer.

Reebok maintains direct connections with selected service partners including Avery Dennison, Mærsk and Fritz, as well as several manufacturers in Asia.
Partners for ERP solutions/current IT partners
Reebok chose SAP as a partner for ERP solutions.

Reebok had three options for the procurement and implementation of enterprise resource planning (ERP): first, to develop the system itself; second, to buy the best "building blocks" or modules from a variety of suppliers, and third, to convince a supplier of ERP systems to adapt an already existing system to the specific needs of the sports shoe and sportswear industry.

In 1995, Reebok commissioned the globally operating programme manufacturer SAP to adapt an existing ERP system. In close cooperation, the two companies developed a system that was tailored to the special needs of the footwear and clothing industry. Thus, for example, there may be two models of one shoe, each one in three different colours, and each of these alternatives may be manufactured in 15 sizes.

Reebok, together with the VF Corporation, the manufacturer of the brand name jeans Wrangler and Lee, and SAP America formed a consortium in order to finance the reworking and further development of the SAP programme. The result was an industry-specific version of the SAP application programme R/3 called AFS (Apparel and Footwear Solution).
The AFS programme facilitates a materials management system that can process large volumes of data about shoe and clothing models and the whole product range. The programme also makes it possible to make changes to large data stocks concerning customers, materials and sales documentation in once single step.

The AFS module for material requirements planning was expanded to include the product parameters for size, colour, and model. Via SAP interfaces, a connection can be established between the AFS programme and external CAD systems. While the AFS programme was still under development, Reebok used the SAP standard programme R/3. In 2000 the company introduced financial accounting and corporate management in real-time in all North American divisions as well as in several European and Far East locations.

3. Fulfilment Solution

Type of Fulfilment Service
Reebok worked together with Logistics Information Network Enterprise (LINE) to provide logistics services. LINE is a wholly-owned subsidiary of Hutchison Port Holdings, an independent developer, operator, and financier of port projects. A dealer-independent trade platform called e-hub emerged from this partnership. The plan was to develop and globally implement an Internet-based technology to network Reebok with partners in the creation of value chain. e-hub accompanies orders throughout the entire creation of value chain, accomplishes maximum integration of all business processes, facilitates rapid reactions along the creation of value chain, lowers management costs and reduces manual input.

Fig. 3.1: The Reebok model of a globally useable, Internet-based application programme for supporting cooperation in the creation of value chain.
Fig. 3.1: The Reebok model of a globally useable, Internet-based application programme for supporting cooperation in the creation of value chain. It offers companies common access to data, a dealer-independent trade platform, and a connection to a host computer (ASP model).

The Fulfilment Partner's Solution
Reebok’s partner LINE is a supplier of programmes for online applications. The LINE programme Order Visibility Application (OVA: visible order reporting) compiles logistics data from customers, suppliers, insurance and financial service providers, customs offices, freight load transfer points and freight forwarding agents. OVA is an Internet-based programme for information exchange between the partners in a creation of value chain.

Fig. 3.2: Line Order Visibility Application (OVA)
Fig. 3.2: Line Order Visibility Application (OVA)

OVA has six functions:

  1. A central directory of all business partners: customers can view the company profiles of all business partners in a central database.
  2. Administration of access rights and access control: a control instrument assigns access rights to the various users in the company and exercises access control.
  3. Ordering system: via this function, a user can place an order by entering data into the OVA template (or by importing order-related data). The information is electronically forwarded to all business partners. Changes and updates of all involved business partners can also be reported in real time via this function.
  4. Production monitoring: this function includes stipulated industrial standards and user-defined criteria for continuous monitoring of order-specific production along the creation of value chain.
  5. Message module: works as an electronic mailing list for incoming and outgoing messages.
  6. Reporting system: this function provides a number of OVA standard templates for reports that comply with the requirements of the different users in the companies.

Users belong to three categories: executive directors, department managers, and clerks. The companies are also subdivided into three categories: buyers, manufacturers, and service providers.

The e-hub platform makes it possible to centrally record all transaction-related data, which has the following benefits:

  • improved entering and tracing of orders/purchase orders
  • time savings along the creation of value chain
  • lower transaction costs
  • reduced dependence on freight forwarding agents for services not related to transport
  • abandonment of outdated procedures for recording and tracing orders/purchase orders

4. Implementation

In the redesign of corporate processes at Reebok, Internet-based application programmes were used which expand internal corporate resource planning to manufacturers, freight forwarding agents and other members of the creation of value chain. This is a departure from pure electronic data exchange.

Software Solution / Programming
Reebok works with LINE in order to integrate, enhance, and expand the SAP application-based core processes supported by programme solutions into the creation of value chain. The objective is to reduce dependence on freight forwarding companies for non-transport services.

5. Operation

Reebok’s IT department is responsible for the integration and support of electronic data exchange, the reading out of SAP applications, systems integration and maintenance, internal networks, databases, and IT strategy. LINE is responsible for the e-hub platform.

Although turnover stagnated during the first three months of 2001, net revenue grew by 30%. This is attributable to the increase in operating efficiency, the reduction in costs non-beneficial to brand support and lower interest charges as a result of declining liabilities. The stock turnover rate of 4.5 is above the industry average of 4.1. Reebok finances its operations with equity capital and not with retained earnings. The ratio of equity capital to long-term borrowed capital is 0.5, which puts Reebok above the industry average of 0.2. The -3.8% growth in turnover over a five-year period is also below the industry average (9.4%) as is the profit margin over a five-year period of 2.6% compared to the industry average of 5.5%.

6. Success Factors

Success factors include:

  • IT expertise that is available in the company as well as experience in the use of this technology to increase efficiency of the creation of value chain,
  • intensive participation in strategic partnerships in the IT sector,
  • continuous concentration on the use of IT to improve the company’s core activities.

Specialities of the Solution
Reebok is building on experience, technology, and teamwork with networked companies in order to optimise the creation of value chain.

Unique Selling Proposition
The unique selling proposition includes three statements, namely that the reporting and management of orders is improved, cycle time in the creation of value chain is shortened, and transaction costs for all members of the creation of value chain are reduced.

The changes that were made have allowed Reebok to give up most of its old processes and procedures and to carry out the conversion to SAP programmes both easily and at low risk.

Lessons Learned
The use of IT to increase the efficiency of a global creation of value chain requires sound industry knowledge, carefully selected strategic partners, long-term strategic planning, regular examination and appraisal of what has been achieved, as well as the flexibility to integrate new technologies.

Comment by the Author
The key factor for the success of Reebok’s e-logistics and value creation lies in the fact that the company’s management is well aware of the decisive role that information plays in a complex world. Corporate management reacted immediately to this realisation and entered into strategic partnerships with IT suppliers and other companies that operate similarly to Reebok. Reebok concentrates exclusively on the development of IT applications and on partnerships that are beneficial to its own business. Cooperation with companies that are not direct competitors, but are nevertheless in a similar line of business, reduces the risk of introducing IT technologies for e-logistics and value creation.

The basic characteristics of the company that contribute to the success factor’s ability to have a positive effect are:

  1. the presence of a creative, future-orientated IT director,
  2. the size of the company,
  3. the provision of substantial funds for IT development,
  4. the ability of the company to motivate existing business partners to become involved in the e-logistics network, independent of their position in the creation of value chain.

Owner/s of the solution

Reebok International Ltd.
Industry: Consumer goods production, clothing industry
Company size: large-scale enterpriseReebok International Ltd.

Case study author/s

Jean-Pierre Jeannet, Dhruv Greval, W. Caleb McCann, Martha Lanning
Babson College

01. September 2001
Jeannet; Jean-Pierre and McCann; W. Caleb (2001): Reebok case study; in: Dettling; Walter; Schubert; Petra; Wölfle; Ralf (Ed.; Fulfilment in e-business – Practical concepts by innovative companies; pp. 217-226; Munich; Vienna: Hanser Verlag; 2001

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