Levi Strauss & Co. (LS&Co.),which introduced its ‘global productivity initiative’ in March 2014 with plans of elimination of approximately 800 positions, has announced the next phase of its initiative. The company now plans to eliminate 500 positions and outsource jobs to Wipro Limited, a global consulting and business process services company. The two parties have closed a five-year strategic agreement in which LS&Co. will pay Wipro through a combination of fixed and variable charges, with the variable ones depending on the company’s actual need for services. Certain components of the outsourced services will commence from the first quarter of 2015.
Elaborating on the initiative, Jennifer Tang, Director, Corporate Affairs, Asia, Middle East & Africa, Levi Strauss & Co told indiaretailing, “We’ve announced the next phase of plans in LS&Co.’s continued transformation, including an agreement with Wipro Limited to outsource certain global business services within IT, finance, human resources, customer service and consumer relations so that we can focus on areas of strategic differentiation. The company plans to eliminate approximately 500 positions globally as a result of this next phase of the program, which will be implemented through the second half of 2015. The global productivity initiative is expected to generate net annualized cost savings of $175-200 million once fully implemented.
Levi Strauss will also continue to reduce layers of management, increase spans of control, remove duplicative roles and make other structural changes as part of the company’s structural transformation of its cost base.
“We’re on a mission to transform our company to deliver sustained, profitable growth. Through our efforts this year, we’ve made great strides toward bringing our cost structure more in line with our revenue base,” said Harmit Singh, executive vice president and chief financial officer of LS&Co.
Caused by the announced actions, Levi Strauss expects to incur total restructuring and related charges (mainly related to severance benefits, retention bonuses and consulting fees) in the range of $45-$55 million (ca. €35-44 million), the majority of which will be recognized in the fourth quarter of 2014. Over the initial term of the agreement with Wipro (five years), Levi Strauss expects to pay a minimum of $143 million to the service provider.
Referring to the denim major’s plans for India, Tang said, “The changes vary by region and function. The majority of the 500 roles eliminated will be outsourced. This is standard practice in our industry and many others, and enables LS&Co. to focus on areas of strategic differentiation like merchandising, design, innovation and supply chain management, while also improving service quality and reducing costs. Final plans will vary by country, and final estimates for headcount, timing and charges in certain areas of the company’s international business are subject to completion of applicable local works council and other consultative processes”.