Company background

TAL Headquartered in Hong Kong, it is the world’s leading garment manufacturer that producing innovative, stylish, comfortable and functional clothes. Their founder Mr CC Lee started his business in 1947 Hong Kong. Then, he extended its business to garment market in 1950. 12 years later, Lee’s family founded TAL by merging textile mills with Jardine’s finishing mill. In 1980, the garment manufacturing section split into TAL apparel ltd.

They specialize in the Manufacture of quality men and women garments for the world’s leading brands. They committed to continuous innovation through investment in research and development that has given them the technological edge and guarantees them to deliver enhanced performance and good looking garments.

They have over 60 years of industry experience that enabling them to have well understanding of needs of people and tailor their processes to meet those specific needs. They have customized IT infrastructure and information system that increase the efficiency of their operation and provide a sophisticate supply chain solution to their customers.

Case focus

In this case we focus on how technology improve and lead the business operation in TAL. We will discuss the question below in the last part.

Definition of terms

Before starting the discussion, we here to explain some basic supply chain terms for you that let you easier understand what we are talking about.

Integration strategy is a form of vertical strategy that a firm expands the existing business into forward and backward.

Forward integration strategy is that the firm obtains the ownership of distributor or retailer, or enhances the control of distributor or retailer. According to the demand of market and their facilities, the finished product may be further processed by the firm and directly distributed to the market. For example, a fruit grower uses their fruit to product jam and directly distribute to the market rather than selling the fruit to the jam producer. Or the farmer directly sells the fruit to the market rather than to a distribution center.

Backward integration strategy is that the firm involves in making the raw material or semi product by themselves rather than purchasing from supplier. It aims to ensure the quality, quantities and cost of raw materials. For example, the farmer produces fertilizer themselves rather than purchasing from fertilizer supplier.

Reference:

http://www.investopedia.com/terms/f/forwardintegration.asp

http://www.investopedia.com/terms/b/backwardintegration.asp

Push-based supply chain is that the manufacturer forecasts the demand from the historical order, and pushes the product to retailer. Push strategy emphasis on personal selling. Seller introduces the features and benefits of the product to buyer (manufacturer->distributor->retailer->consumer). Push strategy takes a long time to response the changing of demand that will lead to overstocking, bullwhip effect.

Push strategy suitable for industrial products. The products sell for specific customers, and the customers are approachable. The information of the product is unknown to the customers, and the price sensitivity is low. The market is the close market.

Pull-based supply chain is that the manufacturer does not need to forecast the demand, it base on the actual order/demand. It means they produce the product after the customer makes an order. Pull strategy is that the company deliver the information of product via mass media, then the consumer will go to their offices or shops to purchase the product.

Push strategy suitable for consumer products which the information of the product is well-known to the consumer. They do not need to push the product. The market is an open market.

Reference: http://en.wikipedia.org/wiki/Push%E2%80%93pull_strategy

There are two management structures of global commodity chains. One is producer-driven. Another one is buyer-driven.

Producer driven GCC is that the major manufacturers via the linkage of backward and forward production process to coordinate the whole production networks. The industrial such as automobile which needs large capital and technology is one of example of Producer driven GCC. They have high barrier of entry.

Buyer driven GCC is that the major branded manufacturers, trading company, retailers play a major role in coordinate decentralized production networks. The production networks are typically located in variety of third world countries. Producers are bound to the decisions of buyers through the functions of design and marketing. The barrier of entry is low.

The characteristic of producer driven and buyer driven

Reference: http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/producerbuyergcc.html

http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/table_commoditychains.html

Original brand manufacturer is that the manufacturer builds its own brand. They responsible for product design, procurement, production and selling. Or, they outsources as its owned branded product.

Original equipment manufacturer is that the manufacturer produces product to other company and sells under that company’s brand name.

Reference: http://wiki.mbalib.com/wiki/OBM

http://www.differencebetween.net/miscellaneous/difference-between-odm-and-oem/

Economic of scale is that the company force to decrease the average cost of the product via the quantities of output increase.

Economic of scope is that produce two or more different product by using the same equipment/process rather than using different equipment/process. It also can reduce the unit cost by reducing the set up cost.

Reference:http://ezrabar.articlealley.com/economies-of-scale-vs-economies-of-scope-38647.html

Electronic data interchange is a way of ecommerce. The business data exchange to different sector, company by an international standard format via internet/intranet.  For example, a logistic company sends order to warehouse or trace their order.

Reference: http://en.wikipedia.org/wiki/Electronic_data_interchange

Vendor managed inventory is one of the process to optimize the inventory level and stock out situation in the supply chain. The order to purchaser is created by their vendor based on the purchaser’s sales (demand) information. Vendor receives purchaser’s sales information to make a forecasting and automatically replenish inventory to purchaser if purchaser’s inventory level falls to a certain level. VMI enhances the relationship between vendor and purchaser. They have a set of agreement that resolve fill rate, cost and inventory level.

Reference:  http://logistics.about.com/od/forsmallbusinesses/a/VMI.htm

Made to measure is typically refers to garment. Customers make some specific requirement, such as size, pattern and material, to manufacturer. Manufacturer bases on the customers’ requirement to make the garment to fit each customer individually. However, MTM always involve some standardization in patterning and manufacturing processes. Retailer receives the customers’ requirements and sends the order to the manufacturer. The manufacturer will make the garment through their owned processes. After the garment is made, they will pack it and send it to customer. It is different from bespoke which are made entirely base on customers’ requirement and involve more workmanship.

Reference: http://en.wikipedia.org/wiki/Made_to_measure

CPFR

Collaborative planning, forecasting and replenishment emphasize the cooperative management and information sharing between seller (vendor) and buyer (retailer). Base on the sharing information, they try to reduce inventory, logistics and transportation cost that increase the efficiency and create more value to participants in the supply chain.

Nine basic flow of CPFR

Reference:  http://www-scf.usc.edu/~jdhansen/CPFR%20Research%20Paper.pdf

http://wiki.mbalib.com/zh-tw/CPFR

  

X-docking (cross-docking) is a distribution system to reduce storage cost (minimize the storage space). Goods from supplier are distributed directly to customer or fast unload, screening, sorting, reloading in the cross docking terminal, then deliver to customer. All the goods are not storing in the cost docking terminal, so that it can reduce the storage cost and fast deliver the goods to customers. Cross docking terminal consists of trucks and dock doors on inbound and outbound sides. Goods are received from inbound dock and then transferred across to outbound dock.

Reference:

http://www.aalhysterforklifts.com.au/index.php/about/blog-post/what_is_cross_docking_understanding_the_concept_definition

Question Discussion

Q1.Discuss the dynamics of the apparel value chain and how the global apparel industry is classified as a buyer-driven industry

There is large demand of garment globally. In 2011, the total exports were worth US$ 412 billion. There are many factors that influence the apparel value chain and we find discuss 4 factors her. The first factor is that the trend of garment is moving fast. Most of fashion will be changed seasonally or even in a month. The manufacturing needs to follow this trend in order to gain the market share. Due to this trend, the cost for designing the new style of garment increases and directly influences the apparel value chain.

The second factor is high bargaining power of customer. This bargaining power was formed by choice of apparel retailer. There are many and many retailers in the market. The choice for consumer is diversify. This factor leads to the intense competition from retailers. The retailers need to lower the price or diversify their product in order to attract more customers. Retailers will request more high quality and variety garment from manufacturer. The manufacturer needs to response the request. If the manufacturer can’t fulfill the requirement of customer, they will lose the customer. In responding this request, manufacturer needs to invest more in R&D and technology in order to differentiate their product and lower the cost. The raw material will be changed. And this factor also influences the whole supply chain and their value chain. The manufacturer needs to enhance the relationship with retailers. They use VMI to increase the switching cost and pertains more customers. And it changes one of apparel value chain.

The third factor is bullwhip effect. Due to the demand forecasting error is accumulate through the supply chain, the cost will be increase. They try to eliminate this effect by MTM and VMI that can facilitate the information sharing from their customer.

The last factor is cost. Manufacturer always build a production plant in developing countries due to the manufacturing cost is lower. China is always the best choice for manufacturer. However, due to the WTO regulation, there is limited quota to export garment. In this reason, they needs to suffer high cost to export garment globally. And they need to modify their value chain in order to gain more competitive advantage. They switch from original equipment manufacturer to original brand manufacturer.

In the past, the garment industry was producer driven. However, this mode was changed and become buyer driven. There are 5 reasons for the transformation. The apparel business transformed to global business. In this reason, the competition becomes more intense. The advantage of original big company disappeared gradually. Due to number of manufacturer increase, their bargaining power becomes weaker. It becomes a fair market. The choice for retailer increased. They don’t afraid any shortage of supply because they can easily find another supplier. The switching cost becomes lower. The entrance of barrier is also lower, because the new entrances don’t need that large capital in this buy driven supply chain.

Q2.Based upon the Porter’s value chain model, describe how the use of VMI has enabled TAL to turn the sequential value chain to an integrated and synchronous value network with its major customer such as JC Penny.

Porter’s value chain is constituted by inbound logistics, operations, outbound logistics, marketing & sales, customer service. VMI is use for enhance the relationship with it’s customer. The vendor can receive the daily sales information from their customers. They base on this information system to help the customer forecasting the demand and making replenishment automatically by vendor. Moreover, they can eliminate the inventory level because they don’t need to produce to much inventory in case of shortage. After applying VMI, TAL doesn’t need to supply the product to their customers in a fixed cycle. It just needs to replenish customer’s inventory when they need.

In the value chain without VMI, begin of the supply chain, TAL works after receiving the order from JC Penny. Then, they will ask for the POS from JC penny in order to forecast and plan for the production. After finishing the production, they will transport the product to JC Penny.

For the JC penny, begin of supply chain, they receive the inventory from TAL. After that, they manage their inventory and do replenishment for their shops. Then, they place orders based on their sales forecasting to TAL. Then, JC Penny will do their marketing & sales and customer service.

In the value chain with VMI, due to they always have the sales information of JC Penny, TAL forecasting the demand, purchase and receive the raw material without the order from JC Penny. After that, they start production to prepare the inventory. After finishing the production, they pack and ship the product to JC Penny.

JC Penny receive the garment from TAL, they store the inventory and then re-pack and distribute to it’s retail outlets. Then, JC Penny will do their marketing & sales and customer service.

There are only marketing & sales and customer service parts do not change. Other parts of value chain are totally different.

Q3. How did Porter and Millar (1985) classify the impacts of IT on competition? Discuss the benefits and impacts of the use of IT initiatives to TAL, and how these initiatives have contributed to the strategic repositioning of the company in the apparel value chain.

Porter and Millar mentioned that IT has 3 impacts to an industry. First, it will reengineer the industry structure as we mentioned in Q1 that it will change value chain of the company. Second, it will create competitive advantages to one company, because it can improve the efficiency of operation. Third, it will create a new business to one company.

Reengineer the industry structure:

IT improves the efficiency of the information flow from downstream to upstream. This is a critical factor for reengineer the industry structure that affects the 5 force in porter’s industrial analysis model.

Due to upstream can get the sales information easily, it decrease the bullwhip effect. Moreover, the IT system, such as VMI, enhances the relationship between supplier and buyer. The switching cost will be increased to the buyer. The bargaining power of customers will be decreased. However, in another system, such as ERP system, it will decrease the bargaining power of supplier, because buyer can easily get quotation information from many suppliers. They don’t need to be tired up by one supplier. These information systems also can decrease the threat of new entrants, because new entrants need to invest more money to develop these information systems. Moreover, they need more sophisticate IT expert and management knowledge in the industry. In other words, it is not easily to develop and duplicate these systems. Company can easier to differentiate their business to decrease the threat of substitute. And this factor increases the competition. Company needs more investment in R&D to improve the IS performance to get the competitive advantages.

Create competitive advantages to one company

IT can increase the efficiency of the operation that can decrease the operation cost and increase profit margin. The decision making from customers consider about the cost, quality, relationship, services and reliability. IT can increase all of those considerations for a company.

Due to IT decreases the operation cost, a company can set a competitive price to get the competitive advantages. For example, a company can forecast the demand more accurately to decrease the inventory level, storage cost, product depreciation, and more easily to integrate the information from other department in a company, such as ERP. Moreover, they can get advantages from economy of sales and scope. Also, IT can enhance the performance of their product to increase the quality. VMI can both increase the service quality, relationship and reliability. It is because it enables the information sharing from customer. Service provider can easily come up a customized service to the customer and enhance the relationship between supplier and buyer. Customer replenishes the inventory more accurately by supplier. It increases the reliability to the supplier. Moreover, customer can decrease the occasion of stock out. Supplier can more accurate to schedule the transportation. IT can also diversify the service provided from the company. For example, MTM, a company can provide a customized service to a buyer.

Create a new business to one company

In the past, most of apparel manufacturers are OEM. Due to the IT development, manufacturers are enabling to become OBM. Moreover, with access to real-time sales information, manufacturer can get the sales information of products to evaluate the product performance and determine the populate color in order to design a more favorable product. They can design more favorable product and sell the design to their customer to gain more business.

TAL’s patented expandable waistband technology imparts just the right amount of natural elasticity to provide better breathing and comfort throughout the day. Designed for maximum performance the natural elasticity lasts for the lifetime of the garment.