TAL Case Discussion

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

The apparel value chain is organized around five main segments: raw material supply including natural and synthetic fibers; provision of components, for example, the yarns and fabrics manufactured by textile companies; production networks made up of garment factories, including their domestic and overseas subcontractors; export channels established by trade intermediaries and marketing networks at the retail level.

In the past, the global apparel industry is classified as a producer-driven industry. Producer or manufacturer centralized the production network heavily in the global apparel industry. Manufacturers were able to control backward linkages with raw material and component suppliers, and forward linkages into distribution and retailing. Therefore, it was producer-driven industry.

Nowadays, the global apparel industry is classified as a buyer-driven industry, which is led by the retailers, marketers and branded manufacturers. Since there are several key information developments, such as coding and point-of-sale scanning used to provide immediate and accurate information on product sales; electronic data interchange (EDI) used by the retailer to restock; and automated distribution centers to handle small restocking orders, rather than the traditional warehouse system used for large bulk shipments, enable the retailers or marketers to manage inventories in the apparel industry, they are able to decentralize the production network, such as TAL. Therefore, even some firm, such as fashion designers or private label retailers, can be located upstream or downstream from manufacturing, or they can be involved in the supply of critical components It is not necessary to have traditional vertically integrated manufacturers in the upstream.

Also, because of the high bargaining power of the retailers, the power by the retailers is attributed to two main factors. First, the consumer preferences have changed as they are demanding increased variety choice of product that lead to rapid product cycle and shorter product seasons. Also, they are demanding in price by spending less with higher frequency of shopping. These demands of consumers lead to retailers sourcing from lower cost regions around the world and transfer this pressure to manufacturers. Second, a greater network of retailers is developed by mergers and acquisitions of companies across countries. In 2007, the top five retailers in USA accounted for 56 percent of sales among the top 20 retailers. Thus, the growth in the buying power of retailers which have replaced independent stores. This concentration of buying power gives retailers a greater control over the activities of other companies with the value chain.

Therefore, in the apparel industry, the criteria of the lead firm will be whether the firm can control access to major resources (such as product design, new technologies, brand names or consumer demand) that generate the most profitable returns.

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.

Based on Michael Porter's value chain, 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, can be divided into five parts: inbound logistics, operation, outbound logistics, marketing & sales and service. In contrast to the conventional customer-initiated order process, VMI was a program that vendor created the purchase orders based on the real time front-line sales information and demand at the warehouse or store level as a backward replenishment tool. Reduce inventory level and cost, shorter replenishment cycle, more sensitive to inventory level and reduce ordering cost are the main benefits offered by VMI program.

The roles of TAL and JC Penny in value chain with and without VMI

	Inbound logistics	Operations	Outbound Logistics	Marketing & Sales	Services
Without VMI
TAL	Back- order receive from J.C Penny	Ask J.C Penney to give the POS to know about the sale pattern for sales forecast and plan for production	Receive orders based on J.C. Penney request	NIL	NIL
JC Penny	Place orders based on their sales forecast	Perform inventory control, sales monitoring &forecast; place replenishment orders	Back- order to TAL	Marketing, merchandizing, and selling to end consumers	Receive consumer feedback for product enhancement/ new product
With VMI
TAL	Purchase and receive raw materials	Manufacture according to customer orders	Package & Ship to retailer’s warehouse	NIL	NIL
JC Penny	Purchase & receive garment from manufacturer at central warehouse	Perform inventory control, sales monitoring &forecast; place replenishment orders	Re-pack &distribute to retail outlets	Marketing, merchandizing, and selling to end consumers	Receive consumer feedback for product enhancement/ new product

No change when using VMI

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.

First, it mentions the advance in technology is changing the industry structure.

Second it also mentions that information technology is increasingly important lever that companies can use to create competitive advantage, such as differentiated product and service offerings.

Lastly, the resolution is spawning completely new business.

Changing the industry structure

1. Increase bargaining power of buyers

·     IT increases the power of buyers in industries assembling purchased components

·     Automated bills for materials and vendor quotation files make it easier for buyers to evaluate sources of materials and make-or-buy decision (i.e. Movex ERP system)

2. Balance power of buyers

·        Increase switching cost by demanding exclusive supplier relationship in VMI

·        Gain customer information to understand sales pattern at the store level

·        Expand the services so it’s harder for customers to leave company for a rival

3. Erode power of suppliers

·       Erode supplier power by controlling major resources in the value system

·   Standardize specifications for parts so company can switch more easily among vendors

4. Minimize threat of new entrants

·    Information technologies require large investment in complex software, such as R&D expenditures

·     Tying up distribution channels in the integrated value system

·     Tighter integration with the buyer’s value chain by using MTM

5. Threat of substitution

·    Flexible computer-aided design and manufacturing systems have influenced the threat of substitution in many industries by making it quicker, easier and cheaper to incorporate enhanced features in to products

6. Rivalry

·   The automation of order processing and customer billing has increased rivalry in many distribution industries.

·    The new technology raises fixed costs at the same time as it displace people (i.e. VMI system)

·     Distributors must often fight harder for incremental volume

Create competitive advantage

For the competitive advantage, the first point is lowering cost. It can alter the company’s cost in any part of the value chain. It involves a lot of the information-processing component into different activities such as assembly. It also reduces the cost of documenting of each partner of the value chain.

The second point is enhancing differentiation. VMI system enables TAL to access to real-time sales information at the store level. TAL can study the retailers’ sales pattern, inventory performance, and purchasing needs, providing in-depth information. This new information technology makes it possible to customize products. It reduces the time required to fill orders and increase accuracy that enhance the image as a quality provider. In addition, it changes competitive scope. It alter the relationship between competitive advantage and increases a company ability to coordinate its activities regionally, national and globally. It create interrelationship among industries that were previously separate and makes good use of computer and telecommunications technologies. For broad-line companies, it is capable of increasingly to segment their offering in ways that were previously feasible only for focused companies.

MTM system also provided a source of differentiation as it enables TAL to provide value-adding services, such as product design and test marketing. The products will be made according to different a person, which is most fit to the customer, such as the sizes, colors, buttons and the kinds of fabrics.

For TAL’s use of IT, there are below strategic impacts.

Spawning completely new business opportunity

1. With access to real-time customer sales information, TAL can venture into the design and marketing business of the apparel industry.

2. TAL was able to gain the exclusive supply contracts from its retailers customers in product lines that provide VMI for. As a result, TAL can provide logistics and supply chain management as stand-alone service offerings.

Referring to the article, starting from p.7 of their essay, they began addressing at least 3 ways of how rule of competition is changing.

Q4. Go to www.talgroup.com , find out more about the Company’s latest development on new technologies and business innovation. Report your findings.

For innovative TAL product,

1. SoftAL Process - A wet processing finish that can be applied to 100% cotton, and cotton-rich blend, garments ensuring a wrinkle free pristine appearance throughout the day

Added benefits of our SofTAL process treatment include minimal shrinkage and enhanced color retention even after numerous washes

2. SoftAL @ Wool - TAL’s washable wool is made from 100% pure wool. The unique SofTAL Wool process provides machine wash and dryable wool garments without the headaches of shrinkage or felting.

Good fabric and seam smoothness, as well as sharp pleats are retained after multiple wash cycles. No other manufacturers can offer the same product.

3. EZCOOL - With our EZCOOL treatment moisture is easily drawn away from the body to keep you cool and comfortable. The applied treatment allows the garment to dry twice as fast as a normal cotton garment with the additional benefits of being wrinkle-free.

4. TAL Pucker Free @ Seam Technology - An innovative sewing technology that utilizes adhesives along the seams to prevent pockets, cuffs, arm-holes and plackets from puckering

Patented in the USA, Europe and Japan

5. Emboss - A proprietary process that raises a permanent pattern or logo on 100% cotton garments. The treatment offers a softer and subtler alternative to embroidery or printing.

6. Dot. TAL - An anti-microbial finish that acts as a shield against bacteria and mold growth on clothes thus preventing unpleasant odors.

7. Expandable Waistband - 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.

TAL’s patented expandable waistband technology impacts 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

8. WOR Nano-Technology- The Invisible Protection, using a proprietary WOR nano-technology resin system plus nano-scale chemical treatments to produce exceptional stain resistant performance. Furthermore, because the treatment is applied to finish garments even the sewing thread, pocketing and trims offer WOR performance

The first water and oil repellent treatment on finished garment in the market

9. DriXpert - TAL’s cutting-edge DriXpert treatment provides excellent moisture manage-ment to keep you cool and dry regardless of the day’s activities. Using a one-way transportation process, moisture on the skin is wicked through the garment onto the outer surface of the fabric where it quickly evaporates.

For innovative TAL supply

1. Floor ready merchandise (FRM) - by delivering floor ready merchandise enables TAL to offer additional cost savings and lead time reduction for customers. All TAL garments are packaged, tagged and priced to the specification of the customer before they leave the factory

2. X-docking - eliminates costly warehousing of inventory and further shortens lead-times from order to store. All products are packed to store and bar-coded at the factories. When the products reach the customer’s distribution centers, just simply be scanned and routed straight to the appropriate dispatch truck for immediate shipment to store.

When x-docking DO & DON’T

The following types of products as generally being suitable for x-docking:

·         Back-ordered items

·         Seasonal (or promotional) merchandise

·         High-volume products in steady demand

·         High-value products

·         Products having short lead times

On the other hand, the following products as not generally being suitable for x-docking:

·         Bulky, awkward items that are difficult to handle

·         Items arriving before seasonal promotions begin

·         Slow-moving, low-value products

·         Items purchased in large bulk quantities

·         Products having long lead times (including overseas shipments)

The application of x-docking

·   The grocery industry is a natural, because it typifies a closed-loop system, involving daily deliveries from suppliers, and regular deliveries to a fixed set of customers

·       Parcel delivery companies also are practitioners, typically voice data, bar coding, and RF systems are used in such operations

·       Various manufacturing industries, automotive parts distribution, and, as we have seen, retailing, are other strong application areas for x-docking

3. Quick Response (QR) - The dynamic manufacturing process, combined with advanced POS data-mining expertise, enables the customers to reduce the costs and risks of new product launches. Test shipments of new products are sent to specific stores where sales data is closely monitored. Top sellers are then chosen for continuation and re-buy orders placed for an all-store rollout. Through facilitating test product shipments, we enable our customers to shorten, and most importantly reduce the risk of large markdown costs at the end of the season.

When quick response DO

Two types of businesses often implement QR

·      A company that produces highly engineered material in small batches

·      A company to implement QR is one that does not need to engineer each item, but has a very large number of different items with highly variable demand for each

 Referring to http://www.talgroup.com/en/ index.html.