1. Background of TAL
TAL is the world leader in the production of innovative clothes which combine style, comfort and functionality. It was founded in 1947 by Mr. CC Lee and headquartered in Hong Kong. TAL outputs dramatic annual production including 30 million pieces of shirts, 10 million pieces of polo shirts and 10 million pieces of pants. It continuous investing in technological research and development so as to enhance their performance and efficiency. TAL is the first one to apply I.T. in low-cost garment market. From wrinkle free and stain resistant treatments, to every aspect of garment manufacturing technology TAL leads the way and sets the industry standards.
Main customers:
Walmart, Sears, Kmart, Dayton Hudson, JC Penny, Ashworth, Brooks Brothers, Giordano, Burberry, Sanyo, etc.
Main products:
Shirts, Polo Shirts, Pants, Blouses, Outwear, Suit
Selling point of the company:
- Unique operation system
- Close relationship with customers (Using VMI)
- Shorten the lead time and enhance the efficiency
2. The dynamics of the apparel value chain
Background of apparel industry: Apparel out sourcing in Asia
The global apparel industry was known to be a buyer-driven industry, led by the retailers, marketers and branded manufactures. In the USA, and Europe the industry was mostly dominated by a handful of giant retailers. While in East and South East Asia, the supply of low-cost and abundant labour had historically provided significant competitive advantage for the region's export growth. However , in light of the persistent over-capacity in the industry and cost pressure, the production sector of the apparel industry had undergone several migrations in the past few decades: from North America and Western Europe to Japan in the 1950s, from Japan to Hong Kong, Taiwan, and the South Korea (collectively known as the Asian Big three) in the 1970s. This dramatic production shift was alarming to the Asian countries which had dominated the global apparel production in the past few decades.
Stages of value chain in the apparel industry
- Raw material supply
- Provision of components
- Production networks
- Export channels
- Marketing networks at retail level
Dynamics : reasons of affecting the bargaining power of suppliers (Push strategy)
- China Joined the WTO
After China has joined WTO, the barrier of import and export has been lowered. Therefore, the competition of global apparel industry has become more keen than before
- Empowered consumers
Since many options for customers, the customers can easily to shift to the other companies, therefore they have a larger bargaining power. And the Internet provides the a larger amount of information for customers, then customers can have full information of all products and they can make comparison. among their options.
- Globalisation
Globalisation is a large trend that the companies outsourced some production processes to developing countries for lower labor and other costs.
- Technology
Since the technologies became more advanced, manufacturers can also get the sales data from the stores through some systems e.g. Point-Of-Sales. Also, they can use ERP to control the production process, and others technologies to provide more value-added services to enhance the efficiency.
- Government policy and regulation
For most of the developing countries, they are less regulated then the manufacturers can easily establish the plants there and hire more labor with lower costs and rent or buy more lands for the plants. It is an attractive point for companies to set up production plants in developing countries. China is an good example in 1990s, and now, some are moving to western part of China for the same reasons because the cost increased in Shanghai and other countries had become more developed.
- Entry of third-world countries into garment market
As more third-world countries like Africa devote themselves into the garment market, because of lower-cost and rent, they greatly affect the market share of existing garment suppliers which led to a more competitive market.
3. How the global apparel industry is classified as a buyer-driven industry
Reasons for Buyer-driven industry:
In the apparel market, it is easy to set up the clothing company and the entry barrier is low, thus a competitive market is created.
As the garment market is a Buyer-driven industry (Pull strategy), information can be gathered by buyers easily and conveniently.The taste of consumers changed frequently. The change is from the designers to design the style and push to customers to designers to guess the taste of customers to match the favor of buyers in order to pull the customers to them.
The global buyers determine what, where, how, when to produce and price.Retailers are the closest to customer to obtain accurate market information.
Lack of channel to contact customers: manufacturers lack of first hand information.
To avoid Bull-Whip Effect which is an occurrence detected by the supply chain where orders sent to the manufacturer and supplier create larger variance then the sales to the end customer. These irregular orders in the lower part of the supply chain develop to be more distinct higher up in the supply chain. This variance can interrupt the smoothness of the supply chain process as each link in the supply chain will over or underestimate the product demand resulting in exaggerated fluctuations. Once Bull-Whip Effect occurred, it may create a huge loss to manufacturer, thus they can only coordinate with retailers
Thus, retailers obtain dominate bargaining power Buyer-driven industry formed.
4. 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 Penney.
Vendor-managed inventory (VMI) is a supply-chain initiative where the supplier is authorized to manage inventories of agreed-upon stock-keeping units at retail locations.
Comparison of traditional and new Supply Chain (TAL and J.C. Penney)
1a. Traditional Operations
TAL: Production (planning is based on the information provided by Penney)
J.C. Penney: Control inventory level, sales forecasting, and place replenishment orders (Traditional cycle)
1b. New Operations
TAL: Provide assistance to Penney’s inventory control, plan for production (VMI)
J.C. Penney: Sales monitoring and sharp adjustment
2a.Traditional Marketing and Sales
TAL: Sell directly to Penney(only on retailer level), no contact at customer’s level
J.C. Penney: Marketing, merchandising, selling to end customers, marketing test
2b.New Marketing and Sales
TAL: Marketing testing of new products, sell to Penney (Who has First-hand information, and hence larger bargaining power)
J.C. Penney: Marketing and selling to end customers
3a.Traditional Service
TAL: Does Evaluation on sales, replenishes inventory, receives back order from Penney
J.C. Penney: Receives feedback from consumers and tries to improve/innovate new products
3b.New Service
TAL: Evaluates sales, replenishes inventory, receives back orders, designs new products and does sales forecasting
J.C. Penney: Receives consumers feedback
Result of change in supply chain role
- Reduces burden of retailers in different stages
- Enhancement of their role (making them more important)
- Achievement: Taking care of the customers’ customers
Basically, takes care of the customer’s customer, taking away their customer’s burden, and making them somewhat irreplaceable, or strategic.
5. 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 re-positioning of the company in the apparel value chain.
IT can affect competition in three way:
- Change of industry structure
- Create comparative advantage by product and service differentiation
- Spawning new business opportunities
1. Change of industry structure
Deal with bargaining power of buyers:
Increase switching cost e.g. customization and building unique relationship with suppliers by VMI
Gain customer’s information at store level
Deal with bargaining power of suppliers:
To reduce suppliers’ power by controlling valuable resources among value chain. E.g. manufacturing technology, customers’ relationship
Deal with threat of new entrants:
Increase entry barriers by using I.T (to require a tighter integration with users’ value chain) , e.g. MTM
Deal with threat of rivalry:
IT technology became more common in the industry and thus, balanced the competitive advantages and make the competition in the market more vigorous.
Deal with threat of substitution:
By using the IT technology, the relationship between suppliers and customers can be enhanced.
2. Create comparative advantage by product/service differentiation
- To create highly differentiated services offer (first-hand information from customers to discover their favor, and differentiate)
- To provide full-package supply solutions to transform the traditional commodity-like generic products
- Create comparative advantage by product/service differentiation
- Bundle information with physical product as a package, which helps to create barriers to imitation
MTM system product provides additional source of differentiation
3. Create new business opportunities
- Involve in marketing and design activities, have a brand-new vision for improvement
- Providing logistics and supply chain management as stand-alone service offerings
Benefits and impacts of the use of IT contributed to the strategic re-positioning of the company in the apparel value chain.
- Capital-intensive (cost efficiency by mass production, such as EOS)
- Huge cost of investment involved for development in IT (e.g. labour cost, capital investment cost)
- Higher training cost
- Better coordination by the rapid exchange in information from different department
No comments:
Post a Comment