The company background of TAL
TAL is one of the renowned clothing manufacturers around the world. The company produces quality men’s and women’s garments for many well-known brands. Besides that it aims to keep manufacturing high quality clothing so the company put attention on research and development in order to find out new innovative technology of producing clothing. This technological edge offers the competitive advantage to TAL. With the help VIM system, TAL can increase the performance of the supply chain effectively and efficiently , which is beneficial to its retailers and distributors as well.
Discuss the dynamics of the apparel value chain
and how the global apparel industry is classified as a buyer-driven industry.
General View on Apparel Industry
The global apparel industry was known to be a buyer-driven industry, led by retailer, marketers and brand manufactures. In United Stated, five largest retailers accounted for 68% of the appeal sale in 1995. Retailers such as Nike, Reebok and Liz Claiborne do not manufacture the products they sale but rely on manufacturers. It poses threats on the manufactures to entertain its retailer clients so as to retain them. However, a number of unfavorable changes in the environments cause overwhelming pressures on manufactures recently.
Threats on Apparel Manufacturers
China’s Accession into WTO
Hong Kong, has been taking the role as commercial gateway to China and the sourcing hub for Asian region. This prestigious role, however, may not be sustained as a result of China’s accession into WTO and elimination of textile quotas. The migration of production sector to other Asian countries will become more obvious.
Recent Migration of Production Sector
In the early years, the Asian Big Threes, comprising Hong Kong, Taiwan and Korea, were responsible for large share of global apparel imports in US. From 1983 to 2001, this share had dropped 27 percent. Production sector of apparel had shifted to other Asian countries, Central America, the Caribbean and especially Mexico. This new entrants were benefiting from low labor cost and preferential tariffs, such as North American Free Trade Agreement (NAFTA).
Garment is produced mainly on the new production sectors, factories in other areas become over-capacity. This factor, together with the cost pressure from the new entrant, alarms to the Asian countries which have dominated the global apparel production in the past decades.
Dynamics of Value Chain
Dynamics of Value Chain
Since adopting low-cost strategy cannot help to create competitive edge, manufactures should not make capital investment on manufacturing machineries and factories. Instead, they put their focus on high-value added activities.
A counter-strategy of some manufactures is to become brand manufactures, shifting their expertise to the branding and marketing side of business. (OEMs to OBMs). Another strategy is to use full-package supply model which all activities in the production, trade, and financial networks are provided and coordinated to its clients. Through this strategy, manufactures benefits from gaining valuable knowledge about buyer preferences, and more importantly, increase its competitiveness and distinguish from other suppliers.
Reason of classifying global apparel industry as a buyer-driven industry:
Most of retailers of garment do not have own production facility but rely on manufacturers like TAL. However, the retailer or markets drive their producers based on the following reasons
Retailers dominate the market:
Globally, no matter in US, Europe, the market is dominated by few large retailers which account a very large percentage of all apparel sales. The retailers have a better understanding of customer’s behavior more than the producers since the retailers directly deal with the customers. It is hard for the producers to run the business if they do not have a good relationship with them.
Globally, no matter in US, Europe, the market is dominated by few large retailers which account a very large percentage of all apparel sales. The retailers have a better understanding of customer’s behavior more than the producers since the retailers directly deal with the customers. It is hard for the producers to run the business if they do not have a good relationship with them.
The empowerment of customers:
With the development of society, the people have a higher living standard. They become demanding and have a high requirements on clothing. Therefore, the production of cloth is driven by the customer’s preference.
Marketers are important in apparel industry:
Marketers are important in apparel industry:
Marketing play an important role in different industry, including apparel industry. Positioning the products, finding customer buying behavior and the deciding strategies to penetrating the market should be done in apparel industry.
How the use of VMI has enabled TAL to turn the sequential value chain to an integrated and synchronous value network
What is sequential value chain?
The sequential value chain is also known as the traditional supply chain model which is based on the push based process where basically the manufacturers produce goods and push them through the supply chain sequentially without received much proper feedback and information from the downstream. The information gap between the supply and demand sides leads to overproduction or shortage of products. Finally, either dissatisfaction of customers or a waste of resources occurs.
What is integrated and synchronous value network?
The integrated and synchronous value network is viewed as a modern supply chain model which is based on the pull based process. The success of this network highly depends on the feedbacks and information from the front line. With sufficient information, the upstream is able to made more accurate prediction on the demand. As a result, the both the efficiency and effectiveness simultaneously.
How VMI make TAL succeed?
Traditionally, retailer customers placed their orders based on their sales
forecast. What TAL needed to do was to fulfill the order on time. TAL’s performance was measured by on-time-delivery. But this did not necessarily help the retailer customers’ business. As they did not have a well-developed system helping them make accurate forecast and deliver the information to TAL rapidly.
Vendor-managed inventory (VMI) provides a win-win situations to both TAL and the retailer customers. VMI is one type of the integrated and synchronous value network. It is a continuous replenishment program supported by real time front-line sales information which is captured by POS. After introducing VMI, the common performance measures as the retailer customers are service level, inventory level, in-stock percentage, etc. Reduced inventory and shorter replenishment cycles are the primary benefits offered by a VMI program. To conclude, instead of focusing on the individual performance in the traditional supply chain model, the VMI highly facilitates the information flow along the supply chain and benefits the performance of all the parties.
The benefits and impacts of the use of IT initiatives to TAL
According to the value chain theory of Porter and Millar (1985), Telecommunications technology can profoundly affect the 5 primary activities, including inbound logistics, operations, outbound logistics, sales and marketing and services, sometimes simply by improving effectiveness and sometimes by fundamentally changing the activity.
There are some examples of how IT creates impact to the five primary activites.
- Inbound logistics:
Real time and speedy information sharing system facilitates the communication with the suppliers in order to shorten the ordering time and postpone the order deadline.
By shortening the transit time, it can minimize the chances of out of stock situation which can further improve the customer service level. Besides, TAL is a apparel company, it needs to be very sensitive to the market changes. As there are better information sharing systems, the suppliers can firstly prepare the semi-finished products and wait for the final decision come from TAL. It can then provide sufficient time for the designers of TAL to observe the market trend and make the most suitable decision.
- Operations
IT increases the transparency of the market. It helps TAL to gain more market information easily, like competitors’ strategies and the price level of the raw materials. In addition, IT automatizes the production planning which greatly decreases the chances of delay of delivery.
- Outbound logistics
The inventory monitoring systems automatizes the ordering procedure once the inventory level falls to certain level. It helps the retail stores to lower their inventories on hand and save the storage places.
- Marketing and Sales
The advanced information systems connect all retail stores and create the great data base. TAL can make use of the data set to decide the future plans and marketing strategies.
- Service
By having more data, TAL can have better understanding of their clients, they can provide what the customer needs to create higher service quality.
TAL’s latest developed new technologies
Technology is not only helping the company to upgrade their inventory systems but also creating more innovative business ideas and new materials. TAL is an “innofacturer” and it has created lots of new technologies. The followings are some example,
Business ideas:
X-Docking system
X-Docking system eliminates costly inventory storing cost and shortens lead-times from order to store. All products are tagged a bar-code, the stocks will be scanned and routed to the corresponding outbound terminals when they reach the distribution centers.
Pick to light/RFID
These are the technologies used during the packaging procedures to minimize the human error.
Vendor Managed Inventory (VMI)
Inventory on the customer’s side is monitored directly by TAL. Stock is then replenished when TAL reckons that it’s the most appropriate time of the customer.
Production development:
Wrinkle free technology
There’s no need to iron the clothes everytime.
SofTAL Wool
SofTAL Wool let the customers to wash the garments without the problems of shrinkage or felting. There is no other manufacturers can offer the same technique.let
EZCOOL
EZCOOL let moisture easily drawn away from the body to keep customer cool and comfortable.
DriXpert
Using a one-way transportation process, moisture on the skin is wicked in garment onto the outer surface of the fabric.
Five Force Model
We have mentioned a lot of examples of how TAL makes use of the technology to improve her business. We can use another model, The Porter’s Five Force Model, to describe how these strategies contribute to the company in the apparel value chain.
- Minimize the threat of new entrants
TAL’s has well developed various technologies, like vendor managed inventory (VMI) system, Make to Measure (MTM) and the ERP systems which create the significant entry barriers for the new joiners. These systems integrate the retail customers’ value chain and provide the very unique service to the clients. The new entrants may be required a long developing time and high investment cost to achieve TAL’s service level.
- Balance the power of buyers
By using the innovative and well-designed inventory management system, TAL can provide extra services to the clients, like demand forecast. It can lower the bargaining power of the buyers by increasing their switching cost.
- Erode power of suppliers
When having closer relationship with the clients, TAL is not only lowering the power of the buyers, but also eroding suppliers’ power. As we have more data and information on hand, we can share these kind of dataset with the suppliers. TAL and the suppliers can then produce the right products at the right time.
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