Case 2: TAL

Case Study :  TAL Apparel - Stepping up Value Chain

Introduction

TAL is the world leader in the production of innovative clothes that combine style, comfort and functionality.Headquartered in Hong Kong, It specialize in the manufacture of quality men’s and women’s garments for the world’s leading brands.  Currently they produce 1 out of 6 dress shirts sold in the USA.They continuous innovation through investment in research and development has given TAL the technological edge that guarantees their garments deliver enhanced performance, and look great! From wrinkle free and stain resistant treatments, to every aspect of garment manufacturing technology TAL leads the way and sets the industry standards.

The dynamics of the apparel value chain 

Past 

Producer-driven value chains

In producer-driven value chains, large, usually transnational, manufacturers play the central roles in coordinating production networks.

Now  

Buyer-driven value chains

Buyer-driven value chains are those in which large retailers, marketers and branded manufacturers play the pivotal roles in setting up decentralized production networks

-power shift to downstream

         -pull system

How the global apparel industry is classified as a buyer-driven industry

      As retailers strive to cut costs and keep pace with consumer tastes, they are coming to depend more on suppliers that can respond swiftly to their changing needs.

·             Capitalizing on their current full-package supply model, providing and coordinating all activities in the production, trade and financial networks to their foreign buyers.

·             Using this model, suppliers were able to gain valuable market knowledge about their foreign buyers ‘purchase preferences and generate backward linkages with their raw material suppliers for a reliable sourcing network.

·             A few giants dominates the market e.g. USA, Germany and England + China

·             Large capacity (over-capacity) increase competition and decrease prices

·             Buyers values and perception lead the market

·             Diversity of products types contribute to increasing choices for buyers

·             Turnover, The trend is up-to-date and new products announced frequently

Based upon the Porter’s value chain model,  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.

Vendor-managed inventory

A means of optimizing Supply Chain performance in which the manufacturer is responsible for maintaining the distributor’s inventory levels. The manufacturer has access to the distributor’s inventory data and is responsible for generating purchase orders. 

Vendor-managed inventory (VMI) was receiving increased attention as a means of supply

chain collaboration in the retail industry.  

VMI was a continuous replenishment program whereby the vendor created the

purchase orders based on the demand at the store or warehouse level.

 It could be viewed as a backward replenishment tool whereby the vendor did the demand creation and fulfillment based on real-time front-line sales information. Reduced inventory and shorter replenishment cycles were the primary benefits offered by a VMI program.

-Reduced inventory

-shorter replenishment cycles were the primary benefits offered by a VMI program.

-Sensitive to the inventory level avoid back order.

-reduce inventory management cost

-reduce administration cost of the transaction cost (pO creation ) and save time

With VMI

	Inbound Logistics	Operations	Outbound Logistics	Marketing & Sales	Services
TAL	Purchase & receive raw materials	Manufacture according to customer  orders	Package & Ship to retailer’s warehouse
J.C. Penney	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

Without VMI

	Inbound Logistics	Operations	Outbound Logistics	Marketing & Sales	Services
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	Perform test marketing of new products at retail stores	Monitor retail sales, replenish inventory, and design new products
J.C. Penney	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

The way that Porter and Millar (1985) classified the impacts of IT on competition

The benefits and impacts of the use of IT initiatives to TAL, and 

the way that these initiatives have contributed to the strategic repositioning of the company in the apparel value chain.

Porter and Millar (1985) state that IT can affect competition in three ways; these are changing industry structure, creating competitive advantages and spawning whole new businesses.

Strategic Impacts:  TAL’s use of IT

1) Driving change in industrial structure:

Minimize threat of new entrant:

·    Erect entry barriers by tying up distribution channels in the integrated value system.

·  Increase entry barriers y using MTM, as it require tighter integration with the user’s value chain

Balance the power of buyers:

·  Increase switching cost by demanding exclusive supplier relationship in VMI

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

Erode power of suppliers

· Erode supplier power y controlling major recourses in the value system (i.e manufacturing technologies and customer relationship)

2) Creating product and service differentiation

Create highly differentiated services offerings

· Provide full-package supply solutions to transform the traditional commodity-like generic products

·  Bundle information with physical product package, creating barriers to imitation.

·  MTM system product provides additional source of differentiation.

3) Spawning new business opportunities

Creation new business opportunities

·Providing logistics and supply chain management as stand-alone service offerings

· Venture into design and marketing activities in the apparel industry

The Company’s latest development on new technologies and business innovation

·       Machine washable and dryable and no need to iron thanks to TAL exceptional wrinkle free technology

·        Innovation Nano-technology

·       Combined with advanced POS data-mining expertise, reduce the customers cost and risk of new launches

·       Floor ready merchandise, able to offer additional cost savings and lead time reduction for our customers, all TAL garments are packaged, tagged and priced to the specification of their customer before the stocks leave the factory

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

·         TAL Pucker Free ® Seam Technology

An innovative sewing technology utilizes adhesives along the seams to prevent pockets, cuffs, arm-holes and plackets from puckering.  

·         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.

·         Dot. TAL

        De-odorant Technology of TAL

        An anti-microbial finish acts as a shield against bacteria and mold growth on

        thus preventing unpleasant odors.

·          SofTAL Wool

TAL’s washable wool is made from 100% pure wool. Our unique SofTAL Wool process enables us to provide 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.