TAL Apparel Limited
Background
Products
- Blouses
- Knitwear
- Polo shirts
- Outer shirts
- Pants
*Tops, including shirts, blouses and knitwear represented over 80% of its total production.
- SofTAL technology – wrinkle free
- SofTAL Wool – machine washable, tumble dryable, non-shrinking wool pants
- Pucker free seams technology – ensure seams stay sharp
- Easy care – machine washable and dryable
- WOR-Nano technology – stain resistant
- EZCOOL fabric –allows the garment to dry twice faster
- Deodorant technology – guarantee long-lasting freshness
- Garment dyeing technology – maximum color intensity
- Anti-microbial Dot.TAL® process - shields against mold and mildew
- Expandable Waistband - better breathing and comfort
Business Partners
Department stores:
- Dayton Hudson
- JC Penney
- Kmart
- Sears
- Walmart
Specialty clothing stores
- Banana Republic
- Brooks Brothers,
- Burberry
- Charles Tyrwhitt
- Chico’s
- Crocodile
- Dillard’s
- Dockers
- Eddie Bauer
- Giordano
- Givenchy
- Hugo Boss
- J. Crew
- Jos A Bank
- Liz Claiborne
- Nordstrom
- Patagonia
- Polo Ralph Lauren
- Septwolves
- Talbots
- Tommy Hilfiger
- Uniquo
Catalogue Retailers
- L. L. Bean
- Land’s End
TAL Value – A Partner that Integrates to Add Value
TAL integrates its operations with its partners to generate true business insights, adding value that is recognized by both its partners and industry organizations:
- The Governor’s Award for Industry Productivity (1994) – the first Hong Kong apparel manufacturer to receive the award
- Hong Kong Awards for Industry - Export Marketing (1996)
- JC Penney Grand Award (1996) – first Asian manufacturer to receive this award
- Retail Brand Alliance Vendor Award (2003 & 2004)
- Giordano - Remarks of Appreciation (2004)
- Hong Kong Awards for Industries - Productivity and Quality Award (2006)
- Ashworth - Most Valuable Player (MVP) Award (2006)
- Textile Alliance Apparel (Dongguan) Limited (TAA) has received ISO 14001 ISO 14001 Certification (2008).
- Septwolves – 优秀供应商 (2009)
- Mark’s Work Warehouse – Innovation Award– Never Iron Shirts & Pants (2009)
- JC Penney – Men ’s Quality Award– Supplier of the Year (2009)
- JC Penney – Lifetime Achievement Award to Dr. Harry Lee, CEO of TAL Group (2010)
IT Solutions
Vendor-managed inventory (VMI)
- Continuous replenishment program whereby vendor created the purchase order based on the demand at the store or warehouse level
- Backward replenishment tool whereby the vendor did the demand creation and fulfillment based on real-time front-line sales information
- Reduced inventory
- Shorter replenishment cycles
Successful case:
- Partner with JC Penney
- Received orders from each of JC Penney’s 1,200 stores
- Met orders with ongoing production with a view of minimizing stock on-hand
Made-to-measure (MTM)
- Mass customization using the same production resources to manufacture a variety of similar, yet individually unique products
- Collaborate with Lands’ End and partner with Archetype Solutions Inc. (ASI)
- Custom-made jeans and chinos accounting 40% of all category sales from the catalogue retailer’s website
Dynamics of the apparel value chain
- China’s accession into the WTO and the elimination of all textile quotas
Accelerated by the low cost and abundant labor from China, combined with the elimination of all textile quotas, the competition would be more imminent.
- Globalization
New suppliers are available to buyers and hence the competition is even more intense. While transportation would be another main concern, manufacturer’s factories that located in regions that are closer to their customers would be a scarce resource, and thus a competitive advantage.
- Shift of low-cost manufacturing region
In East and South Asia, the supply of low-cost and abundant labor 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 pressures from other emerging economies, it became questionable whether such advantage could be sustained in the long run
- Bargaining power of buyer is high
Retailer added value by both band name effect and by adopting advanced information system and database to get real time market knowledge of customers’ requirements
- Non sustainable competitive advantages
Original Equipment Manufacturers (OEMs) are competing intensively on price, but no core competence to increase their bargaining power over buyers
- Fashion items with long production cycle
How the global apparel industry is classified as a buyer-driven industry
Producer-driven value chains:
In producer-driven value chains, producers or manufacturers play the central roles in coordinating production networks including their backward and forward linkages.
Representative producer-driven value chains include the capital- and technology-intensive industries such as automobiles, aircraft, semiconductors and heavy machinery.
Buyer-driven value chains:
Buyer-driven value chains, on the other hand, are those in which the buyers (retailers, marketers and branded manufacturers) play the pivotal role in setting up decentralized production networks in a variety of exporting countries, typically in developing countries. The physical production of the goods is separated from the design and marketing functions, and is carried out by the no-name manufacturers behind the scene.
Based upon the Porter’s values chain model, describe how the use if VMI has enabled TAL to turn the sequential values chain to an integrated and synchronous value network with its major customer such as JC Penney.
Vendor-managed inventory (VMI)
- Continuous replenishment program whereby vendor created the purchase order based on the demand at the store or warehouse level
- Backward replenishment tool whereby the vendor did the demand creation and fulfillment based on real-time front-line sales information
- Reduced inventory
- Shorter replenishment cycles
- Sensitive to the inventory level avoid back order.
- Reduce inventory management cost
- Reduce administration cost of the transaction (PO creation) and save time
Sequential value chain (without VMI)
In the traditional model the value chain activities between the two organizations are linearly and sequentially linked. The product development and procurement processes are managed in a set of discrete stages, with each upstream stage providing a set of outputs for the next downstream stage. Information flows from one stage to another, sequentially and in one direction. Information quality degrades down the value chain, and coordination problems frequently arise between the activities in the various stages. The inventory problems experienced by apparel retailers are a direct result of such rigid and flawed information flows.
Integrated and synchronized value network (with VMI)
With the VMI system, the sequential value chain between TAL and J.C. Penney has been transformed into an integrated and synchronized value network. The value activities of the two organizations are intertwined, with a central hub allowing for multiple touch points for collaboration and information exchange. This system essentially functions as a tailored, integrated, and synchronized value network that enables cooperation between the two companies. It depicts how the value activities of a company can penetrate and leapfrog the linked activities performed by another company. In this case, TAL not only performs manufacturing, packaging, and shipping activities prior to marketing and sales by J.C. Penney, it also performs service-related activities following the sales activities by J.C. Penney. This, in effect, captures the essence of modern supply chain management techniques, the only difference being that, in the VMI model, the vendor takes the initiative in the strategic alignment of data, structures, and processes. The role of IT is evident as it provides the backbone to support the collaboration among the various departments in the two organizations in the pre-production, production, and post-production processes. The integrated and synchronous value network demonstrates that companies must develop competitive strength not only by enhancing their own business activities, but also by creating effective linkages with the value activities of suppliers, distributors, and retailers.
How did Porter and Millar (1985) classify the impacts of IT on competition? Discuss the benefits and impacts of the use if IT initiatives to TAL, and how these initiatives have contributed to the strategic repositioning of the company in the apparel value chain.
The structure of an industry is embodied in five competitive forces that collectively determine industry profitability: the power of buyers, the power of suppliers, the threat of new entrants, the threat of substitute products, and the rivalry among existing competitors. The collective strength of the five forces varies from industry to industry, as does average profitability.
Information technology can alter each of the five competitive forces and, hence, industry attractiveness as well. The technology is unfreezing the structure of many industries, creating the need and opportunity for change.
Five Forces
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Structural Changes
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Power of buyers
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Sharing of market demand information lowers buyer bargaining power
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Power of suppliers
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Closer relationship with retail customer increase switching cost
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Threat of new entrants
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Tying up distribution channel, brand loyalty
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Threat of substitute products
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Manufacturing patent avoids pure price competition
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Rivalry among existing competitors
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Differentiation in service reshapes competitive industry
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Benefits and impacts
i) Driving changes in industry structure
TAL’s IT information management initiative has resulted in significant changes in the structure and power concentration of the apparel industry. From an industry perspective, TAL’s innovation has delivered the greatest impact by minimizing the threat of the new entrants, balancing the power of buyers, and eroding the power of suppliers.
As indicated in the sourcing trends in the US apparel industry, the new entrants to the apparel production sector are the Central American and Caribbean countries and Mexico. As a defensive strategy, TAL’s VMI and MTM initiatives are essentially erecting significant entry barriers that minimize the threat of these new entrants. The VMI system ties up the apparel distribution channel by aligning and integrating with the retailer customer’s value chain, while the MTM system demands an even tighter integration between the two partners. The proprietary MTM software technology and the Gerber single-ply cutter have increased the capital cost of entry as well as the learning curve for new entrants.
As the apparel industry is largely buyer-driven, TAL’s IT initiative serves as a counter- strategy to reduce the concentration of power in the retailers. By aligning and integrating its value chain activities with those of its retailer customers, TAL has significantly increased the switching costs of these major buyers. To this end, TAL has explicitly demanded to be the exclusive supplier for J.C. Penney’s dress shirt business. In addition, the use of IT has enabled TAL to gain access to the real-time sales information at the store level. This allows TAL to study the retailers’ sales patterns, inventory performance, and purchasing needs, providing it with in-depth information as it engages other customers in the retail business. Empowered by its access to such information, TAL is essentially shifting the buyer-supplier relationship by tapping into the valuable information assets that have contributed to the growth of its major retailer customers.
With regards to the power of suppliers, TAL manages the power of its raw materials suppliers by increasing its control over two major resources: manufacturing expertise and established relationships with retailer customers. First, by investing in technological innovation in patented manufacturing processes, it is creating in-house expertise in fabric technologies and is shifting the value-add to the manufacturing process, thus reducing its dependence on fabric suppliers. For example, its patented non-iron shirts are more a function of the SofTAL manufacturing technology than the type of fabric sourced from suppliers. Second, by providing full-package production to its retailer customers, it aims to further commoditize the fabric supplier market.
ii) Creating product and service differentiation
TAL’s differentiation stems from its full-package supply solution to its retailer customers, providing and coordinating all activities in the retailers’ supply chain in the form of efficient, responsive, and maintenance-free service delivery. In so doing, it is upgrading its products in the product hierarchy – from commodities to highly differentiated product offerings. By bundling information with the physical product package sold to the buyer, the company is increasing the information content of the product as well as the information intensity of the value chain, both of which serve to increase the potential of exploiting IT as a strategic tool. By integrating and synchronizing the movement of goods (in the manufacturing, delivery and trade processes) and the information associated with the goods, the company is creating product and service differentiation that cannot be easily imitated.
The MTM system provides a further source of differentiation as it is used to drive other business opportunities from retailers. MTM is an innovation that is made possible largely by the use of sophisticated information systems sending information-intensive pattern files from one proprietary system to another, using specialized machinery to automate the custom tailoring process. From TAL’s perspective, the MTM business itself is not a profit generator, but it serves to provide significant differentiation to lock in such specialized retailer customers as Brooks Brothers and Lands’ End. IT, in this case, is being used to strengthen the company’s relationship with its major retailer customers, thus avoiding direct price competition with existing rivals in the apparel production sector.
iii) Spawning new business opportunities
TAL’s IT initiative is creating new business opportunities beyond its existing scope of operations. The information-processing capability built into the manufacturer’s value chain carries excess capacity that can be sold outside its current area of expertise. Logistics and supply chain management, for example, are some of the value-added capabilities that the company has developed with its VMI system. Riding on its close relationship with J.C. Penney, it is selling this capability to act as the third-party logistics provider for the retailer’s underwear line. As a next step, the company is negotiating with J.C. Penney to form a joint venture to manage the supply chain of the retailer’s other product lines that TAL does not currently manufacture.
Another “by-product” created by TAL’s information management initiative is a venture into the design and marketing business of the apparel industry. With access to real-time customer purchase information at the store level, the manufacturer is able provide other value-adding services such as demand forecasting, product design, material sourcing, and test marketing. Recently, J.C. Penney upgraded its partnership with TAL such that TAL is beginning to design new shirts and handle the market testing. Under this new partnership, TAL’s design teams in New York and Dallas will come up with a new style that will then be manufactured from one of its factories within one month, and offered for sale at 50 J.C. Penney stores. These shirts will typically come in a wide variety of colors and sizes so that test marketing can be carried out in the real environment. TAL will then analyze the sales data for one month and decide which styles, colors, and sizes will be mass-produced. With decisions made at the factory, TAL has placed itself in an advantageous position, being able to respond instantly to changes in the fickle fashion industry. This new business venture is, in fact, enabling the manufacturer to develop expertise in the design and marketing aspects of the industry, paving the way for a further upgrade into the OBM model, as time and resources mature.
TAL Group
Porter and Millar (1985)
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