TAL Case Discussion

Q1: Background Information of TAL

The TAL Group’s headquarter is in Hong Kong and it is the world leader in the production of innovative clothes that combine style, comfort and functionality. Their products include outwears, shirts, polo shirts, blouses and pants by using different advanced technologies. For example, the SofTAL Process® technology ensuring garments to be wrinkle free throughout the day. With over 60 years of industry experience the TAL Group understand the needs of their customers and tailor their processes to meet those specific needs. They also apply the same commitment to innovation to their Supply Chain Solutions as to their product development, ensuring that they deliver consistently high quality garments quickly and effectively to any market in the world.

Moreover, they are doing business globally and have the partnership with many well-known brands such as Giordano, JCPenny, Burberry, Jones and so on. As to deal with a large amount of annual production capacity that is 5 million garments per year, there are 10 factories all over the world  involving Hong Kong, China, Indonesia, Malaysia, Thailand, Vietnam and USA, and the total production floor space exceeds 3 million square feet, and 25,000 workers world-wide of TAL Group.

Last but not least, the TAL Group has also done their corporate social responsibility well. They show the caring to the employees and the environment.

Q2: Discuss the dynamics of the apparel value chain and how the global apparel industry is classified as a buyer-driven industry.

In the past, the apparel value chain is producer-driven. Simply speaking, manufacturers play the central roles in coordinating production networks. Products were shifted from the downstream to upstream with concrete system, such as daily or weekly orders were made by the retailers, manufacturer had to forecast the demand in order to prevent shortage. Nowadays, the value-chain concept has extended from individual level to whole supply chains and distribution networks. The core value is to deliver a mix of products and services to final customer. The apparel value chain become buyer-driven, which means large retailers, marketer and branded manufacturers play the main role to set up the decentralized production networks, shifting the power to downstream. The core competencies of producer-driven are research, development and production while the core competencies of buyer-driven are design and marketing. The barriers to entry switch from economies of scale to economies of scope.

The low entry barrier of apparel industry leads to many companies involving the competition and severe competing environment. When large retailers, marketers and branded manufacturers want to take advantage in that environment, they have to locate their factory in the regions with low labor cost and production cost, usually decentralized. This may weaken the bargaining power of suppliers.

        

   

Q3: 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 upon the Porter’s value chain model including Inbound logistics, operations, outbound logistics, marketing and sales ans services, the use of VMI has enabled TAL to turn the sequential value chain to an integrated and synchronous value network with their customers such as JCPenny. In

TAL’s traditional value chain, it purchases and receive raw materials based on back-order in the inbound logistics while using VMI, it purchases and receive raw materials based on shared information by customers like JCPenny. For operations, TAL needs to ask JCPenny to give the POS to know about the sale pattern for sales forecast and plan for production while VMI allows TAL to manufacture according to customer orders. Moreover, JCPenny involves inbound logistics and operation in TAL’s  Integrated and Synchronous Value Chain. It receives garments from TAL to store them in the central warehouse in the bound logistics. For operation, JCPenny can forecast the sales amount can place replenishment order.

Therefore, the use of VMI helps TAL to create 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. There are several benefits by using VMI. It can reduce inventory level and cost, shorter replenishment cycle and reduce ordering cost.

TAL’s Integrated and Synchronous Value Chain

Q4: 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.

Impacts of IT on competition

According to the five forces model proposed by Porter and Millar, it is a analytic tool to measure the level of competition and business strategy development. The development of IT is so rapid and successful that the business environment provides much more opportunities in the society. So, let’s discuss the five forces model one by one.

Threat of new entrants

In order to fight against other competitors, every company may develop their own IT system, including analyzing, simulating, forecasting, etc. The IT system requires huge investment budget and time. That would be extremely difficult to create a professional system. Even companies with enough capital for installing some advanced software, like SAP, they still have to spend time on training employees adapting the software. Thus, the threat of new entrants is really low.

Bargaining power of buyers

Nowadays, buyers can have access on the information of different kinds of product, no matter on most of the brand existing in the market. Many choices are provided for them. In an open market, buyers will opt for the more suitable products for themselves. The IT advancement may create more competing opportunities for companies.

Bargaining power of suppliers

Suppliers may face a new challenge. The supply of the product or service is no longer treated as a difficult part in their daily operation, which means most of them have basic infrastructure in competing with other companies. The core competence becomes the degree of sophistication in the IT development. Some companies have developed their unique IT system and made the whole supply chain so smooth.

Threat of substitute products

New innovative technology may lead to higher variety of products. The function of product varies by different product line or brand. Thus, the competitiveness between companies increases.

Intensity of competitive rivalry

Nowadays, shopping is much easier than before. Buyers can buy goods on the Internet by few clicks on the home computer. Therefore, the shopping effort for online products decreases. Products go faster and faster, and make the competition more severe.

For TAL group, they started their investment on IT in the early 1990s. Over two decades time, TAL continues to improve their business strategy on IT system. It employed the vendor-managed inventory and made-to-measure. Traditionally, retailers placed the orders based on their forecast. When they couldn’t sell all of them, they would return the back-order. This makes the pie smaller. However, after launching the VMI, TAL will automatically produced the correct product as the same product is sold simultaneously. Not only TAL can reduce the effort in managing orders, but also can they build loyalty with their business partners.