TAL APPAREL LIMITED: STEPPING UP THE VALUE CHAIN

PRESENTED BY –

ABHILASH CHOUDHARY (13810002)

T VAMSHI KRISHNA (138100)

GAURAV GUPTA (138100)

AMAR KESHARI (138100)

PARESH PATRA (138100)

About TAL

Headquarters in Hong Kong.

Started 1947, by Lee family – first spinning mill in Hong Kong for producing yarn.

1962: mills banded together to form Textile Alliance Limited (TAL).

1983: subsidiary Textile Apparel Limited - garment division.

2001: TAL Global Alliance Limited (TAG) – (global sales and marketing business) to adjust to the increasing scale of international business.

One of the Largest Garment Manufactures in the world.

Apparel Sourcing in Asia The apparel 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 South Korea (collectively known as the Asian Big Three) in the 1970s.

Most recently from the Big Three to other developing economies in the 1980s.

In 1983, the Asian Big Three, together with China, were responsible for two-thirds of total apparel imports in the US.

In 2001, this share had dropped to 27 percent, with competition originating from other Asian countries, Central America and the Caribbean, and most notably Mexico.

These new entrants were benefiting predominantly from their low labour wage and preferential tariffs in their regional trade networks. The passing of the North American Free Trade Agreement (NAFTA) in 1994, for example, had brought about the rise of Mexico as the low-cost manufacturing base for the US. Apparel exports from Mexico to the US had since jumped almost three-fold from 5 percent in 1994 to 13 percent in 2001.

Apparel Sourcing in Asia Global apparel industry was led by few retailers, marketers and branded

manufactures.

In 1995 five major retailers Walmart, Sears, Kmart, Dayton Hudson and JC Penney, accounted for 68 percent of all apparel sales in the US.

In 1992 in Germany, the five largest clothing retailers accounted for 28 percent of the nation’s total economy.

In 1994 in UK the two top clothing retailers controlled over 25 percent of the total market.

In 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 pressures from other emerging economies, it became questionable whether such advantage could be sustained in the long run.

This, together with the elimination of all textile quotas under the WTO Agreement on Textiles and Clothing (ATC) by January 1, 2005, would result in fundamental changes to the competitive landscape of the global apparel industry.

Problem

The new supply chain management system designed by the Company for the giant retailer J.C. Penney had brought about remarkable opportunities. The Company was trying to find out how to leverage the system to strengthen its position as a dominant apparel supplier to the Western markets.

The upcoming regulatory changes relating to China’s accession into the WTO and the elimination of all textile quotas under such agreement were posing serious threats to the Company’s role as the commercial gateway to China and the sourcing hub for the Asian region.

The dramatic price falls and the persistent over-capacity in the apparel industry in recent years were causing overwhelming pressures to manufacturers and suppliers on a global basis.

Problem Cont.. The completion of the Uruguay Round of negotiations resulted in an

agreement to integrate trade in textiles and clothing into the GATT/WTO. In 1995, the Multi Fibre Agreement (MFA) was replaced by the WTO Agreement on Textiles and Clothing (ATC). The ATC is based on a 10-year transitional programme for the removal of all quotas in textile apparel by 1 January 2005.

China is estimated to be the biggest beneficiary. Accession will boost the labour-intensive manufacturing sectors in China, especially the textiles and apparel sector that will benefit directly from the removal of quotas on textiles and apparel exports to North America and Western Europe. Consequently, developing economies competing with China in third markets may suffer relatively small losses. China has already benefited from the reforms undertaken between 1995 and 2001 (US$31 billion) and trade reforms after accession will lead to additional gains of around $US10 billion.

Available Choices The dramatic production shift was alarming to the Asian countries which had

dominated the global apparel production in the past few decades. Among the Asian Big Threes, Hong Kong remains the top contender in its leading role in apparel exports.

Faced with imminent competition from countries as close as China, and as far away as Mexico, Hong Kong manufacturers recognize the urgency to shift its expertise to higher value-added activities.

Original equipment manufacturing (OEM) is a form of commercial subcontracting. The supplying firm makes a product according to a design specified by the buyer; the product is sold under the buyer’s brand name; the supplier and buyer are separate firms; and the buyer lacks control over distribution.

Original brand name manufacturing (OBM) is the upgrading by manufacturers from the production expertise of OEM to first the design and then the sale of their own brand products.

Differences of Past and Present Apparel Industry Environment

Past

Producer-driven value chainsIn producer-driven value chains, large, usually

transnational, manufacturers play the central roles in coordinating production networks.

Present 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.

Early Challenges faced by TAL

Regulatory changes relating to China’s accession into the WTO

The dramatic price falls and the persistent over-capacity in the apparel industry

Inventory Management

Rise of competitors

Preferential tariffs in their regional trade networks

TAL Strategies to Overcome the Challenges

Invest in an IT infrastructure to support its operations.

Electronic Data Interchange (EDI)

Early prototypes of Supply Chain Management (SCM) to optimize business processes with its suppliers.

Enterprise Resource Planning (ERP)

Vendor-managed inventory (VMI)

Made-to-measure (MTM)

Technology Development in TAL

TAL recognized the need to invest in an IT infrastructure to support its operations very early.

Started with automating its financial transactions, followed by ongoing enhancements to provide fuller automation of the individual activities.

Started using early prototypes of SCM to optimize business processes with its suppliers.

EDI

Adopted the Electronic Data Interchange (EDI) standard for trade document processing with its customers by 1990.

EDI technology helped their current business processes to fasten the inbound and outbound mobility by availing the benefits from accurate and quick information required for their operations.

EDI in TAL

ERP Systems

Started working on in house ERP solution in early 1990s.

Outsourcing to Intentia International, for developing “Movex Fashion Solution”, an industry-specific ERP system with multiple modules.

Movex was designed to streamline internal operations as well as manage external relationships across the Company’s supply and demand chains.

Integration of financial solutions in Movex.

ERP in TAL

ERP in TAL

Smooth management Easy access of all records at one

place Increase productivity by saving man

hours Getting accurate and timely data Reducing operational costs

IT Systems in TAL

Cost of integration overall IT Systems was US$ 10 million and involved 30 people working full-time in the IT core team.

Set up of IT department at the Company’s headquarter for steering the IT development, operation and strategic planning of the Company.

TAL continued investing heavily in research and development to drive technology innovation in garment manufacturing.

TAL held a number of manufacturing patents in US and EU for superior garment manufacturing.

Buyer Driven vs. Producer Driven

Buyer Driven Producer Driven

Core Competencies Design, Marketing R & D, Production

Barriers to entry Economies of Scope Economies of Scale

Typical Industries Apparel, Footwear, Toys Automobiles, Computers

VMI – Vendor Managed Inventory

A Business models in which the buyer of a product (business) provides

certain information to a vendor (supply chain) & supplier of that product

and the supplier takes full responsibility for maintaining an agreed  inventory

of the material, usually at the buyer's consumption location (usually a store).

It is a concept and process for consumption-based Supply Chain Management.

It requires the supplier to maintain inventories within predefined and mutually agreed thresholds based on a min / max-range.

The supplier can freely deliver within this indicated range. The basic requirement for a successful VMI process is a good partnership and

cross company information sharing and transparency close to real-time.

Without VMI Inbound Logistics

Operations Outbound Logistics

Marketing & Sales

Services

TAL

Receive back-order from J.C. Penney

Ask J.C. Penney 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. Penne

y

Place orders based on their sales forecast

Perform inventory control, sales

monitoring

Back-order to TAL

Marketing, merchandizi

ng and selling to

end consumers

Receive consumer feedback

for product enhancement/new product

With VMIInbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Services

TAL

Purchase And receive

raw materials

Produce according

to customer  orders

Package & Ship to

retailer’s warehouse

None None

J.C. Penney

Purchase And receive

garment from manufacturer

Perform inventory control, sales

monitoring  and

forecast

Re-pack &distribute

to retail outlets

Marketing, merchandizing and selling to

end consumers

Receive consumer feedback

for product enhancement/new product

Past : (inventory is controlled by J.C. Penney)

The whole supply chain is in sequential order. Without VMI, J.C. Penney manages

the inventory and place order when there is stock-out.

The disadvantages were:

1.    Long replenishment cycle

2.    Increase chance of stock-out

3. Bullwhip effect : It refers to a trend of larger and larger swings in inventory in

response to changes in customer demand .

4.    Lower customers satisfaction.

Present : (inventory is controlled by TAL)

TAL uses VMI to improve its continuous-replenishment program with JC Penney

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

TAL forecasts the demand and make fulfilment based on real-time front-line sales information.

The advantages are:

1.    Reduced inventory

2.    Shorter replenishment cycles

3.    Sensitive to the inventory level avoid back order

4.    Reduce inventory management cost

5.    Reduce administration cost of the transaction cost

Made to Measure

Ready-to-wear garments are constructed to fit the manufacturer's definition of an average customer, while made-to-measure garments are constructed to fit each customer individually.

A made-to-measure garment are generally more expensive than ready-to-wear garment.

Garments are well-fitted to the customer's body and the customer have the opportunity to customize the fabric and detailing.

The same production resources to manufacture a variety of similar, yet individually unique products.

TAL, Developed the body scanning technology, customer interface functionalities, and custom-tailored production machinery at the factory.

MTM Example

MTM Contd…

Streamline the entire order-fulfilment process from Customer , retailer and supplier point of view .

TAL’s Retailer :- Lands’ End, Brooks Brothers, and J.C. Penney

Finished products were shipped from the factory directly to the customer’s home address.

Orders were sent electronically from the stores and finished products are shipped back to the originating stores.

Made-to-measure orders were usually manufactured within a week from the time of the purchase order, followed by one week of air freight to reach the shipping destination.

Challenges

Replicating the Supply chain Management technology by the competitor IT solution provided to its retailer are off the self (Movex ERP

Solution, Trade card Finance mgmt system) Can be replicated without much complexity.

Made to Measure technology TAL’s partnership with ASI to provide MTM can be emulated by its

Competitors

Solution Long Term Strategy

With its MVI system it is in a position to experiment its designs. Will help Tal carry out backward integration in the value chain.

Venture into third party logistic provider for retailers. Will help TAL carryout forward integration in the value chain.

Integrate MTM system with the existing SCM system

The innovations by TAL using Tradecard, ERP system, MVI system, MTM system will help move upward in the value chain and become OBM

Solution

Short and Medium Term Strategy Use existing strength on supply chain management to acquire SCM

business for other Product lines.

Move in to wholesale business for further growth.

Thank You