TAL Apparel

1. 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)

2. 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.

3. 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.

4. 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.

5.  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.

6. 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.

7. 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.

8. 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.

9. Differences of Past and Present Apparel
Industry Environment
Past
Producer-driven value chains
In 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.

10. 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

11. 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)

12. 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.

13. 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.

14. EDI in TAL

16. 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.

17. ERP in TAL

18. 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

19. 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.

20. 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

21. 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.

22. 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
enhancem
ent/new
product

23. With VMI
Inbound
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,
merchandi
zing and
selling to
end
consumers
Receive
consumer
feedback
for product
enhancem
ent/new
product

24. 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.

25. 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

26. 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.

27. MTM Example

28. 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.

29. 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

30. 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

31. 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.

32. Thank You