TAL Apparel, a shirt maker in Hong Kong (China), has an
arrangement with retail giant JC Penney in the United States that
shows how manufacturers can provide new services to buyers which go
beyond the traditional supplier role. Moving responsibilities to
suppliers allows companies such as JC Penney to concentrate on
"lean retailing".
The case reveals more than the sophisticated technology used in the
garment business today. It shows that suppliers who already find
"extras", such as fabric sourcing, a burden will have to work hard
to stay competitive.
JC Penney is one of the United States' largest department stores,
catalogue sellers and e-retailers, and it is the country's largest
catalogue merchant of general merchandise. TAL, with operations
throughout Asia, has also established relationships with other
major retailers, including Banana Republic, Brooks Brothers, Calvin
Klein and Land's End. TAL made 12% of the shirts sold in the United
States in 2003.
Pressure to cut stocks spurs link
JC Penney, like other retailers, is under pressure to cut the
quantity of goods in stock so that there are fewer items to be sold
at reduced prices. That means outsourcing traditional activities
(for example, warehousing and stock replenishment).
TAL has stepped in and also provides JC Penney with related
services such as sales forecasting and inventory management. JC
Penney stores now hold almost no extra stock of house-brand dress
shirts. TAL, which designed and operates the programme, collects
point-of-sale data for JC Penney's shirts directly from North
American stores, runs the numbers through a computer model and
decides how many shirts to make, and in what styles, colours and
sizes. The manufacturer sends the shirts directly to each shop,
bypassing Penney's warehouses and corporate decision-makers.
For example, a JC Penney store sells two white, wrinkle-free shirts
and two sage-coloured shirts of similar size but of another house
brand on Saturday, leaving none of this size and colour in stock at
the store. A computer technician in Hong Kong (China) downloads a
record of the sales on Monday and, based on past sales data, TAL's
computer determines the ideal inventory level for that brand,
style, colour and size at that store. By Wednesday afternoon, a
Taiwan Province (China) factory has produced and packed replacement
shirts to be shipped to the shop. Instead of asking JC Penney what
it would like to buy, the manufacturer's computer system informs
them how many shirts they have just bought.
Saving time and money
JC Penney has been willing to cede some functions once seen as
central because TAL can do them better and more cheaply. With
decisions made at the factory, TAL can respond instantly to changes
in consumer demand: stepping up production if there is a spike in
sales or reducing it if there is a slump. The system links the
manufacturer directly to the customer.
If TAL's New York and Dallas design teams come up with a new style,
its factories can produce 100,000 new shirts for a test run within
four weeks. After analysing sales data for a month, TAL - not JC
Penney - decides how many of the new shirts to make and in what
colours. Because TAL manages the entire process, from design to
ordering yarn, it can bring a new style from the testing stage to
full retail roll-out in four months, much faster than JC Penney
could on its own.
With this process working well, JC Penney and TAL cooperation
expanded into sales forecasting. JC Penney's sales forecasts were
not always correct, sometimes overestimating the number of shorts
they needed by as much as two months' worth of sales. TAL stepped
in to forecast what JC Penney stores would need each week from
TAL's headquarters. TAL receives sales data directly from the
stores, and responds by ordering more fabric and increasing
production where needed. JC Penney provided TAL with goals for how
often store stocks should be replenished, then let TAL do the
rest.
TAL expects in the future to be able to deliver individual
assortments to each store, for example, jeans from Cambodia, with
Thai shirts and underwear from Bangladesh.
It took a long time for JC Penney to become convinced of the merits
of this sort of arrangement. TAL began by proposing to take over
restocking JC Penney's warehouses. After years of patient work,
dealing with internal resistance in JC Penney and some pitfalls
along the way, TAL is now designing and testing new shirts and
delivering them directly to all of JC Penney's stores in the United
States. As a result, inventory levels have dropped.
TAL will not, however, take over all decisions. Future plans are
for collaborative planning, forecasting and replenishing, but JC
Penney would not accept a third party making its buying decisions.
Thus, the buying part will be kept by JC Penney or will be done
collaboratively. TAL, however, has fully taken over the sourcing
decisions.
Tougher market needs
This TAL-JC Penney arrangement shows technology is becoming more
important to companies that want to sell into retail channels in
the United States.
Manufacturers wishing to emulate their success should note that
investment costs are high. TAL invested US$ 12 to 15 million to
develop and perfect the system over about five years.
Small and medium-sized firms can hardly develop such a system on
their own. Instead, they must find ways to team up with big
suppliers like TAL, as garments are still sewn in different parts
of the world. While TAL does not outsource operations, many large
trading houses based in Hong Kong (China) and Singapore do. They
look for progressive manufacturers that could be integrated into
the evolving value chain.
Across all categories of merchandisers, requirements to reduce the
cost of goods while increasing quality and improving the
time-to-market require the use of advanced technologies. This
requirement is increasing every year and will put additional
conditions on companies wishing to sell (or continue to sell) in
the United States. Moreover, "homeland security" and other customs
protections are another factor that will force companies to adopt
new technologies to be able to deliver their goods efficiently in
the United States.
 | With new technologies, manufacturers receive "point-of-sale"
data almost immediately from the shop. They can produce and ship
replacement stock without waiting for new orders from the
retailer.
Photo: Photodisc |
As more requirements come into force, importers will have to comply
in order to avoid unpredictable delays at the United States border.
Companies that have been proactive will have a clear advantage.
Within a few years, the use of advanced technologies to support the
supply chain, including radio frequency identification (RFID) tags
and vendor-managed inventory - the TAL case - will become the norm.
Retailers in the United States are experimenting with these
technologies. Over the next few years, companies can differentiate
themselves by adapting these technologies and making them available
to their customers.
But, as with all technologies, that advantage will last only a few
years.
This case study is drawn from ITC's book, Get Connected:
E-applications in the textile and clothing sector
. To obtain a
copy, visit ITC's e-shop at http://www.intracen.org/eshop.Steve Hirsch is a Washington-based freelance journalist, writer
and editor specializing in international news. He is the former
Editor-in-Chief of UN Wire
.