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    E-management - Suppliers Become Closer Partners


    © International Trade Centre, International Trade Forum - Issue 3/2005

    Photo: Photodisc

    When big buyers and their suppliers use information technology in the clothing business, it is more than just adding computers to conventional commerce. It usually means suppliers take on new responsibilities.

    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.