This weeks questions are based on the TAL case (red book). Please choose ONE question to answer:
1. In your opinion, what is TAL's most strategically important innovation with respect to the value chain? (why?)
OR
2. If you were managing TAL's IS strategy, what would you see as the main risks moving forward? (What would you do about this?)
As I said in the tutorial please comment on this post instead of creating a new post - makes things much cleaner for everyone. If there are any problems, please don't hesitate to contact me via email.
Week 3 Blog Answer Question 1
ReplyDelete1. In your opinion, what is TAL's most strategically important innovation with respect to the value chain? (why?)
For me,TAL's most strategically important innovation with respect to the value chain is the vendor-managed inventory (VMI). VMI is a program where the vendor forms the purchase orders based on the demand at the warehouse as well as the store. This innovation affects the primary activities of the value chain such as the inbound logistics, operations and outbound logistics.
The reason why it's one of the most important, if not the most important innovation for TAL is because of past experience with Damon Holdings Inc. in 1988, whom they purchased as a US wholesaler at the time. The poorly managed inventory control caused them a US$50 million loss. With the use of VMI, TAL would be able to keep track of its retail customers in management and supply chain control.
Another reason why it's important is because VMI results in convenience with TAL as well as their retail customers. The reason why it's convenient is because the production orders would be produced automatically and if the stock is low in a particular product at a store, TAL could track it quickly and therefore produce more of that product and deliver it to the store.
Question 1
ReplyDelete1. In your opinion, what is TAL's most strategically important innovation with respect to the value chain? (why?)
A value chain is a concept in business management that addresses the activities that create, deliver and support a company’s product or service ( Pearlson & Saunders,. 2010). In my opinion TAL’s most strategically innovation with respect to the value chain was providing Vendor- managed inventory (VMI) from point of sale.
VMI explained
VMI is a continuous replenishment program whereby the vendor created the purchase order based on real-time front-line sales information. Tal’s VMI from point of sale entails that when a customer make a purchase from its buyers’ shop, an order to replace the purchased item would be generated automatically and sent electronically to TAL who would replace the purchased items instantly.
Benefits of the strategy
Improved Out bound and inbound logistics:
•Made efficient the order processing process since orders were generated automatically following a sale from TAL’s customers’ shops.
•Reduced inventory for both TAL and its customers
•Shortened the replenishment cycle
•Cost saving due to reduced inventory and efficient order processing process. JC Penny one of TAL’s customers made an annual saving of US$2 million as a result of the VMI initiative
1. In your opinion, what is TAL's most strategically important innovation with respect to the value chain? (Why?)
ReplyDeleteThe value chain model separates a firms activities into two main categories; primary activities, or activities which involve production, movement and sales of products (where value is created), and support activities, or activities which allow the primary activities to function effectively. These categories are then further broken down, with primary activities including inbound logistics, operations, outbound logistics, marketing and sales, and services, and support activities including organisation, human resources, technology, and purchasing.
VMI
In my opinion, TAL’s most strategically important innovation with respect to the value chain is vendor-managed inventory (VMI). VMI is a ‘continuous replenishment program’, which allows TAL to receive real-time sales information from its retailer customers. TAL use this information to determine what a retailer customer has sold, and then organise for a replacement to be sent to the retailer customer.
Because the sets of activities in the value chain model are linked together and therefore affect one another, it is important not to focus information resources on a single activity, and instead apply these resources across many activities. VMI allows for information resources to be applied across many activities; this is where the strategic importance of VMI lies. This can be demonstrated by applying the value chain model to VMI.
Value Chain Model Applied
Inbound logistics: VMI provides TAL with accurate, timely information which can be used to form demand forecasts and anticipate what level of resources will be needed in the immediate future.
Operations: data on the specifications of an item of clothing are readily available in the VMI system, as TAL is producing ‘replacement garments’ requested by retailer customers. No decision making required.
Outbound logistics: replacement garments are grouped together by retailer customer, and packed immediately (possibly waiting for production if TAL does not already have the garment in stock) and shipped within days of receiving the order. Faster process from when order received and stock shipped.
Marketing and sales: VMI allows for low inventory stocks, for both TAL and its retailer customers, as stock can be quickly replenished when needed (less ‘back up’ stock required), which is important in the clothing industry with seasons and small ‘lifetime’ of product.
Service: VMI results in lower levels of service required by retailer customers, as order placing process is automatic and based on actual sales information.
Summary
VMI provides TAL with precise information about its retailer customers and their demand for TAL’s products. This information allows TAL to better understand their customers’ exact requirements, and add value to their product in providing improved production and delivery times (from time of order placing), reducing stagnant inventory, and providing continuous, automated stock replenishment (reducing effort required by retailer customers; no order placing). This is why VMI is TAL’s most strategically important innovation with respect to the value chain.
Week 3 Blog Answer: Question 1
ReplyDelete1. In your opinion, what is TAL's most strategically important innovation with respect to the value chain? (why?)
TAL
Textile Alliance Limited (TAL) is a garment division of the Company, owned by the Lee family, and was set up as a subsidiary of the parent Company. As the company grows larger, TAL took their opportunities to improve and manage their strategies by innovating their technologies. In my opinion TAL’s most strategically important innovation with respect to the value chain is the vendor-managed inventory (VMI).
Value Chain
The value chain is a very important to the company. It addresses the activities that create, deliver, and support a company’s product or service. Value determines the company’s competitive advantage and how well it can perform within the industry. It is very important to concentrate on the company’s value chain, finding ways on how to improve and maintain the best standards as possible. TAL took the opportunity and want to have a competitive edge amongst its competitors, by adopting VMI, replacing its old conventional customer-initiated process.
VMI
Vendor-Managed inventory (VMI) is a continuous alternative program where the seller/supplier creates the purchase orders based on the demand at the store or warehouse level. It also serve as the reveres replenishment tool where the vendor/supplier did the demand creation and fulfillment based on real-time front-line sales information. Time-efficiency is the main benefit of using VMI; it reduces inventory and shorter replacement cycles that makes the company more time and cost-effective.
Benefits of adopting VMI
By adopting VMI, It helps TAL to improve and focus deeply on its value chain. The VMI program affects the primary activities of the value chain such as the inbound logistics, operations and outbound logistics. There are number of benefits through this innovation, such as:
• TAL’s order processing method was made efficient, information sharing are generated automatically and processed through a centralized information system after each sale from shops.
• As mentioned before, it reduces inventory storage for TAL and it’s customers, and shortened replacement cycle.
• It also cut cost since inventories were reduced and there is an efficient order processing method.
• Tracking of products will be uncomplicated as inventory stocks are not much. Also, it will decrease the amount of unused and/or damage products, which will lessen the cost for the company.
• Profit and inventory turnover will be excellent
• Time and energy efficient, because of the fast and systematic process that VMI provided.
• Most importantly, the convenience and satisfaction of customers. The production orders would be produced automatically, which results to fast and well-organized transaction and business process.
This comment has been removed by the author.
ReplyDeleteWeek 3 Question 1:
ReplyDeleteIn your opinion, what is TAL's most strategically important innovation with respect to the value chain? (why?)
Vendor-managed Inventory (VMI)
VMI is I think the most strategically important innovation with respect to TAL's value-chain. Looking at the vendor-managed inventory, VMI is a program which optimizes the supply management through constant and continuous replacement of orders based on the demand at the store or warehouse level. VMI works as the manufacturer is made responsible in maintaining the distributor's inventory level and generating purchase orders. Having the vendor take control with inventory data, they can therefore, create demand and order fulfilment based on real-time front-line sales information.
VMI and Value Chain
Value chain in relation to the implementation of VMI has greatly benefited the primary activities of TAL's value chain specifically inbound logistics, operations and outbound logistics. Advantages include competitive advantage amongst the other companies in the market. The use of VMI was considered to be a ground-breaking success as it gave out unmeasurable benefits rooting from the reduced stock outs and lower level of warehouse inventory. The use of IT enabled value-adding services such as demand forecasting, product design, material sourcing, and test marketing, due to the real-time sales information at store levels.
Effects
TAL's innovation became strategically important to operations as information flow and production process is now being supported by a strong IT system. This lead to a blocked out competitors due to a high rise in their competitive advantage. This innovation became a source of differentiation compared to other services which enabled them to avoid a pure based competition to others. With their newly innovated system, value-adding services emerges for an increased customer and vendor satisfaction.
1. In your opinion, what is TAL's most strategically important innovation with respect to the value chain? (why?)
ReplyDeleteFirstly, ‘the value chain model addresses the activities that create, deliver and support a company’s product or service’ (Pearlson & Saunders, 2010, p. 57). Activities in the value chain are divided into two categories, primary activities and support activities, which are further divided into subcategories. Subcategories for primary activities are inbound logistics, operations, outbound logistics, marketing & sales and service. For support activities, organization, human resources, technology and purchasing are the subcategories distinguished by Porter.
Vendor-Managed Inventory (VMI)
In my opinion, VMI is strategically the most important innovation in TAL’s value chain for the following reasons.
• TAL was one of the first apparel manufacturers that started using the IS-driven VMI technology. By being early in the market, TAL could ‘lock in’ some of its customers through close buyer-supplier relationships and sharing of information. The latter would mean that a retailer chain would need to start from scratch if it would like to switch suppliers, i.e. TAL knows about the company’s customers and has learned to respond to their demands (high switching costs).
• Obviously, by implementing VMI, inventory levels were minimized and inventory turnover increased for TAL’s customers, leading to increased profits.
• For TAL, exclusive supply contracts from its retailer customers were gained in the product lines they provided VMI for, leading to “blocking-out” all competitors.
• The information gathered by TAL from its customers could be used to show potential customers the possibilities of VMI more accurately and convincingly.
• Using the VMI system produced spin-offs that were easier to implement than they would have been on a standalone basis, such as Made-To-Measure (MTM) manufacturing and the opportunity to vertically integrate design and marketing into TAL’s activities. Without the existing Information System and the fit between Business Strategy, Information Strategy and Organizational Strategy these innovations would have been extremely hard and costly to apply.
Below, the value chain effects for each subcategory are addressed.
Inbound Logistics: are entirely IS-driven, based on the information gained from customer’s stores. Raw materials are ordered based on customer demand for finished products through the VMI Information System.
Operations: apparel is produced based on point of sale information gained from the retailer’s stores. If there a shirt is sold, a new one will be manufactured.
Outbound Logistics: are coordinated through the information system. When the required apparel has been produced, it is delivered to the retailer as soon as possible.
Marketing and Sales: are not a main concern for TAL since it has locked in its current customers and can use the gathered information to convince potential new customers.
Service: service required is lower, because of continuous replenishment of inventory.
Organization: An organizational structure that focuses on change and improvements in the process is used, expressed by the department of organizational change.
Human Resources: workers are trained to be multi-skilled to make sure that one worker could fill an entire order.
Technology: a strong IT and information system is being used to perform TAL’s core business processes, which includes the VMI and MTM systems.
Purchasing: TAL supplies its own raw materials through its own spinning mills.
Week 3 Question 1
ReplyDeleteTAL Apparel Limited was a pioneer in technology development in what is traditionally considered to be a ‘low-tech garment manufacturing industry’. Beginning in the 1980’s substantial investments in its information and communications infrastructure, including research and development, would eventually pave the way for future innovations and capabilities. The most strategically important innovation with regards to the value chain, in my opinion, is the Vendor-managed inventory (VMI) program at point of sale.
Vendor-managed inventory (VMI)
VMI entails ‘continuous replenishment’ of inventory based on real-time front-line sales information. For example: When a customer buys a shirt from J.C Penney (one of TAL’s major retail customers) that sale is recorded not only in J.C Penney’s database but in TAL’s database as well so that an identical replacement shirt can be made and shipped back to J.C Penny’s.
Value Chain
VMI effects on Primary Activities:
- Inbound Logistics
VMI required an integration of the vendor and customer systems to some degree to enable real-time interchange of information. This integration accelerated order processing and facilitated a more accurate demand forecast. This ultimately led to reduced replenishment cycles and reduced inventory (an accurate demand forecast from TAL’s perspective meant that only a sufficient amount of raw materials are ordered from suppliers to meet current production demands).
- Operations
With VMI, product specifications were available in the system such a size, colour and design of a shirt hence production was streamlined.
- Outbound Logistics
Products were shipped to the retailers in less time than before.
- Sales and Marketing
VMI has created an opportunity for TAL to provide even more value to their customers through test marketing. In this instance shirts are designed in a variety of different colours and sizes, which are then made available to the market. Shirts that typically go into mass production depend on the sales analysis after a certain period of time. Additionally because of its in-depth knowledge of sales patterns and inventory performance TAL’s position is more favourable in engaging other customers in the retail business.
Question 1:
ReplyDeleteValue Chain
In my opinion, VMI is the most strategically important innovation with respect to the value chain. As we all known that value chain is a chain of interrelated business activities for a firm operating in a specific industry, it divided into two categories, one is the primary business activity that include inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). Second categories is the business support activities that include administrative infrastructure management, human resource management, technology (R&D), and procurement, therefore by successful handling this value chain, it could helps firm to create a competitive advantage.
VMI
VMI was a continuous replenishment program whereby the vendor created the purchase orders base on the demand at the store or warehouse level. It provides TAL with real-time information of what have been sold at the client store via POS, and then TAL’s computer can automatic placed to fills in the inventory for their clients. It benefits is that both party can reduce cost of carrying too much inventory. With VMI it also helps TAL to reduce the risk of inaccurate forecast sales by their client; VMI allows TAL to delivery their products with JUST-IN-TIME strategy, in which it prevents products from being obsolete.
How VMI affects TAL Value chain:
• Inbound Logistics – TAL’s computer automatic receive their customers order via POS.
• Operation – TAL can manufacture replenish garments for their clients.
• Outbound Logistics – TAL can immediate delivery replacement garments to their clients’ store.
• Marketing & Sales - It helps to increase sales by allowing TAL to easily introduce new products according to the current market, as they are normally not holding too much old fashion clothes.
• Service – By using VMI, TAL reduce service to serve their clients as the order are normally done automatically.
2. If you were managing TAL's IS strategy, what would you see as the main risks moving forward? (What would you do about this?)
ReplyDeleteThe use of the Vendor Managed Inventory (VMI) system as a continuous replenishment program which improves efficiency and reduces costs, has been ahead of the market and has lead to the TAL company’s success and has been the source of competitive advantage
There are 3 main risks to the system that need to be analysed and impacts prevented or minimized.
1. Competitors copying the system
By being an industry leader there is large and increasing risk of having other competitors copy TAL’s system and produce it at a lower cost and if they added additional benefits to the systems then the customers of TAL could change suppliers. There is a large risk as the VML system is a off the self Movex fashion system. If this was successful they would have decreased customer numbers and lose their competitive advantage.
A way to avoid this risk of competitors stealing customers is to stay ahead of the industry by having an information system that is innovative and efficient. This means the information system needs to be improved and invested in.
Also by building trusting relationships which TAL is doing, the switching costs have increased for customers to change suppliers
2. Viruses and Hacking
The whole TAL system is integrated across the world, from monitoring and ordering systems in stores, to placing automatic factory orders in any of the 11 factories worldwide they are all reliant on a well working and efficient systems.
There is a risk with the IS system for viruses or potential hackers entering the system, either unknown or known as TAL’s competitors in order to steal the valuable data collected from the systems especially direct from stores information. If this did occur huge failures could occur and the potential of substantial loss of earnings if the wrong amount of garments were made and sent out to customers and the reputation of the company is at risk.
To prevent this from happening the system needs to be updated with virus protection and a whole security system. This can range from password protection and firewalls and also monitoring of the systems so if something was to enter the systems this would be immediately known and could be protected.
3. Disruptions to the system
The company prides itself on a well working systems but in order for this happen changes and improvements need to be made in order to stay ahead of the competition and keep the systems working effectively. For this to happen the system or part of the system needs to be taken offline for the work to be done. Big considerations need to be made when taking down the systems is the disruption to the regular work practises. As the system is used worldwide there is the issue of time differences. When choosing a system customers look at the downtime of a systems and how big this impact will be on the business. If the system improvements are disrupting the customers business there is the potential that customers will move to a competitor if there system changes are less disruptive.
A solution to minimise this disruption by making changes and improvements at a low use time for example in the middle of the night. This may involve the workers making the improvements to the systems work at irregular times in order to decrease the disruptions to the customer. Making regular and shorter times when the system is offline rather than long outages can be more beneficial.
Overall there are risks to moving forward with the IS strategy but they can be overcome by analysing the risks and making preparations to minimize the impacts. The biggest risk is from competitors stealing TAL’s customers. Staying ahead of the market with the VML and information systems being innovative and a market leader can help sustain their competitive advantage.
- Jess Davey
Much better posts this week everyone! I enjoyed how you have not only identified the key points but have also done your best to explain them. Well done
ReplyDelete