TAL Q3

Q3.

Based upon the Porter’s value chain model, describe how the use of VMI has enabled TAL to turn the sequential value chain to an integrated and synchronous value network with its major customer such as JC Penny.

Vendor-managed inventory(VMI) is an operating system to enhance the supply chain efficiency. Manufacturers (E.g.TAL) can receive the real time stock data of their distributors or retailers (E.g. JC Penny). Then, manufacturers help the distributor to maintain their inventory level and place a order to replenish inventories. By using VMI, the stock-out situation can be minimized. The cost of inventory management can be decreased. It can maintain a better relationship between manufacturer and distributor. Also, the key function of VMMI is shared risk. Therefore, the popularity of VMI is increasing. Many industries start using VMI including apparel industry - TAL.

Porter’s value chain model includes primary activities and support activities. For the primary activities, it includes inbound logistics, operations, outbound logistics, marketing and sales, services. For support activities, it includes procurement, human resources management, technology, infrastructure. Below will show the changes of value chain for TAL and its customer, JC Penny.

Traditional model (sequential value chain)

	Inbound Logistics	Operations	Outbound Logistics	Marketing and Sales	Services
TAL	1)Base on the past data to do forecast on raw material 2) Purchase and receive raw material (E.g. Fibre) from suppliers 3) Retain some material in the warehouse for urgent usage	4) Manufacture the product base on JC Penny design and manual 5) Place the finished product in systematic way	6) Pack the required finished product to retailer’ s warehouse	-NA-	-NA-
JC Penny	7) Base on their own past data to do forecast 8) Place an order with the forecasted result 9) Receive garment from their warehouse	10) Perform inventory control and management 11) Place a replenishment orders to avoid stock-out	12) Repack finished product in a suitable way 13) Distribute t to designated retail store	14) Do promotion and place advertisement 15) Sale the product to customer	16) Receive feedback from customer to do enhancement

 

The traditional value chain model for TAL and JC Penny performs in a sequential step (the number above). The long flow is from upstream to downstream in one direction .Poor coordination is arised due to lack of communication.  It increases the chance of stock-out and lower the customer satisfaction rate. It has a long replenishment cycle and leads the bullwhip effect which is  a trend of larger and larger swings in inventory in response to changes in customer demand.

Integrated and synchronous model

 

	Inbound Logistics	Operations	Outbound Logistics	Marketing and Sales	Services
TAL	Buy and receive the raw material	Manufacture the product base on JC Penny design and manual	Package and transport to retailer’s warehouse	Based on the front-line sale information: TAL predict new demand trend Give useful suggestion or idea to JC Penny	Allows a hands off approach for JC Penny
JC Penny	-NA-	-NA-	Re-pack and distribute to retail stores	Marketing, merchandising and selling end consumer	Receive feedback from customer and focus on after sales service

Now, the traditional value chain model has changed to integrated and synchronous value chain model with VMI. TAL can receive the real time sales information from JC Penny by using Point of Sales. The information exchange and the collaboration among different parties help TAL to do forecasting on the demand and automatic order placing to their retailers.

There are some benefits for TAL and JC Penny by using VMI, they are :

´  Reduce the level of inventory (for Downstream-JC Penny)

´  Shorter replenishment cycles (for Downstream-JC Penny)

´  Sensitive to the inventory level avoid back order (for Upstream-TAL)

´  Reduce time and cost (for Downstream-JC Penny)

´  Lower the inventory management cost

´  Less transaction cost.

References:

http://en.wikipedia.org/wiki/Vendor-managed_inventory

http://www.mindtools.com/pages/article/newSTR_66.htm