Introduction
American Apparel is a large clothing retail company based in the United States. As opposed to most either clothing companies in the U.S, American apparel had chosen to take on a vertically integrated production system. In a vertically integrated system, one company controls the entire supply chain and hence has the ability to dictate terms of production and distribution to its own advantage. Vertical integration however presents a higher scale of complexity in operations management for the parent company. There are a number of costs to keep in mind and to strike a balance against in such a system. Grant (2010) outlines the scopes of vertical integration under three general groups; vertical scope, product scope and geographical scope.
In American apparel, the three different levels of scopes had been adopted prior to their major growth success. On a product scope, they had expanded their lines of merchandize beyond cotton t-shirts and knitted clothes. At the initial start of the firm, Charney had managed to expand the firm’s geographical scope to a collective 34 stores operating in different parts of the United States. By 2009, this had drastically increased to 260 stores in 19 countries.
The company’s vertical scope of integration was almost complete. They managed all other levels of the chain apart form the production of yarn which they had to purchase from cotton farmers before processing it into the greige fabric.
Advantages of the system to American Apparel
The advantages of vertical integration are seen when the costs associated with alternative methods of production are avoided. In American Apparel’s case, the administration costs may have been expected to sear higher than those incurred from market contracts with foreign suppliers. This is especially due to their working principles of providing their target market with quality products. To achieve this, they hired quality control supervisors to assure that the quality standards set were consistent for each batch of t-shirts produced.
Nevertheless, the greatest edge that American Apparel had over its competitors was its ability to quickly respond to the market. Due to this factor, they managed to offset the heavy administration costs that came with their supply chain system by adding a price premium for the higher quality of their brands.
Another angle for appealing to its different market bases in different locations was using prevalent cultural trends. The use of national differentiation as described by Grant (2010) allowed American Apparel to find a niche within each country that it set up its retail stores in. For instance, using movie theatre marquees for their storefronts, in regions where the cinema culture was thriving proved successful.
The contrast between American Apparel and Eastman Kodak
Eastman Kodak has similarly managed to take off a product scope through market diversification. Unfortunately, their shift into digital imaging software with Easy Share was slightly misguided. They based their strategy on the idea that hardware manufacturing was not bound to evolve as fast as the software industry. This made them cut down their investments in a lower competition industry and enter a highly competitive one that they had not previously gained a dominant position in. This exposed them to the threat of substitute products and new entrants especially online-based apps which are amongst the five forces that shape competition in any industry (Porter, 2008).
In sharp contrast American apparels’ success was propelled by the fact that they had managed to identify a sub-niche in the t-shirt market that had not been exploited. They then zoned in on this market which was part of their initial business hence forming a distinct identity in the industry of their core business. Eastman Kodaks strategy should hence have been to pioneer the innovation of digital camera’s hence setting itself apart as a lead innovator for the commodities which was facing the threat of substitute product from smart camera-enabled phones.
References
Grant, R.M. (2010). Contemporary strategy analysis. West Sussex, UK: John Wiley & Sons.
Porter, M.E. (2008). On Competition. Boston, U.S: Harvard business school Publishing Corporation