TAL Apparel Limited: Stepping Up Value Chain
The case study will look at benefits offered by the introduction and use of the Textile Alliance Limited (TAL) Vendor Managed Inventory (VMI) by retailers. Also, the viability of VMI system as a strategic resource for TAL will be analyzed. Also, the obstacles that might stand in VMI’s way to adoption by the retailers will be identified during the case study. Also, the solutions to the identified obstacles will be proposed in the paper.
Vendor Management Inventory (VMI) is a continuous replenishment program whereby the Vendor manages inventory of distribution by creating purchasing orders basing on what the distributors have sold in their stores and warehouses; this creates demand based on information they have on the current sales.
In the Vendor Management Inventory, through a system called Electronic Data Interchange (EDI), the sales system of distributors and that the of the manufacturer are interconnected in such a way that the manufacturers are aware of the distributors sales in their stores and replace the same forehand, before the distributors could run short of supply.
The vendor managed inventory is an IT investment that connects different department, companies or industry through communication. The vendor (manufacturer), acts like the buyer in the Vendor Managed Inventory by creating the demand and specifying the delivery quantities sent to customers through the information system EDI (Ali, pg 5).
The Vendor Managed Inventory system has its benefits as follows: adoption of the system by retailers reduces the inventory; the distributors do not have to deal with a bulky amount of stock because the manufacturer is equipped with information of movement of sales and supplies only the goods that are out of stock.
Another benefit of the program is shorter distribution cycles; it takes only a short time for goods to be replaced by the manufacturer, this safest time.
Also, the system shortens the supply chains where there are no middle men, the goods move direct from manufacturer to the distributors, this eliminates unnecessary delays. Also, the system leads to a centralized forecasting system; both the manufacturer and distributors forecast together on the expected market changes and make unilateral decisions on how to handle them.
Also, the system leads to increased revenue to both the manufacturer and distributors through cutting costs on promotion and shorter distribution chains. Also, it is a system of priority in that goods that are out of stock or almost out of stock are given first priority during transit and packaging.
Also, it is a demand oriented method in that the goods that have a high demand are manufactured and supplied to the market as supply goes down to ensure continuity.
Also, relationship with down stream distribution channels is promoted where the manufacturer interacts freely with the distributors; this helps in improvement on the quality of the goods offered. This is because the distributors advice the manufacturers on how to improve the products which lead to increase in sales thus high revenue (Yao, Evers & Dresner, pg 43).
The Vendor Managed Inventory is a strategic resource for TAL; with its introduction, the company increased its sales and revenue, for example, when they purchased the American wholesalers in 1988, Damon Holdings, which was making, massive losses but with the introduction of the VMI the company made profits that was hard not to registere in three years.
There are obstacles to implementation of the VMI; they can be divided into two: sales forces and distributor forces. The sales forces are losses of control; the manufacturers feel they are no longer in control of their companies because they are directed by the distributors on what to produce and supply.
Another obstacle is the effect on compensation; this is where the sales department feels threatened because the payment depends on how much is sold and, therefore, on the VMI they are not in control of what is sold.
There is fear of loss of jobs; with VMI, some workers feel their jobs are at risk with the introduction of technology, for example, the salesmen might feel unwanted in the company. Another obstacle is skepticism; this is where people feel it will develop technical problems, which can lead to losses (Steffen & Jan, pg 96).
The distributor forces obstacles are forced inventory; this is where the manufacturers supply distributors with goods without consulting them first. Another obstacle is that there are no discounts, promotion or forward buying. The distributors fear being replaced as a result of forward integrations (Ali, pg 9).
The solutions to the above obstacles are transformation of the sales force; the sales force can be transformed to that of marketing where payment is on the number of new clients. Another solution is implementation of a pilot program with Vendor owned warehouses to ensure technical problem will not be encountered.
Another solution is the distributors to allow manufacturers to have a promotion in transition. The system should be extensively simulated offline before its implementation.
In conclusion, the VMI is a powerful tool of technology in the TAL which has helped the company to increase its sales. The program is a viable strategic investment of the TAL in that it increases its productivity. Also, the obstacles to the implementation of the VMI are provided with solutions. The VMI is an essential part of technology in today’s business; therefore, it should be embraced for use.
Farhoomand, Ali. Tal Apparel Limited: Stepping up the value chai. Hong Kong: University of Hong Kong, 2004.
Steffen & Jan Hollman. Scorecard in Vendor managed inventory. Munich: Grin Verlag, 2007.
Yao, Evers & Dresner M.E. Supply chain integration in vendor managed inventory. Amsterdam: Elseiver, 2007.