What are the benefits to retailers of adopting TAL’s VMI system?
The TAL VMI system is beneficial to retailers because they can make replenishment inventory decisions on behalf of consumers. The VMI system also allows retailer to initiate purchase order transactions. Under normal circumstances, the buyer would have to initiate such a transaction. Through the VMI system, buyers lose control over crucial resupply decision (Farhoomand 5).
Such decisions are then assumed by the retailer. Moreover, the financial responsibility of the buyer for the inventory can also be transferred to the retailer. There is also the issue of reduced costs. Most supply chains are faced with the key challenge of demand volatility, and this erodes both product revenues and customer service.
Many retailers find the VMI system attractive because it reduces demand uncertainty (Farhoomand 6). VMI dampens the valleys and peaks of demand. Orders almost always arrive at the same time and as a result, the retailer can satisfy all the delivery requests simultaneously.
Is TAL’s VMI system a strategic resource for TAL?
TAL’s VMI system is a strategic resource for TAL because it has enabled the company to enhance its performance measure by delivery products on time. It has also allowed the company to execute different activities including ordering of products, manufacturing of the ordered products, and packaging and shipping, coordination between various departments as shipping, accounting, legal, and IT simultaneously.
Moreover, the VMI system has enabled TAL Apparel to shorten the supply chain and consequently, reduce the addition costs (Farhoomand 8). Besides, the system enables the company to maintain a centralized focus. There is also the issue of frequent communication of stock-outs and inventory, leading to savings in time and valuable resources.
When TAL Apparel adopted the VMI system, one of its leading clients, J. D. Penney, recorded approximately $ 2 million in annual savings (Farhoomand 8). In addition, the company’s inventory turnover rose massively to 35%, while there was a 5% in gross margins.
What are the obstacles that might prevent retailers from adopting TAL’s VMI system?
Although TAL’s Apparel has implemented its VMI system successfully, retailers might be a bit hesitant to adopt it for a number of reasons. To start with, the system would bring to an end the practice of forward buying and diverting. Through forward buying, retailers can pass along savings owing to significantly reduced acquisition costs.
The adoption of VMI system would also imply that the retailers lose control over taking of orders (Tempelmeier 81). For the successful implementation of the VMI system, it is important to have in place communication technology, computer platforms, as well as products tracking and identification systems.
Although such systems are likely to be found at the retailer end, a deficiency of the software system cannot be ruled out, and this would hinder the implementation process.
What can TAL do to overcome these obstacles?
If at all TAL intends to overcome the aforementioned obstacles, it is important for the company to educate retailers on the benefits accruing from adopting the VMI system. This will help to reduce any form of resistance related with its adoption.
Additionally, TAL needs to provide their retailers with the software system in order to overcome the obstacle. There are a number of such software systems available in the market and as such, Tal Apparel should not find it hard to implement the idea.
From the retailer’s perspective, what are the advantages and disadvantages of having a unique supplier of VMI services?
A retailer benefits from a unique supplier of VMI service by enjoying proper coordination of orders by various buyers. Since orders normally arrive simultaneously, the retailers can settle delivery requests in a timely manner. In the case of the retailer, product availability is a key parameter with which to determine service delivery.
The reason is very simple; a retailer will have lost a sale should a customer fail to find the desired products in the store. Such a loss is made worse if the customer also loses goodwill in the retailer (Franke 43). During planning, a retailer therefore depends on the supplier. A unique supplier of VMI service is more reliable and for this reason, the retailer is likely to benefit from higher revenues and hence, improved service.
In a VMI system, manufacturers often retain inventory ownership. In this case, they may desire to share this product inventory privilege with retailers. The idea is for the manufacturer to ensure that the end customer is reached by the product (Mishra and Ragghunathan, 445).
Manufacturers may also use inventory ownership as a way to include for example, top of the line fashion or watches to the retailer’s assortment in an attempt to increase the sale of their products. There might be a risk involved with such an arrangement on the part of the retailer because should they purchase such products, they may not be as profitable owing to their high value and low stock turn.
Moreover, the inventory holding cost tied to these items could be very expensive for the customer, with the manufacturer finding it cheaper. Consequently, the retailer suffers because he/she has to deal directly with the customer (Mishra and Raghunathan 446).
Farhoomand, Ali. TAL Apparel Ltd. Stepping up the value chain. Asia Case Research Center, 2004. Web.
Franke, Peter. Vendor-Managed Inventory for High Value Parts—Results from a survey among leading international manufacturing firms. Berlin: Berlin Institute of management, 2010. Print.
Tempelmeier, Horst. Inventory Management in Supply Networks—Problems, Models, Solutions. Norderstedt: Books on Demand, 2006. Print.
Mishra, Birendra and Raghunathan, Srinivasan. “Retailers-vs. vendor-managed inventory and brand competition.” Management Science, 50.4(2004): 445- 457. Print.