Both forward and backward integration is a form of vertical integration that the corporate merges the upstream and downstream player of the corporate supply chain. The difference between forward integration and backward integration is that while the company of the former one merges with the downstream players, the latter merges with the upstream players.
Push strategy (manufacturer driven)
In East and South East Asia, the supply of low-cost and abundant labour had previously brought advantage to the area as the manufacturers in those areas are being relied to produce for the global demand.
The passing of the North American Free Trade Agreement (NAFTA) in 1994 has brought Mexico as the low-cost manufacturing base to the US. This diluted the share of the Asian Big Three from two-third of total apparel imports in the US to 27 percent.
Hong Kong, among the big three, had enjoyed the prestigious role acting as the commercial gateway to China. It receive the orders from around the globe and allocate production to manufacturing bases in China and other Asian countries according to labour cost and quota availabilities.
Pull strategy (buyer driven)
However, the advantage was threatened when China entered the WTO and eliminated all textile quotas. This means that manufacturers in China can directly cope with the US to receive orders and produce for it.
Hong Kong manufacturers have strived to develop counter-strategy to shift its expertise to higher value-added activities. One counter-strategy is shifting from OEMs to OBMs. Another one is capitalizing on their current full-package supply model, providing and coordinating all activities in the production, trade and financial networks to their foreigner buyer.
TAL appeal was more inclined to the method of generating backward linkages with their raw material suppliers for reliable sourcing network.
Producers driven vs buyers driven
Producers driven value chain is a value chain that large, transnational producers play a pivotal role in coordinating production networks (Gereffi & Memedovic, 2003).
Buyers driven value chain is a value chain that large retailers, marketers and branded manufacturers play an important role in setting up decentralized production networks (Gereffi & Memedovic, 2003).
The differences between two value chains are that the upstream and downstream player tends to play an important role in producer-driven and buyers-driven value chains respectively. Besides, the producer driven value chain tends to happen at capital-and technology- intensive industries while the buyer one tends to develop at labor-intensive, consumer-goods industries (Gereffi & Memedovic, 2003).
Producers driven
|
Buyers driven
|
|
Pivotal Actor
|
Large, transnational producers
|
Large retailers, marketers and branded manufacturers
|
Industries being prone to adopt various value chain
|
Capital-and technology- intensive industries
|
Labor-intensive, consumer-goods industries
|
Table 1. The difference between Producers driven and Buyers driven value chain
OEM vs OBM
Original equipment manufacturing (OEM) is a form of subcontracting that the supplying produce the goods based on design specified by buyer and sold under the brand name of buyer (Gereffi & Memedovic, 2003).
Original brand name manufacturing (OBM) is an upgrading that the goods are all designed, produced by and sold under the brand name of manufacturer (Gereffi & Memedovic, 2003).
The major difference between OEM and OBM is that while there are at least two firms involved under OEM, only one at minimum is involved under OBM.
OEM
|
OBM
|
|
Design
|
Buyer
|
Manufacturer
|
Production
|
Manufacturer
|
Manufacturer
|
Sold under the brand name
|
Buyer
|
Manufacturer
|
Minimum number of firm involved
|
2
|
1
|
Table 2. The difference between OEM and OBM
X-Docking
The term X-docking refers to the movement of goods directly from a manufacturing plant to the customer with little or no material handling in between. Cross docking not only reduces material handling, but also reduces the need to store the products in the warehouse.
By adopting the X-Docking system, garments produced are firstly barcoded and packed at TAL’s factories. Besides, TAL applied the Garment On Hanger (GOH) Programme which assist customers to select the most suitable hanger to maximize their selling opportunities by displaying garments in the most attractive manner. Later when they arrive at customers’ distribution centers, they can simply be scanned and sent to truck directly and then transport to stores quickly. In this way, customers can be benefited from reducing inventory holding cost and production lead-time.
Collaborative Planning, Forecasting & Replenishment (CPFR)
CPFR is a system which aims to enhance supply chain integration by joint practices between suppliers and customers. It seeks a cooperative inventory management by collecting the information sharing between suppliers and retailers in order to plan replenishment quantity to satisfy the customer demand.
When there are any inaccuracies from the designed replenishment model based on sales data and market trends, CPFR system will send a warning to TAL and customer automatically and remind them to change the appropriate replenishment quantity. This system can allow TAL to work in close relationship with its customers and reduce merchandising and inventory cost.
Made to Measure (MTM)
Made-to-measure can be referred to personal tailoring. It is a program aims to help customers to offer tailor-made apparels. After choosing the desired fitting and style of garment followed by measurement of tailor at the store, the order will be sent to TAL directly for manufacturing. The personalized garment can be delivered directly to the customer in the US within three weeks.
Vender Managed Inventory (VMI)
A business model which the manufacturer is responsible for maintaining the customer’s inventory level. The manufacturer has access to the distributor’s inventory data and is responsible for generating purchase orders.
By employing this advanced program, customer’s inventory is monitored and managed by TAL directly. TAL does the demand creation and inventory replenishment based on point of sales information of customers’ stores. Then, TAL will deliver the products directly to each store without consulting its customers. It is estimated to at most 15 percent of inventory and operation cost can be saved for each customer.
Electronic Data Interchange (EDI)
EDI is a communication system used by companies to exchange information and documents such as purchase orders, invoices, shipping notices etc. EDI has replaced the traditional information sharing methods like fax machine and mailing list because it is more responsive and cost-effective. TAL started to adopt the EDI standard in 1990 for trade document processing with its customers and to optimize business process with its suppliers.
Reference:
Gereffi, Gary & Memedovic, Olga 2003, The Global Apparel Value Chain: What Prospects for Upgrading by Developing Countries, United Nations Industrial Development Organization, Available form: <http://www.unido.org/fileadmin/media/documents/pdf/Services_Modules/Apparel_Value_Chain.pdf>. [11 April 2014]
Cross Docking in the Warehouse, n.d.. Available from: <http://logistics.about.com/od/tacticalsupplychain/a/cross_dock.htm> [11 April 2014]
Seifert, Dick 2003. Collaborative Planning, Forecasting, and Replenishment: How to Create a Supply Chain Advantage. AMACOM: A division of American Management Association .[11 April 2014]
Brooke, Simon 2007. Just how personal can you get, Available from: Financial Times. [2008-10-09]
Definition of Vendor Managed Inventory, n.d.. Available from: <http://www.vendormanagedinventory.com/definition.php> [11 April 2014]
Electronic Data Interchange, n.d.. Available from: <http://www.electronicdatainterchange.org/> [12 April 2014]
TAL Group, 2006. INNOVATIVESUPPLY. Available from: <http://www.talgroup.com/en/workingwith_tal.html>[12 April 2014]
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