Polo Ralph Lauren and Luen Thai Using A Collaborative Supply Chain Integration In The Apparel Chain

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Answer - 1

Introduction

Luen Thai is the highly rated garment manufacturing companyoperating with thousands of employees for partners all over theworld. According to the case, Luen Thai was regarded as pioneers ingarment production since 1980s and became leaders in the garmentindustry because of its supply chain management system. Ruentex,having a large contribution to the Taiwan economy, ran four businessdivisions. The international quality certifications proved itsconsistent and excellent textile products, and it provides thebusiness partners and customers an efficient and integrated supplychain system for satisfaction. Polo ran brand businesses with multi-channels such as wholesale, outlet and high end collection. As thecase mentioned in page 51 line 3, Polo did not own factories tomanufacture products.

Textile and Garment Industry

The international firms with high level of economies tried to dointernational business expansion in both inbound and outboundlogistics. As the textile market ascends and descends sharply andvaries with time to time basis, the firms meet a lot of risks andhave to search the ways to raise the profit margins starting fromsuppliers' efficiency to the retailing.

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(http://www.rfidarena.com/2011/6/23/100plus1-mobile-

rfid-applications-in-apparel-supply-chain.aspx)

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As shown in the figure, textile manufacturing is a step by stepprocess which needs a sound, synchronized and efficient supply chainsystem. International investors search a way to reduce the productioncost which could raise the profit margin. Thus, they do partnershipswith the economically developing countries which have low labor costsand abundant raw material supply. But, Multi Fibre agreement1 limitsthe quotas of import and export from developing countries to protectdomestic production. But, this agreement was eliminated on 31stDecember, 20042.

Changing Dynamics

After Quota was eliminated, textile industries become morecompetitive and fierce. In order to be competitive in internal valuechain, the organization needs to perform required activities with alower cost than its major competitors as a way of differentiatingitself. (Judy McKay, 2004) As the case mentioned, in addition to thecost, there were additional risks to be considered such as inventoryrisk, product diversity, speedy replenishment capabilities and asupplier's customer service. Thus, post-quota environment wasunfavorable for silo operations in contrast collaborative supplychain system is by no means inevitable.

Collaborative Supply Chain

The garment firms started to consider the long term businessstrategy to counteract the rapidly changing turbulent marketenvironment. As part of strategy implementation3, synchronousapproach becomes an essential part of the business and collaborationbetween firms becomes popular. According to the case, Polo, Luen Thaiand Ruentex ran traditional supply chain system as being partners fora couple of decades. But, there are many pitfalls especially incustomer satisfaction and logistics management.

1 Multi Fibre Agreement: An international trade agreement on textile and clothing that was active from 1974 till 2004. The agreement imposed quotas on the amount that developing countries could export in the form of yarn, fabric and clothing to developed countries. (Source: Investopedia (http://www.investopedia.com/terms/m/multi-fiber-arrangement.asp))2 Source: Wiki (http://en.wikipedia.org/wiki/Quota_Elimination)3 The Open University of Hong Kong (2013) “International Strategy Implementation” in MKT B890 International Management Strategy, Hong Kong: OUHK (1-52)

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Driving Forces

Elimination of Multi-Fiber Agreement

The import and export quotas from developing countries todeveloped countries were limited by the governments of theeconomically developed countries especially in United States untilthe mid 2000s. Starting from January 2005, this agreement waseliminated and the textile industry got a huge impact on theelimination. According to a study conducted in Karnataka, India,volume and mode of exports should be changed in order to raise theprofit margins. Moreover, it can be concluded that there are manymarketing challenges such as pricing, delivery etc affecting thesmaller players instead the bigger players benefit from the quotaremoval (Ramanna Shetty, June 2013). Another study conducted by AzizElbehi in 20044 stated that significant improvement of apparelimports substitutes the domestic production in United States andincreased opportunity in Asian suppliers. Another study from TexasUniversity with regards to impacts of multi-fiber agreement removalon global textile and cotton trade mentioned that developingcountries especially China strengthened to gain larger market shareof the developed exporters. It also stated that after tradeliberalization, U.S cotton industry evolved from being a major cottonsupplier to its own domestic industries to larger cotton exporter(Xia, 2005). Thus, because of the agreement elimination, many Chinatextile industries including Ruentex, which becomes a strongerpartner for the Polo and Luen Thai, play an important role in thegrowth of the apparel market.

Price Pressure and Profit Margin Squeezing

Because of the trade liberalization, developed countriespreferred imports of the apparels rather than the domesticproduction. They set up international expansion strategies tooverpower others, and to fulfill this, they need to partner theefficient and reliable textile industries around the world. Thedeveloping countries have a great advantage of low cost labor,emerging market and abundant raw materials. The post-quota

4 https://www.gtap.agecon.purdue.edu/resources/download/1861.pdf?origin=publication_detail

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environment created a lot of opportunities for developing countriesinstead it hinders the quality production and efficiency of thegarment manufacturers of developed countries. As the nature of thegarment industry is the dynamic and risky, the price war becomes amajor threat resulting in reduction of the net profit margin. Thelarger firms tried to collaborate the supply chain management systemto raise the margin. As mentioned in the case, the key metrics inlogistics management were reducing time-in-inventory and transit, andincreasing efficiency along the logistics process. Thus, the firmsexpand their supply chain management system from second partylogistics to third party logistics, again from third part logisticsto fourth party logistics to counteract the price pressure and raisethe net profit margin.5

Opportunities for Polo

The brand marketer Polo Ralph Lauren has been partners withReuntex and Luen Thai for about 30 years and because of the efficientproduction and quality of the apparel, the collaboration was inprogress. Because of the diversity of the economic environment afterquota elimination, the firms united each other to build strongcorporate effective management system. As described in the case, LuenThai wants to tighten their supply chain system by furthercollaboration using "design-to-store" supply chain strategy as theirmain operating strategy. As the storage cost squeeze more of the netprofit as the market demand is always changing and the storage andcommunication become the major threats of the changing dynamics.During the earlier times of collaboration, the communication betweenpartners was so haphazard that the technologies were fragmented andunsynchronized. This leads to increased lead time6 throughout the

5 Anderson et al. (2011) posted that 3PL providers offer three competitive advantages: reduce cost, faster delivery, improved reliability (Source: The Open University of Hong Kong (2013) “Strategic Supply Chain Management" in MKT B892 Advanced Information Systems And Electronic Commerce Strategy, Hong Kong: OUHK (1-70)

6 Lead Time - The amount of time that elapses between when a process starts and when it is completed. Lead time is examined closely in manufacturing, supply chain management and project management, as companies want to reduce the amount of time it takes to deliver products to the market. In business, lead time minimization is normally preferred. (Source: Investopedia (http://www.investopedia.com/terms/l/leadtime.asp))

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procedure. As described in the case, Polo gained its major apparelsupply from Ruentex which could provide a variety of textile productsand international division of labor. Polo itself had designmanagement and development system, and processing and post-processing(design, manufacturing, sales and marketing) was done by Luen Thaiwhich built their business units by horizontal integration7. But, thewhole process was communicated by mailing and via fax leading tolengthen the lead time of the supply chain system. Through thetightly collaborative business strategy, there will be muchimprovement in inbound and outbound logistics which can effectivelyreduce the lead time for the operations. Moreover, according to thecase, Polo did not have a manufacturing factory and relied on thepartners. So, they demand more integrated complete supply chainmanufacturing system. At that moment, Ruentex used SAP system forbetter and effective integration between business and customers. Inaddition, Polo had a strong partnership with Ruentex and Luen Thaifor many years, and the business bonding lead them more collaborativeand entrusted business partners.

Infrastructural modification

Polo reviewed the previous supply chain system as a sequentialstep-by step process and delayed in the progress of the whole system.They wanted to upgrade and implement more collaborative synchronoussupply chain system. Thus, as the case mentioned, they implemented awide array of technologies like Electronic Data Interchange (EDI) tosupport their supply chain management system. However, thetechnologies were fragmented to use between partners' collaboration.Since there was technical insufficiency, the partners could not runthe operations in a parallel time to time basis. In 1998, Poloapplied second supply chain initiated in order to reduce portfolio ofthe suppliers and strengthen the partner relationship. Furthermore,Polo faced three major industry factors as mentioned in the case suchas differentiation, stock management and time management. Theupgrading of the supply chain management system was insufficient to

7 Horizontal Integration: The acquisition of additional business activities that are at the same level of the value chain in similar or different industries. (Source: Investopedia (http://www.investopedia.com/terms/h/horizontalintegration.asp))

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cope well with the changing tide. The major partner Ruentex used SAPsystem in order to upgrade their infrastructure with IT technology.

Design-to-Store (D2S) Strategy

According to Micheal Porter’s generic strategies, in order togain the competitive advantage, Polo needs differentiation of theirproducts from other apparel industries and a unique design andquality of the product is necessary to gain market positioning in thedemanding market. As mentioned above, Luen Thai directed more forservice-oriented activities to run more business to business. Thus,they implemented itself EDI standard of trade documents and ERPsystem for better value chain outcome. But, as ERP system wasinflexible and not much effective for inter-organizationalmanagement, it considered to transform their business from OriginalEquipment Manufacturer to D2S provider. This new technology providesthe partners for effective and efficient information transfer, andcommunication of information.8

Strategy Implementation

Polo initiated implementation of a number of inbound logisticswith Luen Thai to fulfill “scan and pack” order system. Even then,the outcomes were not satisfactory that stock and time managementwere still lacking of efficiency. As described in the case (Page 53),the three partners reevaluated and reconsidered better collaboration.Polo wanted Luen Thai to take responsibility of some extra areas ofthe supply chain system which met well with the revolution ofhorizontal integration of Luen Thai. Polo wanted to implement D2Sstrategy brought by Luen Thai, and tired to strengthen thepartnership between each other and between all of them. Moreover,they had worked together each other for some decades, and the trustand being well-known suppliers in the apparel industry kept theirintegration much stronger. Luen Thai share the Supply Chain Citywhere all the partners could share in the same platform for betterand faster information flowing. Moreover, to be cost effective, allshare Internet as the common media for the strategic planning. Luen

8 Case study of supply chain management at Luen Thai (http://www.ukessays.com/essays/business/supply-chain-management-at-luen-thai-business-essay.php)

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Thai provided XML system for design processing and furtherdiscussion. Furthermore, Luen Thai could integrate Advanced ShipmentNotice in order to know the departure time and delay if any betweenpartners.

Desired outcomes

Work efficiency

Traditional supply chain system gives the haphazard sequel inthe efficiency of the service provided to the customers. Aftercollaboration, the data were shared over the internet among thebusiness partners, Luen Thai, Ruentex and Polo. This reduced leadtime in transaction processing and increased work performance. Theoperating system was coordinated with the high tech computer softwareand the operation will be performed in time to time basisefficiently. As mentioned in the case, there was delay in theprocessing of shipment and order transactions, collaboration couldmanage the data traffic separately for different transactions.Moreover, batch ordering was a threat for the garment industries andcollaboration will ensure multiple small frequent orders. Inaddition, the firms were interconnected to each other via internetwhich was cheap which could lead to immediate cost efficiency.

Knowledge and Development

Collaboration led to the data and knowledge and data sharing ina limited boundary. As Luen Thai’s core business includes sales andmarketing, Polo can gain knowledge of the garment market especiallycustomer behavior. Moreover, Luen Thai developed design departmentfor better design management system. Here, Luen Thai had advantage ofsharing design ideas with Polo creating an innovative and attractivedesign. Furthermore, Luen Thai wants to play horizontal integrationproviding utmost service between businesses and between business andcustomers. Polo can outsource some of its outbound logisticsfunctions to Luen Thai as its subsidiary.

Conclusion

Collaboration of business firms in B2B or B2C models create astronger competitive advantage especially if IT technologies were

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integrated. Because of the major driving forces, Polo had no choicebut to unite in order to build stronger collaboration between thebusiness partners. However, it had lost some operations of supplychain while collaborating with Luen Thai, yet it needed to make tightbonds with its major suppliers to be able to remain competitive inthe crisis.

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Answer – 2

Introduction

With changing market tide and technological revolution, thecollaboration needs a lot more customizations with the IT technologyin order to provide utmost service and best relationship to thecustomers. Traditionally, the international firms used variety ofsupply chain systems for customers’ satisfaction and efficientresource management. Many international firms are trying to expandtheir production in developing countries for cost effectiveness.After trade liberalization and Multi-Fiber Agreement elimination, theinterest of most firms was rested upon the developing countries withfavorable conditions leading to squeezing of the margins and morefierce competition.

Traditional Supply Chain to Collaboration

As mentioned above, the firms had a supply chain systemcustomized by the type of business and the consumers' demand.Previously, the firms used a lot of paperwork for inbound logistics,production and outbound logistics. The forecast driven supply chain,commonly used as traditional supply chain system, showed a number ofproblems outweighing the benefits. Bullwhip effect9 and forwardbuying (Judy McKay, 2004), resulting from the batch orders that thecustomers accustomed to the traditional supply chain. Poor lead timemanagement and stock management as side effects of forward buying dueto batch orders from the suppliers.

9 Bullwhip effect: refers to a trend of larger and larger swings in inventory inresponse to changes in customer demand, as one looks at firm further back in thesupply chain for a product. (Source: http://en.wikipedia.org/wiki/Bullwhip_effect )

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As time goes by, firms tried to consider integration of the ITtechnology and with the successive development of ERP system, thesupply chain management system especially lead time management andcost reduction seemed to be improved from the traditional ones. Yet,there were still limitations in inter-organizational collaborationusing the Inter-organizational Operating System (IOS) and ElectronicData Interchange (EDI).

Collaborative supply chain system is another step of thedevelopment of supply chain system. It proves a betterinterconnectivity and access to the logistics system. Bycollaboration, it could upgrade the logistics system from 3PL to 4PLservices10 which could give more access to the customers,manufacturers, suppliers and related information of the products.

Partnership towards collaboration

Polo, Ruentex and Luen Thai, partnership for a couple ofdecades, ran their own business models in traditional manner.Changing politics of the industry became the major driver tocollaborate between the partners to be more competitive in the niche

10 The Open University of Hong Kong (2013) “Strategic Supply Chain Management" in MKT B892 Advanced Information Systems And Electronic Commerce Strategy, Hong Kong: OUHK (1-70)

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orklifts.com.au/index.php/about/blog-post/what_is_the_bullwhip_effect_understanding_the_concept_definition)

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market. But, it was difficult to combine the supply chain system intoone since the ERP system is inflexible and the partners took separateroles in the whole supply chain processing. However, after multiplediscussions, the partnership becomes reality with much differencebetween the traditional supply chain system they used to practice andcurrent collaborative system.

Differences: Traditional Supply Chain System Vs Collaboration

Operational Concepts

Polo and Luen Thai reviewed the supply chain management systemthey were running. After the elimination of the Multi-FiberAgreement, they understood to re-evaluate the traditional supplychain system in order to get efficient manufacturing anddistribution. Although they have integrated their individual systemswith EDI and IOS, the collaboration was weak as before since thecommunication is through heaps of paper, mailing, faxes and telephonecalls. Besides, the ERP system was inflexible and the integrationprogress was limited. This led to poor lead time management resultingin the delay in the ordering, design management, manufacturing anddistribution. After collaboration into design to store (D2S) system,all the systems are inter-related either B2B or B2C businessoperations. Moreover, Luen Thai built a Supply Chain City to supplyapparels, design and development to all the partners in one location.Through internet communication, it could run horizontal integrationbetween business firms including inbound logistics and feedback toRuentex and outbound logistics including the research anddevelopment.

Porter’s Generic

According to Porter’s generic strategy model, in order to form acompetitive business, one must follow differentiation or focus orcost leadership.

Focus

The main threat of the apparel industry is the continuouschanging of the customer taste. As mentioned in the case, if theproduct introduced was not delivered or sold out in a limited amount

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of time, there will be an increase in cost of inventory storage whichleads to losing cost differentiation from others. In traditionalsystem, organizations used to order batch by batch. As the order wasdone by forecasting from the assets of the past, the firm might notfulfill the customers’ need. Instead the customers’ confidence on theproduct positioning might fall down. In addition, there is one moreadditional risk, bullwhip effect, which can lead to forward buying ofmore and more apparels during promotions. This could lead to severecrisis resulted from the poor supply chain management system.However, after collaboration into D2C and Luen Thai providing SCCoperations, the partners were able to access the customers’ natureand information on time to time basis. Moreover, the availability ofdata regarding orders, inventory levels and shipment schedules allowthe partners to access in the same platform and manage therequirements in a short period of time, creating customer and serviceoriented organization.

Cost Differentiation

The apparel competitors were challenging in the pool of razor-thin margins with some degree of quality and brand control. Theprincipal advantage of using IT system in the supply chain system isto reduce cost provided that the corporations use the Internet as theroute of communication. The step by step development of thetraditional supply chain system to IT integrated supply chain systemto collaborative system reduce the cost although not proportionatelyshowing the effectiveness of IT integration. However, one drawback ofIT implementation especially ERP system is rigid and early EDI systemis expensive if used in private network (Judy McKay, 2004). Incontrast, using IT system in the supply chain management indirectlyaffects the cost of the operating system. As mentioned in the case,Polo used Advanced Shipment notice itself as the first step toimplement scan-and- pack system. Although the operating cost wasreduced, there were pitfalls in collaboration which was filled by D2Sservice proposed by Luen Thai. There, not only the processefficiencies but also the inventory management was improved resultingin lowering of the inventory cost.

Product Differentiation

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Using the traditional supply chain system will result in massproduction of the garments since the forecast is only done byreviewing the assets from the past time records. Thus, the designswill be less varied and less unique. Moreover, the post-quotaenvironment had a potential to create a price war which drove thefirms to target more on price rather than the quality. Using EDIsystem and co-ordination with the partners, Polo and Ruentex, letLuen Thai produce the efficient design and logistics processmanagement system.

Information and Technology

Traditional supply chain provides batch information and decisionmaking is done depending on the information obtained after analyzingthe collected information. Thus, there was much delay on the responseon the customers’ and suppliers’ conditions. However, collaborativestrategy gives the information to all the business partners at thesame time in a common platform. As mentioned in the case, D2S servicesystem allows the partners to share the related information andapplication of XML standard proves them to access the components ofsupply chain system and the databases. Thus, collaboration providesreal-time information upgrading the standards of their supply chainmanagement.

Conclusion

All things considered, the collaboration of the three partnershas faced many difficulties, and through step by step discussions,they could create a more powerful partnership. The implementationstrategy was positively different from the traditional supply chainsystem. Polo, Luen Thai and Ruentex, all yield the criteria of thePorter’s generics of competitive advantage in the garment industry.

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Figure: Generic (Competitive) Strategies byMicheal Porter

(http://www.learnmarketing.net/generic.htm)

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According to Porter’s value chain analysis, the partnership fulfillsthe primary activities and supportive activities of the value chainsystem through collaboration, creating a wide margin.

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Figure: Porter’s Value Chain Analysis

(http://en.wikipedia.org/wiki/Value_chain)

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Answer – 3

Introduction

Luen Thai is regarded as the high rated major supplier of USapparel firms and won many certificates with its major business ofmanufacturing, inbound logistics and sales and marketing. With thedevelopment of technology and elimination of textile quota system, itcould upgrade the operating system in B2B and B2C services throughsome steps. They could create a competitive advantage from otherapparel competitors with the timely development of collaborativesupply chain system.

Design-To-Store (D2S) Services

The main functional collaboration of the partners is via D2Sfacility. CEO of Luen Thai focused on the service-oriented activitiesrather than inefficient and costly traditional supply chain system.As mentioned in the case, they wanted to upgrade themselves from themanufacturer to supply chain service provider. However, the ITtechnology especially EDI, not specific for the private use, was noteffective for inter-organizational purpose, and had to adjust morewith internet and related technologies to achieve collaborationsuccessful.

Process Efficiency

In times, traditional supply chain system did not provide timelyinformation concerning the order, design, manufacturing and shipping.This leads to impaired management of the inventory and distributionto the Polo’s main business unit. Moreover, Luen Thai could show Poloa notable value chain in the supply chain system from design tologistics. Thus, the collaboration allows Luen Thai to get moreportions in the primary activities of value chain analysis model. Inthe past, most of the design process was done by Polo which was laterlinked with Ruentex and Luen Thai for the final steps of the detaildesign. However, those connections were mostly done by the faxing,telephone and mailing, and in case to change the design, the wholeprocess became chaotic. After collaboration, Luen Thai has to takeover the design process. Luen Thai had sufficient human resource to

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operate the system, but at first the idea of collaboration was amajor constraint. However, the CEO built Supply Chain City (SCC) inorder to create an efficient connectivity between partners. Moreover,they used XML system11 for more detailed knowledge of the designprocessing, shipping, ordering and customers’ complaints in a real-time basis. Here, Ruentex only had to supply the fabrics availableand types of raw materials to be used. This step was simultaneouslyachieved while the design teams of Polo and Luen Thai were sharingabout design development. According to the case, this could reducemore of the final product price for about 20% of the original cost.

Rationalize Supply Chain

Luen Thai used a series of supply chain systems to be accustomedwith the changing demands of the partners. However, as they werehistorically pioneers in yielding the technology, they quicklyadapted to the changes. As mentioned above, they wanted to do a moreservice-oriented approach on the textile industries running ahorizontal integration. They first proposed D2S model to use insteadof Original Equipment Manufacturer (OEM) which was used as a strategyfor use in traditional system. D2S requires a common platform forthree partners with adequate finance and resources. It built SupplyChain City (SCC) which invited the upstream partners to share theinformation to support the development of Luen Thai. Then, in orderto get point to point integration with closed partners withrelatively low price, it used Web in XML system. Creating a privateERP for three partners was costly that there might be no differencesin the cost with or without IT integration. Then, Luen Thai adoptedVMI12 as it became a manufacturer in the new collaboration. Polo alsoadopted Advanced Shipment Notice where the information was sent

11 eXtensible Markup Language – a markup language capable of designing electronic documents that can be transferred on the web (The Open University of Hong Kong (2013) “Strategic Supply Chain Management" in MKT B892 Advanced Information Systems And Electronic Commerce Strategy, Hong Kong: OUHK (1-70)

12 Vendor Managed Inventory: The manufacturer receives electronic data (usually viaEDI or the internet) that tells him the distributor’s sales and stock levels. The manufacturer can view every item that the distributor carriers as well as true point of sale data. The manufacturer is responsible for creating and maintaining the inventory plan. Under VMI, the manufacturer generates the order*, not the distributor. (Source: http://www.vendormanagedinventory.com/definition.php)

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electronically to the Luen Thai and it was also integrated into theVMI system to produce the estimated time of delivery. The real-timetracking of the goods was done via internet.

Demand management

Traditional supply chain management system operates on theforecasting of the previous data. Customers and businesses order inbatches in a less frequent manner. As the nature of the garmentbusiness is highly fluctuating, demand might also be differed fromtime to time resulting in bullwhip effect or forward buying showingimpaired demand management. In this case, bullwhip effect was mainlycaused by impaired in lead time management, misperceptions offeedback and time delays. In times, there were more stocks in theinventory resulting in promotions or sales or discounts leading toreduction in the profit margins.

Figure: Bullwhip Effect (Source:http://en.wikipedia.org/wiki/Bullwhip_effect)

VMI provides the information related to the inventory and directlylinked to all the partners especially Luen Thai and Polo. As a partof D2S system, information management platform could reduce the costreduce the information distortion, and the partners could be able toaccess a large amount of data in a real-time situation resulting in

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efficient demand management system. Research and development is anessential part of the marketing strategy for more productdifferentiation13 among major competitors especially in the field ofdesign development.

Automate Design Function

The more the demand is known, the better the design idea andcreativity is developed. In the earlier times of partnership, Polowas responsible for the self design management system. Traditionalcombination let Luen Thai order the desired design and amount, Polodraw and create as ordered and Ruentex for final matching with thetype of fabrics. This multi-step approach increases lead time andreduces the supply chain efficiency. In the merge of collaboration,using Computer aided design (CAD) had helped because not only it canreduce design time to spend but also it needs less people to beinvolved. It was mainly important in choosing the most efficientmeasurement to cut fabrics, and with the help of virtual models, itcould show how the clothing will fit and move to do modifications andadjustments.14 Moreover, design orders in between partners could beseen over the internet and could be able to choose the type offabrics most suitable.

Improvement of Logistics

The important area to be considered in supply chain managementsystem is the logistics system: inbound and outbound logistics.Theoretically, the supply chain orientation shifts from a productpush notion ideally towards a demand pull notion (Judy McKay, 2004)which could be helped by the IT integration. The improvement of the

13 Customer Oriented Marketing Mix Strategy can be divided into 4 compartments (4P)namely Product, Price, Promotion and Place (Source: http://kalyan-city.blogspot.com/2010/05/marketing-marketing-mix-4-ps-of.html)

14 CAD Software: The Many Uses for Computer-Aided Design by Katie Neilsen

(http://cad-software-review.toptenreviews.com/cad-software-the-many-uses-for-computer-aided-design.html)

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logistics system lessens the errors especially the quality andquantity differentiation of products.

Figure: Demand and Supply Chains: The Value Catalyst (Source:http://www.emeraldinsight.com/journals.htm?articleid=846913&show=html)

According to the case, Luen Thai used in-house logistics firm, CTSIlogistics, since it targeted to be a third-party logistics serviceprovider and at the same time, expert garment supply chain industry.Using IT such as bar coding and RFID (Radio-Frequency Identification)for the items aids the logistics system to be more efficient, butLuen Thai has not implemented such sophisticated intervention.

Conclusion

CEO of Luen Thai has a strong vision to make necessary step andmanagement in the necessary period. Luen Thai provided the utmostservice to its suppliers and end consumers in the verge of the highdemand market with IT integration, going forward.

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Answer – 4

Introduction

Polo and Luen Thai had been partners since 1980s. With changingtide, the partners tried to strengthen the efficiency of the supplychain system with the help of the IT technology. With much differencein the aspects of the ingredients of the supply chain system, theyhoped they could create a strong market composition amongcompetitors. Unlike the previous traditional supply chain systemwhich showed a scattered haphazard less efficient management system,the customer oriented collaboration not only gave the greatersatisfaction but also allows stronger partnership of the jointbusiness.

Traditional Supply chain

Polo mainly used product oriented traditional supply chainsystem which had many leaks and breaks in the system. As mentioned inthe case, Polo's core business ran with three major functions: designand development, manufacturer management and stock handling. The rawmaterials were obtained from Ruentex, major fabrics supplier withvariety of textile and garment fabrics. The distribution was via thewholesales and outlet stores including Luen Thai.

First Supply chain Effort

In order to stay competitive, Polo enhanced the blueprint forthe new supply chain system for the three partners with separatedistinctive roles. But, the outcome was not too satisfactory sincethe supply chain system implemented provided sequential activities.Here, the apparel supply chain was done by various value addingprocesses which reduces the efficiency over time. Thus, sequentialapproach of the partners especially Polo and Luen Thai was not goaldirective which was to achieve more marginal profits. Even after theintegration of technologies including EDI, the operating system amongpartners is so fragmented that the effectiveness and efficiencies ofthe IT integration was lagging because of the point-to-pointcommunication of the partners instead it improves the intra-organizational supply chain system.

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IT over the supply chain

Scan and pack ordering system after the emergence of the market pressures with Advanced Shipment Notice replenish the collaboration with Luen Thai, but the supply chain system did not have a concrete effort to build a strong collaboration. In fact, they need a real-time integration between B2B and B2C services and third party logistics management might be the solution to the problem. As the case described, Polo had idea of building collaborative integration across each dyad and also the whole triad. But, they have implementedthe system which can fulfill intra-organizational integration but notinter-organizational integration.

Design-To-Store Service

The proposal of Luen Thai over the partnership, design-to-store,showed a more collaborative supply chain management system. Being amanufacturer and retailer, Luen Thai wanted to provide service-oriented activities in horizontal integration. Luen Thai itselfcommitted a greater role in the entire supply chain15, and showed itsway of integration in a real-time access of the whole supply chain byall the partners. One of the most important requirements of theultimate collaboration is having partners who possess a set ofcommonly defined set of goals or objectives (Luis Benavides, 2012).Here, Luen Thai applied a shift of traditional supply chain system(Original Equipment Manufacturer) to collaborative approach (D2Sprovider).

Technical implementation

Implementing a private network between organizations is costlyand Polo and Luen Thai had been aware of it. Thus, Luen Thaiimplemented a background for operating system (Supply Chain City)where Polo and Ruentex can share their information in bothdirections. Here, Polo's design team and Luen Thai employees can co-ordinate each other to share design ideas and to link with the idea15 Case study of supply chain management at Luen Thai (http://www.ukessays.com/essays/business/supply-chain-management-at-luen-thai-business-essay.php)

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of choice of fabrics from Ruentex within a limited amount of timethrough XML system. In addition, Polo could integrate AdvancedShipment Notice which it started running during the first part ofcollaboration era via internet. Moreover, Luen Thai implemented CTSIlogistics to conduct business electronically and enhanced tradesthrough internet. The partners used the same media Internet Web toconduct the activities of the venture for cost efficiencies.

Benefits of Polo

Polo, originated from the U.S, after collaboration with theRuentex, a Taiwan firm, and Luen Thai, whose headquarter is in HongKong, resulted in a lot of advantages either technical or marketbackground. After collaboration, Luen Thai had evolved from productbased manufacturing to the service oriented manufacturing. On theother hand, Polo did not have manufacturing factories, but yet itsbrand name and market position worldwide. The global marketingstrategy of Polo was seemed to combine strengths of the entire supplychain process, and Luen Thai played an important role in thedevelopment of the market giant in garment industry. Polo gainedmarket information of the retailers of Asia including Luen Thaisubsidiaries which reflects the customers’ behavior and could makestrategic planning of the future challenges. Moreover, development ofdesign department benefits Polo indirectly by diversity of designideas which could meet the likes of the Asia customers. In addition,it can be said that Polo made a wise decision to build strongerconnection with Ruentex and Luen Thai which had a firm infrastructureand resources. As mentioned in an article (Luis Benavides, 2012), allthe firms had grounds to strengthen the partnership though not all,leading to create a long term collaboration.

Impact of Collaboration

Polo’s revolution after quota elimination affects the supplychain system that they previously implemented as their main service.Since the supply chain system was ineffective inter-organizationally,and to have process efficiency, necessary implementations were donefocusing some areas that were thought to be breached.

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Process efficiency

The most important outcome of supply chain management is processefficiency and effectiveness. In traditional supply chain system, theoperating process has many errors starting from ordering to designand distribution. This can lead to delay in the distribution andtransport finally leading to increase inventory cost and theoperation will be at a loss. Collaborative supply chain managementsystem directs the whole process into synchronous operation and eachand every business unit run their business in their separate role andresponsibility. In this case, the major constraint in the old supplychain management system mainly rests on the shipping delay and orderadjustments. With real-time management of the process of D2S servicesand tracking facilities, retailers and end consumers can adjustordering and distribution channels. The services of the collaborationwill provide the customers’ full satisfaction, and this could raisethe value-addedness16 leading to have larger profit margin.

Infrastructural strength

Another important impact on the tight collaboration isstrengthening of infrastructure including in the structural andfunctional strength. Any weakness of one firm could be covered oreven the advantage of another. Ruentex built a major fabric supplierand Luen Thai switched its strategy to be more customized. Luen Thaihad a strong sense of marketing and better knowledge on research anddevelopment providing the feedback information of the customers. Polocould build competitive advantages by allies’ strength. Furthermore,their integration, although not collaborative in the past, was mainlyachieved by trust and service they provided each other. With mereimprovement, Advanced Shipping Notice and scan-and-pack system, itwould be difficult to achieve large scales of economy.

Supply Chain System

16 Value-Addedness – The enhancement a company gives its product or service before offering the product to customers. Value added is used to describe instances where a firm takes a product that may be considered a homogeneous product, with few differences (if any) from that of a competitor, and provides potential customers with a feature or add-on that gives it a greater sense of value. (Source: Investopedia http://www.investopedia.com/terms/v/valueadded.asp)

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To be a competitive business, the basic supply chain system isessential for global firms. After integration and collaboration, muchinformation regarding the venture was shared among partners and canbe accessed in time to time basis. The whole process is operating ina unit in textile manufacturing for Polo. Information flow is rapidand less time consuming leading to reduction of lead time. Decisionmaking process was in a collaborative way and the demand managementis not chaotic.

Conclusion

For business like Polo, tight collaboration is necessary toyield an efficient supply chain system. The collaboration ispositively co-operative and in progress. However, because of thiscollaboration, the original design development of Polo was lost. Itwill be right to say that Polo, with chief supply of design anddevelopment, manufacturing and inventory management, switched todifferent image which prioritize brand building and marketing.

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Benavides, L., Eskinazis, V.D., Swan, D., (2012) Strategy: Six Steps toSuccessful Supply Chain Collaboration, [Online], Available:http://www.supplychainquarterly.com/topics/Strategy/20120622-six-steps-to-successful-supply-chain-collaboration/ [Quarter 2 2012]

Total pages - 18

Total word count – 6252

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