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Made to
Measure: Invisible Supplier From
By GABRIEL
KAHN On a Saturday afternoon in August, Carolyn Thurmond walked
into a J.C. Penney store in On Monday morning, a computer technician in This speedy process, part of a streamlined supply chain and
production system for dress shirts that was years in the making, has put
Penney at the forefront of the continuing revolution in The new process is one from which Penney is conspicuously
absent. The entire program is designed and operated by TAL Apparel Ltd., a
closely held TAL is a no-name giant, the maker of one in eight dress shirts
sold in the
Instead of asking Penney what it would like to buy, "I tell them how many shirts they just bought," says Harry Lee, TAL's managing director. TAL was born in 1947 after Chinese border guards blocked Mr.
Lee's uncle, C.C. Lee, from importing state-of-the-art weaving machines to Now, TAL is negotiating a deal to manage Brooks Brothers'
shirt inventory the same way it does Penney's. For Lands' End, TAL stitches
made-to-measure pants in These retailers have been willing to cede some functions once
seen as central because TAL can do them better and more cheaply. Rodney Birkins Jr., vice president for sourcing of J.C. Penney
Private Brands Inc., describes as "phenomenal" the added efficiency
Penney has been able to achieve with TAL. Before it started working with TAL
a decade ago, Penney would routinely hold up to six months of inventory in
its warehouses and three months' worth at stores. Now, for the With decisions made at the factory, TAL can respond instantly to changes in consumer demand: stepping up production if there is a spike in sales or dialing it down if there's a slump. The system "directly links the manufacturer to the customer," says Mr. Birkins. "That is the future." Retailers across the board have sought to lower the amount of inventory they hold, both to cut costs and to reduce goods sold at a markdown. That means working more closely with suppliers. Wal-Mart Stores Inc. has pioneered a system that opens its computer system to suppliers all over the world. Suppliers can track how their items are selling overall and even at individual stores. They can anticipate demand and communicate better with Wal-Mart buyers. But Wal-Mart still handles all the warehousing and distribution, and it stops short of allowing its suppliers to place their own orders. The degree of power Penney turned over to TAL is radical.
"You are giving away a pretty important function when you outsource your
inventory management," says Wai-Chan Chan, a
principal with McKinsey & Co. in Penney, too, was reluctant, and took the step only after building up trust over years of working with TAL. But Penney now has let TAL take the arrangement a step further: designing new shirt styles and handling their market testing. TAL's design teams in Because TAL manages the entire process, from design to ordering yarn, it can bring a new style from the testing stage to full retail rollout in four months, much faster than Penney could on its own. The system in effect lets consumers, not marketing managers, pick the styles. "When you can put something on the floor that the customer has already voted on is when we make a lot of money," says Penney's Mr. Birkins. Like the retailer, TAL changed its methods in response to
economic pressures. TAL has seen the price of its shirts fall almost 20% over
five years as low-cost textile manufacturing exploded in Learning by Failing TAL learned the supply-chain business the hard way. In 1988, a
But the experience started Mr. Lee thinking about a way to do
business more efficiently, by linking his Asian factories directly with Around the same time, TAL had begun supplying Penney with
house-brand shirts. Mr. Lee saw that Penney was holding up to nine months of
inventory, twice what most competitors kept. "You didn't have to be a
genius to realize you can do a lot better than that," he says. Visiting
Penney headquarters in Mr. Birkins was skeptical. But he saw that savings could be huge. It cost Penney 29 cents a shirt to have its warehouse workers sort out orders in the U.S. TAL could do it for 14 cents. And such a system would let Penney respond more quickly to consumer demand. This had been a problem for the retailer, which often needed months to restock hot-selling styles. Stores ended up missing sales of these styles while holding less-popular models that they had to move at a discount. Mr. Birkins pitched the idea to his Penney bosses. It met a brick wall. Each division found fault with it. Executives who ran warehousing said the plan could prove disastrous if TAL didn't deliver on time or to the right stores. Technology people worried that the computer systems wouldn't be compatible. The plan sat for several years, until a senior Penney manager began a push to improve efficiency by reducing inventory across the board. "We used that as our wedge," Mr. Birkins says. "That turned it." It took TAL a year to set up the system in There was one clear downside: If a store sold out of a style of shirts, it couldn't quickly get some more from a regional warehouse. So TAL agreed to sometimes send shirts to stores by air freight -- a costly step but one TAL would take to keep the customer happy. Soon Mr. Lee saw another opportunity. Penney's sales forecasts often missed, sometimes overestimating shirt needs by as much as two months' worth. Sales forecasting is one of the most difficult tasks for retailers, yet one that's increasingly important to get right as inventories get tighter. Penney blames the problem on older-generation software. Convinced he could do better, Mr. Lee pitched an even more outlandish idea: Why not let TAL staff in
Mr. Lee was operating on a simple premise. If he could get sales data straight from the stores, he could take the consumer's pulse and respond instantly, ordering more fabric and increasing production where needed. Penney buyers would just be in the way. "I can do all the pieces of the puzzle," he says. On 'Autopilot' He hired dozens of programmers, who designed a computer model to estimate an ideal inventory of house-brand shirts for each of Penney's 1,040 North American stores, by style, color and size. Penney provided him with goals for how often stores' inventory should be replenished, then stepped back and let him do the rest. "It's on autopilot," says Mr. Birkins, "and TAL is the autopilot." TAL's computer model began to outpace the Penney system still used for the retailer's other merchandise. For some shirt models, stores could now keep half a much in stock as they had previously. The system hasn't been flawless. Ming Chen, a manager at TAL's Sitting in his Mr. Birkins says Penney is seriously considering the idea. --Dan Morse contributed to this article. Write to Gabriel Kahn at gabriel.kahn@wsj.com1
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![[Harry Lee]](penneys_files/image003.gif)
On the weekend Ms. Thurmond made her
purchase, the same