Toppy Fashion Designer

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Briefing:

GOAL – develop oversea market

Project target to “Differentiation Service” (may gain more revenue generation), add value (create collaborative partnerships) to buyers and suppliers for sustain the business in long term running. The company currently stays in “Lower Cost” position (cut cost), however higher operation cost is found and to be improving.

Use McFarlan’s Strategic Grid only: current is Support à after implemented, we will go to Factory à after implemented phase 2, go to Strategy (state Business / IS / IT is enough)

http://www.1000ventures.com/business_guide/crosscuttings/capabilities_corporate.html Current = Reproducible à After implement, Distinctive

Phase 1 mainly for e-procurement, so choose cost saving for competitive advantage is better, online design will be implemented in phase 2.

Business Strategy

Toppy

Asset Model:

- IT equipment

- Human Capital

Retail Stores

Franchise Trading

Cost Model

Revenue Model

Fashion Design selection and place customer order at seasonal meeting in HK

Fashion Design promote with market strategy

Enquiry material price and place procurement order.

Enquiry product’s price and place production order.

Delivery

Value

Manufacturer

Delivery

Delivery

Delivery

Suppliers

Fig. 1.4Current Business Model of Toppy

BUSINESS CONCEPT

This is a traditional fashion retail industry. Toppy sells fashion product with high quality to customers. Toppy negotiate lower cost with supplier and manufacturer. Furthermore, Toppy invest on hiring good designer, marketer and training the sales girl to attract more customers.

REVENUE MODEL

The revenue generates 70% from franchise trading and 30% from local retails. The company sells physical products through their retail stores. Also, the company sells products to franchise in other countries.

COST MODEL

The production runs in Traditional Supply Chain "Push" Model, the raw material suppliers are at one end of the supply chain. They are connected to manufacturers and distributors, which are in turn connected to a retailer and the end Buyer. Although the Buyer is the source of the profits, they are only part of the equation in this "push" model.

Toppy sources the raw material from suppliers and calculates the cost. When S&D approved the buyers’ order, the Production Line dept. focuses on lower cost sourcing in their manufacturers list.

ASSET MODEL

Toppy has six brand name and 300 outlets and many independent Toppy stores in worldwide. And the company own about 250 employees and stores in Hong Kong.

CAPABILITIES

Toppy has a good relationship with different manufacturers. The company has an ability to provide the economic scale of goods for buyer. It can get save cost of product to attract the buyer.

VALUE

The retail stores and franchisees have made the profit for Toppy. The reason is people like shopping in physical shop.

Internal Environment Analysis

Here is the Value Chain analysis of Toppy:

Support Activities

Firm

SCM, QC, Distribution, B2B, B2C and CRM

HRM

Recruiting, Motivating and Rewarding

I.T.

Production, Inventory, Shipping, Buying and Informative Website

Procure.

Two suppliers to take advantage of competitive prices

Primary Activities

Inbound Logistics

Operations

Outbound Logistics

Sales & Marketing

Service

Standardized specifications and

Lower cost raw materials

Lower cost manufacturing

and

Performance measures for QA

Centralize Distribution Channel

4P’s model

After-Sales Service

Fig. 1.3 Value Chain of Toppy

Inbound logistic

The company deal with activities like material handling, warehousing and inventory control, used to receive, store and disseminate inputs to a product. Toppy purchases raw materials from two suppliers in order to receive competitive prices, as well as the latest development. This allows Toppy to bargain for required prices of raw materials.

Toppy strictly follow certain specifications of raw materials for manufacturing around the globe. It helps to keep a consistent quality of the final products even it is manufactured overseas.

Operations

Toppy realized the need for outsourcing. The company receives roll stock from offshore suppliers and follows certain performance measures for the quality assurance. Then distribute the raw materials to manufacturer for production.

Outbound logistic

All finished products are distributed from Toppy’s warehouse to all customers. For oversea customers, the products distribute by ship.

Sales and Marketing

Toppy has developed strong advertising and promotional campaigns by developing and supporting their sales force through print ads and other visual media. The company believes that a brand provides a unifying set of values and attitudes. Toppy sells their products at local retail stores and sells to buyers in the seasonal meeting.

Services

Toppy provides numerous after-sales services. The company asks for comments, compliments and feedback on their Informative websites.

Industry Analysis

Porter’s five forces provide a framework that models an industry as being influenced by five forces. It is important to analyze the ability of Toppy to deal with these outside forces because the collective strength of these forces determines the ultimate profit potential in the industry. (Refer Fig. 1.2)

Industry Competitors

Rivalry among existing firm

Threat of new entrants

Potential Entrants

Suppliers

Bargaining power

Buyers

Bargaining power

Substitutes

Threat of substitute product or services

Strategic use

  • Common technology

Strategic use

  • Cost-effectiveness
  • Market access
  • Product Differentiation

Strategic use

  • Selection of supplier

Strategic use

  • Economic of scope

Strategic use

  • Buyer Selection

HIGH

HIGH

LOW

MEDIUM

Fig. 1.2 Porter’s Five Forces Model

THREAT OF POTENTIAL ENTRANTS (High)

The barriers for potential entrants are high due to the following reasons:

  • The products provided are not unique. The competitors will be attracted to an industry where the production process is easily learned.
  • Start-up costs are low for new businesses entering the industry. The less commitment needed in advertising, research and development and capital assets, greater the chance of new entrants to the industry.

THREAT TO SUBSTITUTES (Medium)

  • The threat of substitutes is medium because of economic of scope. Toppy provide diversity of products which are target to various customer segments – ages, income, occasional dressing, etc. It required a long time for development.
  • The fashion trend and customer behavior are the factors influence the brand loyalty. Like Korea entry the HK market growth faster in the past few years.

BARGAINING POWER OF SUPPLIERS (Low)

The bargaining power of the suppliers is low or weak for the garment industry due to the following reasons:

  • The factory in China has provided cheap fixed cost. However, Vietnam and Cambodia also are developing their industry in recent years. Those governments provide more benefit to attract the manufacturers. This causes that lower bargaining power of suppliers.
  • Some manufacturers are selling their own brands in their own outlet stores. But there are not many of these stores and thus very low market penetration. The sales through the outlet stores are not high enough to fulfill the production capacity and thus making it difficult to integrate with supply chain.

BARGAINING POWER OF BUYERS (High)

  • Buyers nowadays are becoming more and more proactive. Moreover, they are going directly to off-shores manufacturers, cutting the middlemen. This gives them an opportunity to integrate backwards into the supply chain.

COMPETITIVE RIVALRY BETWEEN EXISTING PLAYERS (High)

Rivalry among existing garment industry, specifically in fashion, is high or intensive. This is due to the following reasons:

  • Market growth – the retail industry has had a fast market growth in past 2 years in HK. The company must produce near fashion style but high quality, which it will have to sell to the market which would result in increased rivalry.
  • Fixed Costs – fixed costs are rising. In order to attain the lowest unit costs, the company must sustain higher bargaining power from suppliers and decrease operation cost.
  • Product Differentiation – the company provides a wide selection of styles and colors for providing a marvelous selection for customers of all ages. The majority of customers are buying high-cost product such as Jessica. This cause higher level of rivalry among the companies.

Competitive Force Analysis

(1) BUSINESS PROCESSES

The purchasers deal with a lot of fax, email and paper work while negotiating price with suppliers. They store the suppliers’ information for comparison by using word processor. It is highly demand of their working experiences and requires higher salary to keep their retention. The company would lose assets due to their knowledge is one of the human capitals. Also, the operation would be disorder in a short time once they left the company.

S&D communicates with each production line and deals with the costing and pricing calculation. It is time consuming for S&D to server all buyer and bottlenecks of deal with bulk ordering in a short period. The turnover in S&D is higher due to high pressure. The cost is increased for training new employees.

(2) CUSTOMER BEHAVIORS

  • Buyers waste time on travel to Hong Kong for each seasonal meeting;
  • Time consuming for buyers fill in order form at seasonal meeting;
  • Buyers notify S&D to change their order after the seasonal meeting;
  • Time consuming for waiting the reports to make ordering consumption;
  • The group of buyers is fixed due to non-changeable design. The fabric and color of products may not suitable for the buyers’ perspective due to their country weather or culture is different from Hong Kong;

(3) COMPETITIVE ADVANTAGE

Positive

Negative

Industry

High bargaining power of supplier

reproducible capability can be bought or created by competitors

No IS Strategy reduce the competition

Value Chain

Lower cost at sourcing materials and manufacturing

Lack of IT support for dealing with price control

Advertising the latest fashion, news and promotion events on Informative Website

Using the outmoded technology for handling the customer order

Intense customer relationship supports by e-marketing strategy (e-subscription, e-

Facing high operation and transaction cost

Speed of order fulfillment at both buyers and suppliers are lower.

(4) STRATEGIC ALIGNMENT

Impact on Business Operations

High

Low

Factory

Strategic

Toppy

Support

Turnaround

Low

High

Impact on Strategy

Fig 1.5 McFarlan’s Strategic Grid

Toppy currently stays in “Lower Cost” position, however higher operation and transaction cost is found and to be improving continuously. The company requires streamlining the operation for increasing speed of order fulfillment among suppliers.

For long term sustainable advantage, the company better target to “Differentiation Service” for more revenue generation. Add value on both buyers and suppliers for improving order accuracy and create good Buyer-Seller relationship.

Also, the company better to review the group of customers to target, recognizing the different market segments have different needs. Gain more potential customer segments to increase their revenue from franchise trading.

For IS Strategy, the company should consider utilizing IT support to deliver more value on their value chain and create collaborative partnerships. For managing the customer relationship to benefit the company, create B2C e-business is proposed for increasing communication between customers. For improving the streamline process in supply chain and customer ordering, using B2B e-business to deliver value to customers.

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