Value chain is the value that is finally received by the customer. People can get confused with supply chain which is the actors involved to get the product from manufacturing to the customers. Value chain on the other hand looks at the increase in value from one player to another until it reaches the customers.
To understand which activity has the largest percentage of its operating expenses let us review the following table.
Table 1:
S.NO
Items required for producing and selling a woman’s Polo shirt
Price in $
% composition to total company cost
% composition to total retail price
1
Cotton-blend fabric from France
6.8
23.0%
4.4%
2
Fabric for placket and vent
0.99
3.3%
0.6%
3
4 buttons, including 1 extra
0.12
0.4%
0.1%
4
Thread
0.09
0.3%
0.1%
5
Labels
1.1
3.7%
0.7%
6
Hang tag
0.4
1.4%
0.3%
7
Waste fabric
0.85
2.9%
0.5%
8
Labor
11.05
37.4%
7.1%
9
Packing materials
0.17
0.6%
0.1%
10
Shipping materials to factory; shirt to store
5
16.9%
3.2%
11
Hand-embroidered linen bag
3
10.1%
1.9%
Total company costs
29.57
100.0%
19.1%
12
Wholesale markup over company costs (company operating profit)
35.43
22.9%
Wholesale price
65
41.9%
13
Retailer’s markup
90
58.1%
Retail price
155
100%
The above table shows the cost per material, cost levied by wholesaler and retailer. The table also show the composition of each material to its total operating cost or company cost and further conducts a vertical analysis to analyse the value increase as it transitions from the production to wholesaler to retailer and finally to the customer.
The above table shows that there are four items that have the highest contribution to the production and selling cost and they are labour cost, cotton from France, shipping finished goods from factory to store and finally the packaging or hand embroidered linen bag from highest to lowest respectively. Among these the labour cost is the highest showing there is need to reduce the cost of labour by either finding cheaper labour force or incorporating machinery and technology with ROI analysis.
Support Activities required for Kp MacLane
As Kp MacLane also sales polo shirts, they require all the components mentioned in the table 4.1. Raw material, labour, logistics and sales packaging are seen to be the most important women polo shirt manufacturing. Look at the competitors such as Macys and Ralph Lawren, Kp MacLane should also study these aspect and understand its strength and weakness as compared to their competitors. Quality cotton, logistics expert, human resource to handle labour hiring, retaining and development and advertising should be activities that Kp MacLane should focus on.
Consumer purchasing habit is shifting drastically to online transaction especially bags, shoes, frocks etc. as compared to other goods. "Last year clothes and accessories accounted for a fifth of e-commerce, estimates Cowen, a financial-services firm; far higher than their 8% share of total retail spending. Cowen expects Amazon to surpass Macy’s as America’s top clothing seller this year (The Econonmist, 2017).” Thus online sales focus should be added into the mix as well.
Value chain activity for competitive advantage to Kp MacLane
As seen in the cost segregation in the manufacturing and selling of polo shirts, the fundamental aspect for gaining competitive advantage is to reduce the cost of production. With so many strong competitors in the scene there is a red ocean situation and Kp MacLane should strategize to find a blue ocean for its competitive advantage.
The cost statement shows labour and raw material force to hold the highest cost ratio followed by shipment logistics and marketing. Therefore outsourcing is one way to reduce cost of production. However the shipment cost should be analysed.
The garment and textile quotas that were place in 1974 to limit exports to the United States and European Union expired in 2006 and China has been one of the major producers in these segment and cheaper source of product (M2 Presswire, 2006). Kp MacLane could move its production base to either China or manufacture in the home country itself with better machinery to reduce the cost.
Most companies have their own outlet. As see in table 4.1, the largest value addition is seen in the top off value from wholesaler and retailer i.e 41 and 58% of the total value. If MacLane can bypass these and directly meet the customers then they can reduce the price drastically and price differentiation could help it to compete.
Another way to add to this is the online marketing and sale. As many marketing has shifted to online and customers seem to move to this change, online sales can reduce the number of outlets as well as the cost for logistics and reduction in the retail price.
These are some way in which Kp MacLane can increase its competitive advantage.
References
M2 Presswire. (2006, May 12). Research and Markets: Company profiles of the major T-shirt and polo- shirt manufacturers in China. M2 Presswire; Coventry .
The Econonmist. (2017, February 9). Ralph Lauren and Macy’s tell a similar tale of woe. The Economist.
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Value chain is the value that is finally received by the customer. People can get confused with supply chain which is the actors involved to get the product from manufacturing to the customers. Value chain on the other hand looks at the increase in value from one player to another until it reaches the customers.
To understand which activity has the largest percentage of its operating expenses let us review the following table.
Table 1:
The above table shows the cost per material, cost levied by wholesaler and retailer. The table also show the composition of each material to its total operating cost or company cost and further conducts a vertical analysis to analyse the value increase as it transitions from the production to wholesaler to retailer and finally to the customer.
The above table shows that there are four items that have the highest contribution to the production and selling cost and they are labour cost, cotton from France, shipping finished goods from factory to store and finally the packaging or hand embroidered linen bag from highest to lowest respectively. Among these the labour cost is the highest showing there is need to reduce the cost of labour by either finding cheaper labour force or incorporating machinery and technology with ROI analysis.
Support Activities required for Kp MacLane
As Kp MacLane also sales polo shirts, they require all the components mentioned in the table 4.1. Raw material, labour, logistics and sales packaging are seen to be the most important women polo shirt manufacturing. Look at the competitors such as Macys and Ralph Lawren, Kp MacLane should also study these aspect and understand its strength and weakness as compared to their competitors. Quality cotton, logistics expert, human resource to handle labour hiring, retaining and development and advertising should be activities that Kp MacLane should focus on.
Consumer purchasing habit is shifting drastically to online transaction especially bags, shoes, frocks etc. as compared to other goods. "Last year clothes and accessories accounted for a fifth of e-commerce, estimates Cowen, a financial-services firm; far higher than their 8% share of total retail spending. Cowen expects Amazon to surpass Macy’s as America’s top clothing seller this year (The Econonmist, 2017).” Thus online sales focus should be added into the mix as well.
Value chain activity for competitive advantage to Kp MacLane
As seen in the cost segregation in the manufacturing and selling of polo shirts, the fundamental aspect for gaining competitive advantage is to reduce the cost of production. With so many strong competitors in the scene there is a red ocean situation and Kp MacLane should strategize to find a blue ocean for its competitive advantage.
The cost statement shows labour and raw material force to hold the highest cost ratio followed by shipment logistics and marketing. Therefore outsourcing is one way to reduce cost of production. However the shipment cost should be analysed.
The garment and textile quotas that were place in 1974 to limit exports to the United States and European Union expired in 2006 and China has been one of the major producers in these segment and cheaper source of product (M2 Presswire, 2006). Kp MacLane could move its production base to either China or manufacture in the home country itself with better machinery to reduce the cost.
Most companies have their own outlet. As see in table 4.1, the largest value addition is seen in the top off value from wholesaler and retailer i.e 41 and 58% of the total value. If MacLane can bypass these and directly meet the customers then they can reduce the price drastically and price differentiation could help it to compete.
Another way to add to this is the online marketing and sale. As many marketing has shifted to online and customers seem to move to this change, online sales can reduce the number of outlets as well as the cost for logistics and reduction in the retail price.
These are some way in which Kp MacLane can increase its competitive advantage.
References
M2 Presswire. (2006, May 12). Research and Markets: Company profiles of the major T-shirt and polo- shirt manufacturers in China. M2 Presswire; Coventry .
The Econonmist. (2017, February 9). Ralph Lauren and Macy’s tell a similar tale of woe. The Economist.