li & fung - slides

Li & Fung:Growth for a Supply-Chain

Specialist

Agenda

1. Introduction2. Li & Fung’s Supply Chain

Structure and Practices3. Value Chain Analysis and

Discussion on Practices4. Li & Fung’s Challenges

and SWOT Analysis 5. Discussion on Solutions

History

1906‐1970

The 1970s

The 1980s

The 1990s

• Established in Guangzhou in 1906.• Moved the HQ to HK in 1937.• Transformed to garment-trading company in 1949.

• Victor & William Fung back from the US.• Reformed the family business from a local trading company to a regional sourcing agent.

• Moved beyond a mere sourcing agent. • Began to work with clients from product concept to planning whole production program.

• Provide efficient supply chain management.• Consolidate services and value added.

http://www.youtube.com/watch?v=UzwmlbAS8dg

Company Background

The Li & Fung Group

Trading(product sourcing) Retailing Distribution, marketing

and logistics

Role: Regional Souring Agent

Trading Broker

Global Supply Chain Manager

Source: Li & Fung Official Web page: www.lifung.com

Complete Service Chain

Source: Li & Fung Official Web page: www.lifung.com

Customer-centric Structure

Finance Accounting HR IT

Product Division A

Product Division B

Product Division C

Operation Bases

• HQ aggregated information & finance• Share resources

• Centered around one customer, small• Autonomy, bonus• Maintain flexibility

Dispersed Manufacturing /

Borderless Manufacturing

AssemblyCHINESE

MAINLAND

ShellKOREA

LiningTAIWAN

FillerCHINESE

MAINLAND

ZipperJAPAN

Label, elastic,studs, toggle

and stringHONG KONG

Made in Hong Kong

by

Performing production slicing to identify the best location/ country to undertake each stage of process, adding value along the way & integrating the entire supply chain

Value Chain Configuration

Value Chain Configuration

Value Chain Analysis

Inbound logisticsLi & Fung’s ability to order parts from different suppliers in different countries before packing them into toolkits for assembly into final products in China reflects its capability in inbound logistics.

OperationsLi & Fung owns no factories and does not engage in manufacturing itself.

Outbound logisticsLi & Fung provides value-added service for its customers, e.g. consolidation of shipments for each of a customer’s distribution centres before the goods actually leave China.

Marketing and salesLi & Fung is structured organisationally around its customers so that each division can gain an in-depth understanding of the customers’ needs.

ServiceThe case does not indicate how Li & Fung handles issues such as faulty items and customer complaints.

Value Chain Analysis

ProcurementLi & Fung can leverage its bargaining power and relationships with suppliers to help its manufacturers to achieve short delivery cycles.

HR managementLi & Fung attracts entrepreneurial staff, and its compensation system is designed to encourage performance among its managers.

Technology developmentLi & Fung has a state-of-the-art IT system that supports its multiple buying offices around the world.

InfrastructureLi & Fung has strong infrastructure that includes an entrepreneurial and customer-centric organisational structure and culture, and exceptional ability to innovate.

Value Chain Analysis

Discussion on Practices

What are Li & Fung’s best practices?Value chain configuration or dispersed manufacturing? Customer-centric organisational structure? Global supply networks? Onshore businesses?

Are these practices transferrable to other companies?For example, can Zara or Benetton adopt Li & Fung’s best practices?

Is there any implication for theory/practice?In comparison with Zara’s business model, does Li & Fung’s enrich or extend the agile supply chain model?

Challenges

The American housing and credit market collapsed.

Some clients of Li & Fung went bankruptcy.

Key issue:How Li & Fung maintains the growth of its business& Achieve its target turnover of US$20 billionbetween 2008 and 2010?

SWOT AnalysisStrength• Extensive supply networks• Expertise in SCM• Offers one-stop services for clients• Strong relationships with suppliers that enable clients to achieve short delivery• An entrepreneurial & decentralized decision-making company culture

Weakness• Product concentration in soft goods• Market concentration in the US

Threat• Contraction across economies around the world• The bulk of Li & Fung’s business lies in garments, and the fashion industry is expected to be strongly impacted by the economic downturn.

Opportunity• In times of economic downturn, Li & Fung offers production in the cheapest countries• Diversification into the health, beauty & cosmetics sector• Diversification into new markers and the high-end market segment for further growth• Good opportunity to make new acquisitions

Discussion on Solutions

Supplier baseLi & Fung’s extensive suppliers’ base and strong suppliers’ relationships are one of its core strengths, so it has to constantly review its suppliers’ list and to plug in the holes.

Warehouse serviceLi & Fung already provides consolidation service to its customers. Can Li & Fung take it further, developing warehousing service to its overseas customers, as well? For example, given the cheaper cost of storage in China, is it possible for the replenishment goods to be stored with Li & Fung in China instead of at retailers’ own warehouses?

Information technologyLi & Fung already has a state-of-the-art IT system that enable its staff to access information about suppliers worldwide. Can this system be further improved? For example, is there any way that “tacit” knowledge such as the personalities of the suppliers and the politics within suppliers’ organisations can be captured by IT that would benefit the organisation as a whole?