group 6 li and fung presentation final v4
TRANSCRIPT
Global Manufacturing and Materials Management at Li & Fung
Group 6
Kim, Tae Gyu
Ye, Byeong Hyo
Won, Jong Hun
Jun, Ra Kyoung
Choi, Sung Mahn
Agenda
1. Business Background of Li & Fung
2. Case Issues
3. Li & Fung Case Analysis– Global expansion– Value Chain Configuration– Leveraging Information Technology– Organization Structure– Alignment between Strategy and Capabilities
4. Implications
5. Discussions
Li & Fung Trading
Coordinated Global Network 70 Offices in 40 Countries and Territories
Americas (9 locations)
New York City BostonSan FranciscoDominican RepublicGuatemalaHondurasGuadalajaraMexico CityNicaragua
Europe/Mediterranean
(13 locations)
London Huddersfield AmsterdamRomaniaFlorenceTurinTunisIstanbulDenizliIzmirOportoJordanCairo
Africa
(3 locations) DurbanMauritiusMadagascar
South Asia
(11 locations) BangaloreChennaiMumbaiNew DelhiKarachiLahoreDhaka ColomboSharjahBahrain
Southeast Asia
(9 locations)
SingaporeBangkokShah Alam ManilaHanoiHo Chi Minh CityJakartaPhnom PenhSaipan
East AsiaHONG KONG - Head office(21 locations)
Shanghai Dalian Nanjing Beijing Seoul QingdaoTaipei TokyoHepu NingboMacau Liuyang Huizhou Dongguan Longhua Guangzhou Shenzhen Zhongshan Shantou Zhanjiang
2. Case Issues
Understand how a regional trading company used its core advantage
to become a global value chain manager
Study the importance of efficient value chain management for a global
company
Examine the role of IT and the Internet as major drivers of
globalization
Understand how innovation, differentiation and customization can be
used as strategic and competitive advantages by a company
Study the changes taking place in the retailing and trading industry
with respect to customer requirements and examine the need for a
customer-centric business model for an export trading company
3. Li & Fung Case Analysis
The Evolution of Supply Chain Management
The Supply ChainThe Supply ChainManufacturing Control
Shipping Control
Factory Sourcing
Raw Material Sourcing
Product DevelopmentConsumer Needs
Consumer Wholesaler/ Retailer
Product Design
LocalForwarding Consolidation
Forwarder Consolidation
Customs Clearance
Global Expansion Opportunities vs Challenges
Opportunities Globalized in a short span
of time Pressure from the US and
European retailers to cut costs by moving to cheaper sourcing locations
Shortening product life cycles
Direct outcome of the company’s efforts to add more value to its trading activities
Challenges Hiring local staff, developing
new vendors, dealing with local government authorities and coming to grips with local cultures
Proximity to customers, wage levels and manufacturing capabilities
Need greater supervision and travel costs in order to generate profits for new operations
Multitude of national trade restrictions
The Changing Role Of The Trading CompanyLe
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Add
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1906 Now
BuyingAgency
Sourcing
BorderlessManufacturing
Manage the suppliers
Case study - Borderless Manufacturing
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
Zipper
Assembly
Filler
Label, elastic, studs, toggle and string
Lining
Product Design
ShellBY
X
The Changing Role Of The Trading CompanyLe
v el o
f V
alu e
Add
ed
1906 Now
BuyingAgency
Sourcing
BorderlessManufacturing
VirtualManufacturing
The Changing Role Of The Trading CompanyLe
v el o
f V
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Add
ed
1906 Now
BuyingAgency
Sourcing
BorderlessManufacturing
VirtualManufacturing
Supply ChainManagement
The concept of “Soft $3”
$1 $4
Product design
Sourcing LogisticsWholesale
retailInformation Management
The cost that is spread throughout the distribution channels – the “Soft $3”
1. Be customer-centric and respond accordingly to the market demand
2. Focus on one’s core competency and outsource non-core activities, and develop a positioning in the supply chain
3. Develop a close, risk- and profit-sharing relationship with business partners
4. Design, implement, evaluate and adjust the work flow, physical flow, information flow and cash flow in the supply chain
5. Adopt information technology to optimize the operation of the supply chain
6. Shorten product lead time and delivery cycles
7. Lower costs in sourcing, warehousing and transportation
Li & Fung’s SCM Strength
Alignment between Business & IT
Three main business groups – Trading, Retailing, and Distribution Established company-wide internet linking critical company
operations Dedicated Extranet links key components of supply chain Provides tracking capabilities, streamline the flow of information and
provide much more granular control of supply chain activities Believe that IT strategy is central to supply chain management
success Leverage the power of the internet as customers demand more
customized product choices In 2002, started up an entire business division focused on B2B
sourcing via an internet e-commerce website called lifung.com linking small- to medium-sized business with suppliers similar in concept to alibaba.com
Challenges on IT
No substitute for human expertise for some activities No connection with IT system to manufactures working in
countries like China, Philippines, Bangladesh, other Asian countries, Africa and Caribbean
Relied on personal visits, phones, faxes and couriers
Organization Structure
Divided into divisions that were focused on a single customer or a group of customers
Divisional system in order to meet the customer’s design, quality, shipping and invoicing needs
“By making small units the heart of our company, we have been able to grow rapidly without becoming bureaucratic….as the market changes, our organization can adjust immediately”
Offered its staff competitive remuneration schemes
Alignment between Strategy and Capabilities
Strategy Capabilities
Buying Agency Acquisitions are key to grow market share in target geographic marketsLi & Fung is growing through global integration
Sourcing Sources from virtually anywhere in the world and builds customized solutions for its retail customers
Borderless Manufactur-ing
Network of 10,000 suppliers and staff in 40 different countries
Virtual manufacturing Builds customized solutions for its retail customersAble to be both locally relevant and globally opti-mized
Supply Chain Man-agement
Orchestrates a supply chain network of 14,000 staff and 10,000 specialized companies in 40 countries
Implications
Li & Fung’s competitive advantage : Strong Supply Chain Management – Innovation: global network though Dispersed
manufacturing– Flexibility: Nimble organization design through
Customer-centric divisions, One-Stop-Shop Service– Speed
Case Discussions
1. What is the value added that an intermediary such as Li & Fung delivers to its customers?
2. If Li & Fung is to execute on its promise to deliver value added to its customers, what skills and competencies must it have?
3. Why do you think that Li & Fung has a policy of not owning any production facilities?
4. Do you think Victor Fung is correct when he states that its is unlikely that the Internet will ever connect the complete supply chain? Why might he be correct? What might happen in the long run?
Q1. What is the value added that an intermediary such as Li & Fung delivers to its customers?
Q1. What is the value added that an intermediary such as Li & Fung delivers to its customers?
1) Faster speed• By optimizing supply chain & using information technology
2) Reduced cost• By reducing purchasing, inventory and transport cost
3) Higher quality• Market research & best choice of supply chain
4) Reliability• Quality monitoring & Quick response to market change
5) Others• More focus on business areas of core competency
Q2. For value added service to its customers, what skills and competencies must it have?
Q2. For value added service to its customers, what skills and competencies must it have?
1) Market understanding• To provide market trend information• To meet market (customer) demands
2) Broad (global) procurement channels• To identify and supply best raw materials• To meet product quality required
3) Sound management and operation mechanism• To build transportation and shipping delivery service• ‘Import Direct’ - electronic commerce application software
4) Information Technology• To improve overall supply chain efficiency• To interface business online transaction
Q3. Why Li & Fung has a policy of not owning any production facilities?
Is it really right not owning any production facilities?
Yes : Flexible by Outsourcing
One of the best embodiments: Virtual Manufacturing- Assure Strategic Flexibility → Financial Healthy to operating- Aligning Environment, Strategy and Structure → Global Strategy for diversified goods
Over 20% ROE, about $1 million sales / employee
Q3. Why Li & Fung has a policy of not owning any production facilities?
3. Why Li & Fung has a policy of not owning any production facilities?
Yes : Flexible by Outsourcing
Robust even in
Economic Crisis
Quote : William Fung
“Everybody thinks that a trading company is just taking an order from the right hand and giving it to the left hand. The idea is that, maybe foreigners don’t know which factory to go to, so you perform an introductory role, may be a quality control role and there it stops….whenever we go in, we don’t just give them (the suppliers) and order and hope that they know what to do. We hand hold them through the whole process. That’s why we say we almost
are a virtual factory…It is the way we orchestrate the production, come up with samples and feed them information. All that is going way, way beyond that original matching function.”
Q4. Regarding the usefulness of the Internet, Victor Fung is correct?
“It is unlikely that the Internet will ever connect the complete supply chain.”
4. Li & Fung : Internet Issues
William Fung “I’m not an Internet guy, I’m a business guy”
When they launched the new B2B e-commerce portal, “The Internet facilitates SCM.” “We weren’t going to be disintermediated.” “The key is to have the old-economy know-how and yet be open to new-economy ideas.”
4. Li & Fung : Internet Issues
In 1995, - Launched an intranet to expedite and simplify internal communication.
In 1997, - Launched secure extranet sites. - Linked the company directly to a key customer and was customized to that customer’s individual needs. - Provided a platform for manufacturers and retailers.
4. Regarding the usefulness of the Internet, Victor Fung is correct?
1) Pros a leader in establishing real-time Internet-based links
with its customers2) Cons
where communications systems aren’t advanced enough in places like China, the Philippines, etc.
to make sure that the manufacturing process is going well.
to make sure that manufacturers comply with a customer’s standards in terms of how they treat labor
3) Future? usefulness of the Internet will be increasing.
Quotes
"In an age when the Internet is supposedly going to eliminate the middleman, here's a middleman, an old Asian trading company that has made itself indispensable." 1
- An Article in Forbes.
"We deliver a new type of value added, truly global product that has never been seen before. We're pulling apart the value chain and optimizing each step and we're doing it globally." 2
- Victor Fung, Chairman, Li & Fung, in June 2000
Reference
“Li & Fung (Trading) Ltd” Harvard Business School Case, 1995
Victor Fung, “Financial Times, 6th November 1997” “Supply Chain Management, Hong Kong Style” Interview
with Victor Fung, Harvard Business Review www.lifung.com