Li & Fung: Growth for a Supply-Chain Specialist

Agenda
1. Introduction 2. Li & Fungs Supply Chain Structure and Practices 3. Value Chain Analysis and Discussion on Practices 4. Li & Fungs 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: Trading Broker

Regional Souring Agent

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

Product DivisionA

Product DivisionB

Product DivisionC
HQ aggregated information & finance Share resources

Finance

Accounting

HR

IT

Value Chain Configuration

Assembly CHINESE MAINLAND Shell KOREA

Lining TAIWAN

Dispersed Manufacturing/ 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

Made in Hong Kong

Filler CHINESE MAINLAND Zipper JAPAN

by

Label, elastic, studs, toggle and string HONG KONG

Value Chain Configuration

Value Chain Analysis

Value Chain Analysis

Inboundlogistics
Li & Fungs 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.

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

Outboundlogistics
Li & Fung provides value-added service for its customers, e.g. consolidation of shipments for each of a customers distribution centres before the goods actually leave China.

Marketingandsales
Li & Fung is structured organisationally around its customers so that each division can gain an in-depth understanding of the customers needs.

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

Value Chain Analysis

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

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

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

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

Discussion on Practices
WhatareLi&Fungsbestpractices?
Value chain configuration or dispersed manufacturing? Customercentric organisational structure? Global supply networks? Onshore businesses?

Arethesepracticestransferrabletoothercompanies?
For example, can Zara or Benetton adopt Li & Fungs best practices?

Isthereanyimplicationfortheory/practice?
In comparison with Zaras business model, does Li & Fungs 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 billion between 2008 and 2010?

SWOT Analysis
Strength Weakness
Extensive supply networks Product concentration in soft goods Expertise in SCM Market concentration in the US Offers one-stop services for clients Strong relationships with suppliers that enable clients to achieve short delivery An entrepreneurial & decentralized decision-making company culture

Threat
Contraction across economies around the world The bulk of Li & Fungs 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
Supplierbase
Li & Fungs 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.

Warehouseservice
Li & 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?

Informationtechnology
Li & 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?