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Copy of Li and Fung Case Study

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Sandra Soto

on 12 September 2013

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Transcript of Copy of Li and Fung Case Study

Li and Fung Ltd was formed by Victor and Willam’s grandfather, Fung Pak-liu and a partner, Li To-ming.

Started by selling porcelain, antiques and handicraft for exports
Li & Fung began to export garments, toys,
electronics and plastic flowers to Hong Kong on top of its original product lines.
The third generation of the Fung family, Victor and William, returned from their education and careers in the US to join the company.

Modernize and build Li & Fung into a well-structured, modern enterprise with professionals at every level.
Bilner Aquise
Jose Bullón
Jesica Inga
Hernán Navarro
Sandra Soto

(cc) image by nuonsolarteam on Flickr
The Changing Role of Li & Fung
Global Supply Chain Manager
Being customer-centric and market demand driven
Focus on one’s core competency and outsource non-core activities
Develop a close, risk- and profit-sharing relationship with business partners
Design, implement, evaluate and continuously improve the work flow, physical flow, information flow and cash flow in supply chain
Adopt information technology to optimize the operation of the supply chain
Shorten production lead time and delivery cycles
Lower costs in sourcing, warehousing and transportation
Supply chain is based on:
Supply Chain Management Strategy
Capital-light/Leveraged Growth
Business Model
Dispersed Manufacturing Technique
Global Supplier Network
Manages more than 10,000 quality-conscious, cost effective suppliers
Mobilise assets of suppliers’ companies to reach the most attractive cost and quality for its retail clients
Ability to manage extensive array of suppliers due to a high level of trust
Owns and licenses brands outright
Examples include Royal Velvet, Cannon and a company that makes Vera Wang clothes for Kohl's
Gives it more control over the supply chain
3-year Plan
Continue acquisitions to complement to the organic business growth
Covers the entire supply chain end-to-end and is well positioned to grow across these three distinct yet interconnected networks
Aim: reach a core operating profit of $1.5 billion by 2013 Trading $700MLogistics $100MOnshore $700M

Business Strategies
Orchestrate the network
Manage the suppliers
Organize around the customer
Taking a holistic view
Old model vs New model
Critical as the end consumers become more empowered
Customization and a unique experience.
(cc) photo by theaucitron on Flickr
Create thick connections
Think big, act small
Balance stability and renewal
Capture the “soft $3”
Capital-light/leveraged growth business model
Organize around the customer
Poses as a real challenge
Changing taste and preferences of consumers
Manage the suppliers
Methods used:
Keeping deep, up-to-date knowledge about the capability of each supplier and manufacturer
Closely monitor every stage of the production process
Sharing responsibilities with suppliers.
Provide economic incentives and ensure revenues for suppliers.
Orchestrate the network
Li & Fung is working with more than 10,000 manufacturers
Leveling the playing field and democratizing the network
E.g. address specific customer orders, respond to economic or political shocks or to take advantage of capabilities in different parts of the world.
Capture the “soft $3”
Focusing the cost that is spread throughout the supply chain
e.g. product design, procurement, logistics, wholesale and information collection
Ways to capture these soft dollars:
Boosting efficiency
Flawless operations across the supply chain

Improving coordination: Minimizing markdowns
More flexible supply chains
More transparency throughout the chain
Allow more accurate forecasting of consumer preference and market demand

Taking on more of the chain
Extend its reach in the supply chain
Strategic acquisitions and licensing
Li & Fung vs Traditional Companies
What role does IT play at Li & Fung?
Electronic Stock Offer (eSO)
B2B Portal (lifung.com)
Vendor Portal
(cc) image by nuonsolarteam on Flickr
Linked their offices and manufacturing sites around the world
Simplifies & speeds up internal communication
Enabled real time tracking of orders and shipments
Digital imagery allowed for online inspection & troubleshooting
Linked company directly to its key customers
Customized to their customers’ individual needs
- Online product development & order
- To promote quick response manufacturing
- Platform for manufacturers & retailers to
- To streamline communications
Enhance the supply chain’s efficiency and make the system more transparent to customers
In 2002, started up an entire business division focused on B2B sourcing via an internet e-commerce website
Links SMEs with suppliers
Capitalize on small orders from SMEs, offering them a range of products with option of limited mass customization
Product differentiation to SMEs
Reduced inventory level for SME’s due to absence of no minimum order
To minimize threat from other competitors going online
Attain EOS by concurrently manufacturing the aggregated orders
Newly launched in 2008
For vendors and internal sourcing teams to collaborate on global supply chain management and shipment tasks
Enhance all communications channels
Common platform to standardize trade and customs documents, consolidate shipment data
Automate all transactional processes
Reduce manual data entry and cost per transaction
Online system for scheduling quality inspectors and reporting results back to Li & Fung.
To manage the piled up or cancelled inventory
Efficient and cost effective platform to sell to buyers interested in purchasing seconds (second sales)
Importance of IT for Li & Fung
(cc) photo by medhead on Flickr
Believe that IT strategy central to supply chain management success
Leverage the power of the internet as customers demand more customized product choices
L&F leads the world in supplier sourcing as a true “clicks-and-mortar pioneer”
Limitations of 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
Company also do rely on personal visits, phones, faxes and courier
Is the Li & Fung business model easy to imitate? 
Why or why not?

Not easy to imitate!
IT Infrastructure
The Three-Year Plan
Recognized as the world's leader in consumer goods design, development, sourcing and distribution.
Specializes in supply chain management of high-volume via an extensive global network.
Hard to imitate such a business model as it requires the efficient management of goods and information
Requires an extensive network from the various sectors (from product design all the way to shipping) so as to provide a spectrum of services which is what Li & Fung provides
Makes use of major Enterprise System (ES) software vendors
Utilized a core system for its internal operations, a proprietary technology called XTS
In other countries, the company depended on emails and email attachments, using Lotus Notes.
SAP software: wholesale division in the United States
Oracle software solutions: Financial
Sterling GenTran GIS: A communication bridge for all systems to integrate information with its customers.
Microsoft Sharepoint: Unstructured communications addresses any ad hoc needs, such as storage and sharing of data with customers.
Highly expensive to implement enterprise applications
Involves training employers to such sophisticated IT infrastructure
Addresses strategies across the board and will set a new goal every three years.
Three-Year Plan 2011-2013
->The Group has set a target of reaching
US$1.5 billion in core operating profit by
Trading (US$700 million)
Logistics (US$100 million)
Onshore (US$700 million)
Since the business model is constantly changing every 3 years, it will not be easy for the competitor to imitate its business model
Supply Chain
Our Recommendation
Venture into Euro Market
Almost 75% of Li & Fung’s customers were large companies in the United States like Coca-Cola and Disney
Hence, they can consider venturing into the Euro market for expansion and increase of revenue
In this way, diversification will reduce the risk of trading and benefit the company
Reputable Name and Branding
Some of the big clients Li & Fung are working with includes Coca-Cola, The Limited and The Gap.
Supply chain management is highly integrated with the customers
Eliminated the need to manage inventories
Advantageous mix of IT and old-style business practices
Positive Corporate Culture
Inadequate familiarity on dealing with SMEs which eventually led to the fall of the B2B portal, lifung.com
Dependence on a small number of major customers for a substantial share of revenues

Targeting the SMEs in the product procurement industry through the offering of a reduced rate of commission
An effort to push excess products to discount retailers via an online portal

Brick-and-mortar companies adopting an IT approach may become significant competitors
Reproducibility of Li & Fung’s business strategy and model by the competitors
Weak world economy may affect the revenues and growth of Li & Fung in certain markets

'The Li & Fung Debate' 2005, Home Textiles Today, vol. 26, no. 18, p. 1.
Fung, VK, Fung, WK & Wind, YR 2007, Competing in a Flat World: Building Enterprises for a Borderless World, Pearson Prentice Hall, Upper Saddle River.
Enterprise Resource Planning
Financial Management
Oracle's Financial Management Solutions
Electronic Data Interchange
Resource Management
Data Sharing & Storage
Compañía virtual utiliza redes para enlazar personas, activos e ideas, lo cual le permite aliarse con otras compañías.

Li & Fung se encarga del desarrollo
del producto, abastecimiento de
materia prima, planificación de producción, aseguramiento de la calidad y el envío.

Li & Fung pretende alcanzar altos estándares de servicio y satisfacción de las necesidades de negocios internacionales con precios competitivos, calidad y entrega confiable.
Los servicios abarcan la cadena de suministro a través de: Comercio, Logística y Distribución.
Estos equipos también cuentan con vínculos electrónicos directos con personal especializado en las sucursales de Li & Fung en los diversos países donde Gymboree compra por volumen, como China, Indonesia y Filipinas.

De esta forma, Li & Fung utiliza sistemas de información para manejar, coordina y controlar los procesos de diseño, producción y envío dispersos globalmente, para asegurarse de que el lapso entre la recepción de un pedido y la entrega sea reducido al mínimo, al igual que los costos totales.
Las prendas de vestir representan dos terceras partes de la empresa Li & Fung, así como accesorios de moda, muebles, regalos, productos artesanales, productos para el hogar, artículos promocionales, juguetes, artículos deportivos y artículos de viaje.
A continuación, Li & Fung puede decidir que debido a las limitaciones impuestas por las cuotas de exportación y costos de mano de obra, el mejor lugar para hacer las prensas finales podría ser Tailandia. Por lo tanto, envía todo el material a ese país.

Además, y debido a que The Limited, al igual que muchos clientes minoristas, necesita de una entrega rápida.

Cinco semanas después de que el pedido ha sido recibido, las prendas llegarán a los anaqueles de The Limited, con el aspecto de provenir de una sola fábrica, con los colores perfectamente igualados. El resultado es un producto que puede tener una etiqueta que dice “ Hecho en Tailandia”, pero en realidad es un producto global.
Aprovecha sus redes mundiales, conocimiento del mercado y los sistemas avanzados de tecnología e información, responde rápidamente a las tendencias de consumo en constante evolución.
El producto debe de cumplir con los requerimientos del cliente.
Cadena de Suministros Comercio
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