Efficiency-Responsiveness Framework of Supply Chain

Match Mismatch

Mismatch Match

Functional Product Innovative Products

Efficie

nt

Su

pp

ly

Ch

ain

Re

sp

on

siv

e

Su

pp

ly C

hain

Zone of strategic fit in supply chain

Certain Demand

Implied Uncertainty Spectrum

Uncertain Demand

Responsive Supply Chain

Responsiveness Spectrum

Efficient Supply Chain

Zone of Strategic Fit

Suppliers CustomersDistribution

ChannelsManufacturer

Dominant Model: A value-chain with arm-length transactions from one layer to the next

Suppliers CustomersManufacturer

Direct Business Model: Leverage relationships with both suppliers and customers by eliminating time and cost of third-party distribution

Suppliers Manufacturer Customers

Virtual Integration: Stitching together a business with partners and customers treated as if they are inside the company – sharing information real-time

Dell’s Direct Business Model

Direct Model: Focus

Vertical Integration vs. Virtual Integration

Engineering-centric vs. customer-centric

Supplier exchange vs. supplier relationship

“we have developed everything” vs. “ we need to add value to customers”

Key Factors of the Direct Model

• Customer Focus

• Supplier Partnership

• Mass Customization

• Just-in-Time Manufacturing

Direct Model: Customer Focus

• Segment Customers

• Communicate closely with customers to forecast needs and keep inventory low

• Create most value for customers

• Use technology to free customer to focus on their business

Supplier Partnership

• Have as few suppliers as possible; keep them as long as they are technological and quality leaders

• Communicate your inventory levels and replenishment needs with suppliers real-time

• Order from suppliers only when you receive demand from customers

Direct Model - Innovation

Technology is enabling coordination across company boundaries to

achieve new levels of efficiency, speed, and flexibility as well as extraordinary returns to investors

Li & Fung Success …

• Innovation• Flexibility• SpeedThrough

– dispersed manufacturing– smokeless factory

Dispersed Manufacturing (Li & Fung)

• Detaches critical links in the supply chain• Finds best solutions for each link from a world-

wide network of independent suppliers• Weave a strong and flexible network of

specialized suppliers, manufacturing, and distributors

• Chips away time and cost from the production and delivery cycle (planning close to market)

Dispersed (Borderless) Manufacturing

Order of 10,000 European Garment

Pick Yarn from Korea

Make the Garment in

Thailand

Send Yarn toTaiwan forWeaving

Buy JapaneseZippers from

China

Order DeliveredTo Customer

all Looking Alike

Organizing Around Customers – Li & Fung

• Li & Fung organizes itself to create a unique value chain for each customer

• Basic operating unit is entrepreneurial divisions serving just one large customer or several smaller customers

• Uniqueness – remains entrepreneurial despite it growing size and scope by structuring around customer-focused divisions

• Create a customized value chain for each customer