GLOBAL SUPPLY CHAIN MANAGEMENT

LI & FUNG LIMITED

BEST PRACTICES &

INTRODUCTION

• In January 2004, Li & Fung Trading (Shanghai), a subsidiary of Li & Fung Ltd. was granted an export company license.

• William Fung believed that the license freed the company from the many trading restrictions in China and would increase their competitiveness and global market share.

• Li & Fung is considered as one of the world’s leading textile export traders, and the largest to the US.

BACKGROUND NOTE

• The company was founded in 1906 by Fung Pak-Liu and Li To-ming in Guangzhou(South China) and was one of the first Chinese owned export companies.

• Main export consists of porcelain, silk, bamboo, jade, ivory, rattan ware, fireworks and handicrafts.

• Formally established in 1937 in Hong Kong.

• In mid 1900s, after the world war II ended, the company resumed its operation with the export of garments, electronics, plastic flowers, and toys and was soon Hong Kong’s biggest exporter.

• In early 1970s, due to stiff competition and lesser use of intermediaries for trading, companies trading margins went down significantly.

• William and Victor Fung was called by their father Hon chu from US to modernize and rebuild the organisation.

• In 1973, the company went public and was listed on the Hong Kong Stock Exchange.

• In 1980s, the company realised the importance of low labor costs and established a regional network of sourcing offices in Asian countries such as Taiwan, Singapore and Korea.

• Further expansion plans include-– Opened sourcing offices in US and Europe– Acquisitions to strengthen its sourcing and

distribution networks– Increase in product lines and customer networks– Increase in communication via IT and internet

strategy

• By the turn of 20th century, Li & Fung was a premier global trading company with more than 95% of its revenues coming from North America and Europe and rest from East Asia and South Hemisphere.

• In the year 2002, the company registered revenues of HK$ 37.3 billion, a 13% increase from 2001.

• Company’s largest customer was Kohl’s Department Store Chain in US apart from Ann Taylor, Disney, Guess, Levi’s, Reebok, etc.

EVOLUTION OF SUPPLY CHAIN MANAGEMENT

REGIONAL SOURCING1970-79

PRODCUTION PROGRAMMER1979-82

GLOBAL SUPPLIER NETWORKS1982 0NWARDS

EVOLUTION OF SCM STRATEGY 1970- 78

LI & FUNG acted as a regional sourcing agentIt extended its geography to establishing sourcing offices in Singapore, Korea, TaiwanReason for doing so was it was able to take cost advantage of the respective nations and save their client of the dealing with the whole region for the sourcing of the raw materials by integrating the services and providing them what they wantLI & FUNG benefitted by trading with those nations where quotas had not been exhausted, as world trade was governed by quotas

1979-82Transition from a sourcing agent to deliverer of production programsWhen an client came with the product development idea, LI & FUNG created an entire manufacturing program for its customer for a particular seasonLI & FUNG worked with different factories to plan and monitor the manufacturing process to ensure quality and on time delivery

1980 onwardsLI & FUNG saw many Asian firms become labour intensive manufacturing hub while Hong –Kong turned to become expensiveIt was then firm decided to go global in the SCM, following a “Dispersed Manufacturing”

DISPERSED MANUFACTURING The company performed al high ended value added activities such as design and

quality control in Hong- Kong and outsourced low end activities like manufacturing to best possible locations

Eg. Parts of China , were targets for LI & FUNG where producing is cheap ….so if in case its clients ordered models for any robots or say dolls of a specific design then LI & FUNG would produce moulds for the dolls using sophisticated machinery which would then be shipped to labor intensive parts of China. LI & FUNG understood the benefits of dispersed manufacturing , Company

extended its operation beyond South China. It moved to low cost oriented parts of China simultaneously searching for potential sources of supply outside China

Owing to intense competition and changing consumer trends Western nations not only were compelled to outsource their manufacturing but also their supply chain management

This insight into the problem helped develop LI & FUNG from a deliverer of production programmer to potential manager of supply chain for companies looking out for outsourcing optimum supply chain manufacturing

Having exhausted all cost efficient ways company turned towards “ Tackling the soft $3 in the structure”

NEW DIMENSION TO DISPERSED MANUFACTURINGTaking DISPERSED MANUFACTURING a step further it believed in dissecting the entire chain and optimizing each process

Drifting towards “Global supplier network” – having received from clients company sifted through its global supplier list to find right manufacturer of goods for attractive combination of cost and quality.It also kept in mind the compliance of environmental standards and regulations playing in each country

LIST OF GLOBAL SUPPLIER NETWORK

SOUTHEAST ASIABangkokHanoiHo Chi Minh CityJakarataMakatiPhnom PenhSaipanShan AlamSingapore

SOUTH AFRICADurbanMadagascarMauritius

SOUTH ASIAAmmanBahrainBangaloreChennaiColomboDelhiDhakaKarachiLahoreMumbaiSharjah

NORTH ASIABeijingSeoulMacauShanghaiTaipeiTokyoHong KongLiuyangHepu

GLOBAL SUPPLIER NETWORK

LI & FUNG SUPPLY CHAIN STRTAEGY

INTEGRATED DISTRIBUTION SERVICES

IDS is a member of the LI & FUNG IDS offers brand owners and retailers a Menu of Integrated-Distribution

Services, covering the four Menu Clusters of Logistics, Distribution, Manufacturing and International. Each service is defined with a clear and tangible value proposition. Together, they cover the entire Value-Chain from production to consumption.

MAKE

TEST

PACKAGE

INTEGRATED DISTRIBUTION SERVICES

SERVICES PROVIDED

CONTRACT MANUFACTURING:FIRST PARTY-RESPOSIBLE FOR PROCUREMENT OF RAW MATERIALSTHIRD PARTY- RAW MATERIAL PROVIDED BY CLIENTS

COMPOUNDING , MIXING AND PACKAGING:BASED AND FORMULATION AND PROCEDURES PROVIDED BBY CLIENTSWIDE RANGE OF PACKAGING SOLUTIONS HANDEL PACK SIZE FROM 1 MILLLION TO 1 TON

VALUE ADDED AND LOGISTICS SERVICES:PRODUCT REGISTRATIONLABORATORY TESTINGCOMPREHENSIVE LOGISTICS SOLUTIONS

Leveraging The Internet

• Internet made integration of supply chain management.

• Drive the supply chain costs down.• Made the supply chains more transparent.• Li and fung’s website hosted real time

information on the entire production process.• Aimed at creating economies of scale and scope

for SMEs by bundling their orders.• Barnett, a Goldman Sach’s analyst said “A large company pays 4% to 12% of the value of order and about 30% for small companies.

SWOT ANALYSIS

Strengths• Reputable name and branding.• Tightly integrated supply chain management

with client base. • Established decentralized management style • Ability to operate in both hard and soft markets. • Existing internal capital • Well informed and educated management • Successful acquisition strategy• No inventories to manage.

Weaknesses

• Lack of initial knowledge on developing an e-commerce B2B profile.

• Lack of qualified personnel and subject matter experts for implementation

• Insufficient knowledge about the behaviour of SMEs in similar portals

• Declining cash flows

Opportunities

• The internet will enable streamlined supply chain management system.

• Allow customers to be a part of the design process up to product manufacture.

• Allow SMEs to participate in product procurement

• Ability to establish a business plan to develop markets in which surplus products could be sold

Threats• Phasing the "middle man" out of the trading scheme is a

risky strategy.• Possible loss of key employees to other Internet companies• Chances of cancelation of order are more through real time

operation• An online company could acquire• If technology outsourced, company become dependent on

that outside company• outside companies being able to access proprietary

information• Exposing the business to an insufficiently prepared change

strategies

Looking Ahead

• Higher margin business model of licensing well known brands

• August, 2003: Licensing agreement with Levi’s to design, manufacture & market Signature label

• 2004:Official Pillowtex LLC: owner of Royal Velvet linen brand

Supply Chain

• A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer.

Typical supply chain

Information Flow

Raw Materials

RETAILERDC RDC

SUPPLIER

Finished Goods

FACTORY DC

Elements of a Supply chain Management

Importance of SCM

• Lower inventory• High productivity• Higher Profits & lower costs• Shorter Lead times• Greater agility

Role of IT in SCM

• Greater Flexibility• Integration of Suppliers & customers• E-commerce• EDI• RFID tags• Reduced time & costs• Bar code scanners

Licensing brand names: Advantages

• Greater autonomy• Higher Margins• Taking advantage of existing supply chain

structure

Licensing brand names: Advantages

Licensing brand names: Disadvantages

• Lack of Expertise• Greater Risk• Chance of confusion and conflict

THANK YOU

Group Members

• Neha Gupta (09BS0001399)• Nilankan Dey (09BS0001439)• Nikhil Gupta (09BS0001427)• Nisha Rani (09BS0001458)