walmart and li&fung case

8/13/2019 Walmart and Li&Fung Case

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2/24

Other than a need to expand, what other

reasons would Wal-Mart have for

opening stores globally? Why would the

company want a strong centralized

control of its stores? Why would it want

strong local control of stores?


3/24

Reasons for opening stores globally

To diversify its market - reduces risk against poormarket conditions

To decrease competitionspenetrate othermarkets and gain market share

To reach out to more customers

To increase revenue

To develop optimal and efficient supply chainacross global

To develop unique logistics network

To take advantage of low cost countriesTo utilize effective labor sources from around the

world


4/24

Reason for a strong centralized control of its

storesTo allow Wal-Mart to obtain demand forecast

to

its warehouse and to its suppliers giving abilityto adjust production and inventory to meet the

demand


5/24

Reasons for strong local control of stores

To cater with fierce local competitionTo deliver goods directly to stores on

time

To reduce price haggling with suppliers


6/24

What were the major problems

Wall- Mart faced during the initial

years of operations in SouthAmerica ?What were the major

drivers of these problems?


7/24

1) Brutual competition and markets that dont supportWal-Marts ability to achieve economies of scale.

2) Suppliers umbrage at Wal Marts aggressive pricing

policies3)The biggest issue Wal-Mart is shipping product on timeand getting on the shelf

4)Wal-Marts troubles in South America stem partly fromits own mistakes , mainly because analysts failed to

do its homework before entering South America(i)Some goods are useless in San PauloEx Live trout, American footballs, Cordless tools(ii)Wal-Mart brought in stock-handling equipment

that didnt work with standardized local pallets.

(iii)Installed a computerized bookkeeping systemthat failed to take into account Brazils wildlycomplicated tax system.

iv) slow to adapt to Brazil fast changing culture.


8/24

Managing dispersed production

forced us to get smart about

dissecting the value chain". Explain.


9/24

Dissecting value chain

Borderless manufacturing

Breaking up the value chain- dispersedmanufacturing

Several high cost hubs- sophisticated planning

Constantly look for new and better sourcessupply


10/24

Labour intensive work to China

Dissect and look for best solution at each step

Not which country can do best job but optimizingeach step, globally


11/24

When large manufacturing companies

managing their own supply chain, how

does it help to lower markdown for theretailers?


12/24

Retailer can involved in making adecision which product we should buy orwhich is not.

Retailers were participating in productdesigning process they are also managingsupplier through Li & Fung and are evenreaching down to their supplier

they were able to manage their inventoryin a better manner and lower markdownin the store.


13/24

Explain the role of Li & Lung in

shortening the buying cycle and how does

it help them to lower the cost in the supply

chain?


14/24

They outsource all the finished good or component

which required to produce a complete garment and take

the advantage of satisfying its customer by shortening

the delivery time.

Assembling of product at a single place

Due to short buying cycle the problem of obsolete

inventory decreases.

Saving in inventory markdown

Shortening buying cycle consists of flexibility,

response time, small production runs, small minimum

order quantities and move along with the trend


15/24

Buyer informs Li & Fung 5 weeks before the

requirement of yarn without complete specifications

(colour & design)

Good relation and trust of Li & Fung with its suppliers

help in reserving the undyed yarn for the buyer

Lock up capacity at mills for weaving and dying of

yarn by promising order of specified size

Factory receives fabric and have 3 weeks for producing

the garments

Reduction in cost by introducing the concept of

trackling the soft of $ 3 in the cost structure


16/24

How is the organization of Li Fung

different from others in the industry?

How does this help to achieve itsstrategic objectives?


17/24

1) Li Fung organizes around the customers, as theirbasic operating unit is division , while others areonly customer focused as they have countryunits as their profit .Their country units are

competing against one for the business.2) Compliance and ethical sourcing are more hot

topic here.

3) They always abide by local rules and regulations,

in whichever country they operate.4) Emphasized the relevance of dispersed

manufacturing in order to meet the needs of itscustomers


18/24

Achieving customer demand and specifications Develop a close, risk- and profit-sharing

relationship with business partners..

Spread out geographically in order to maximizesupply chain profit through the concept ofdispersed manufacturing.

The company has better bargaining power

Meeting customer lead times in the competingenvironment

Ensure long term sustenance through ethicalsourcing , compliance and abiding by local rulesand regulations.


19/24

What were the basic changes that took

place in Li & Fung as it grew over

the years both in size andgeographic scope? What effort did

the company take to hold the

organization together?


20/24

Changed from Hong Kong basedChinese company to regionalmultinational company

From 99.5% Chinese and 80% HongKong Chinese into a regionalmultinational

Diverse workforce and now haveworkforce from at least 30 countries

Positioned as Hong Kong-basedmultinational trading company


21/24

The company managed on a day to day basis by

product group managers.

Formation of policy committee which consists of

about 30 people.Meeting is done every five to six weeks.

People fly in and around the region to discuss and

agree on policies.The committee of 30 not only shapes the policies but

also translates them into operating procedures that

they think will be effective in field.


22/24

With advent of IT, doing business

became both easier and difficult for

the company. How did the companyenvisage reconciling with the new

systems and also retaining the

traditions they had built over theyears?


23/24

Is an information node with flipping between

350 customers and 7500 suppliers

Manage that with phone calls, faxes and on sitevisit

Soon there will be sophisticate information

system with very open architecture to

accommodate different protocols from

suppliers & from customers


24/24

Creating a database to track systematically all the

supplier relationships.

Everyone in the company can use to review theperformance history of all the suppliers

Continue to read faxes from customers to keep in

personal touch with the customers & operations on

daily basis

Think like a big company and act like a small one

walmart and li&fung case

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