Li & Fung:

Growth for a Supply-Chain

Specialist

Agenda
1. Introduction
2. Li & Fung’s Supply Chain
Structure and Practices
3. Value Chain Analysis and
Discussion on Practices
4. Li & Fung’s Challenges
and SWOT Analysis
5. Discussion on Solutions
6. Question and Answer

1
 History

1906- • Established in Guangzhou in 1906.

• Moved the HQ to HK in 1937.
1970 • Transformed to garment-trading company in 1949.

The • Victor & William Fung back from the US.

• Reformed the family business from a local trading
1970s company to a regional sourcing agent.

The • Moved beyond a mere sourcing agent.

• Began to work with clients from product concept to
1980s planning whole production program.

The • Provide efficient supply chain management.

1990s • Consolidate services and value added.

http://www.youtube.com/watch?v=UzwmlbAS8dg

Company Background

The Li & Fung Group

Trading Distribution, marketing

Retailing
(product sourcing) and logistics

Role: Trading Regional Global Supply

Broker Souring Agent Chain Manager

Source: Li & Fung Official Web page: www.lifung.com

2
 Global Expansion

Complete Service Chain

Source: Li & Fung Official Web page: www.lifung.com

3
 Decentralised Organisational
Structure
• Centered around one
Operation Bases customer, small
• Autonomy, bonus
• Maintain flexibility
Product Product Product
Division A Division B Division C
• HQ aggregated
information & finance
• Share resources
Finance Accounting HR IT

Customer-centric Structure
• Li and Fung’s organizational structure is very
different from its competitors’.

Competitors Li and Fung

New
Customer Customer Customer Customer Customer
Customer
Region 1

Region 2

Region 3

Region 4

Region 5

Customer Customer Customer Customer Customer

Customer Customer Customer Customer Customer

Customer Customer Customer Customer Customer

4
 Value Chain Configuration
Assembly Dispersed
CHINESE Manufacturing /
MAINLAND
Lining Borderless
TAIWAN Manufacturing
Shell
KOREA
Performing
production slicing to
identify the best
location/ country to
undertake each
stage of process,
Label, elastic, Filler
adding value along
studs, toggle CHINESE
MAINLAND
the way &
and string integrating the entire
HONG KONG Zipper supply chain
JAPAN

Question: what are the major challenges in managing an

international supply chain like the one below?

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Value Chain Configuration

Value Chain Analysis

6
 Value Chain Analysis
Inbound logistics
Li & Fung’s 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.
Outbound logistics
Li & Fung provides value-added service for its customers, e.g.
consolidation of shipments for each of a customer’s distribution centres
before the goods actually leave China.
Marketing and sales
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.

HR management
Li & Fung attracts entrepreneurial staff, and its incentive system is
designed to encourage performance among its managers.

Technology development
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.

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 Discussion on Practices

What are Li & Fung’s good practices?

Value chain configuration or dispersed manufacturing? Customer-
centric organisational structure? Global supply networks? Onshore
businesses?

Are these practices transferrable to other companies?

For example, can Zara or Benetton adopt Li & Fung’s good practices?

Is there any implication for theory/practice?

In comparison with Zara’s business model, does Li & Fung’s 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?

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 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 & Fung’s 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 markets and
the high-end market segment for
further growth
• Good opportunity to make new
acquisitions

Discussion on Solutions
Supplier base
Li & Fung’s 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.
Warehouse service
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?
Information technology
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?

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Questions

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