case#4 superior supply chain management in li & fung ltd

8/3/2019 Case#4 Superior supply chain management in Li & Fung Ltd

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Superiorupplg hainmanagementin Li & Fung tdOptimisingenterprise lows through successfiil upply chainmanagements

one route to sustainable ompetitiveadvantage,as iilustratedby the Hong

Kong-listed ompany, i & FungLtd (L&F).

The company egan ts operationn 1906as a Guangzhouamilybusiness,

trading in silk and porcelain.Thirty years ater it had grown and expanded

from this family operationand relocated o Hong Kong. Today t has grown

to becomea muitinationalcompanywith more than 25000 staff operating

in 40 countriesworldwide. The L&F Group has tlree main businessgroups:

trading, retailing and distribution. Garmentsaccount for the major part of

business,which also includes ashion accessodes,urnishings,gifts, handi-

crafts, home products, promotionaimerchandise,oys, sportinggoodsand

travelgoods.

L&F s considered globalexemplar f supply chainmanagement; ver he

past 14years t achieveda compoundannualgrowth rate of 22 per centwith

a 23 per centprofit ncreasen2005.Itssuccess ince he 1980s ositionst as

one of the premierknowledge entes of research nd experiencen optimising

enierprisesupply chains. L&F continues b develop and extend ts supply

chain knowledge hrough: (1) an in-house esearchcentre hat scientifically

analyses ow to further optimisesupplyprocesses;2) developingmodels hat

sustain ndustry leadership;and (3) academicpartnershipswith the Chinese

Universityof Hong Kong hough the Li and Fung Research entre or Supply

ChainManagement.

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The Li and Fung Research entre advocates he following seven:iples as key successactors or managinggtobal supply chainr,

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F customer-centric nd market demand-driven ocusF outsourcingnon-coreactivities

> risk and profit-sharing elationshipswith businesspartnersF continuous improvement of supply chain flows (i.e. work,

mation, cash)

> information technologydependentoperationsoptimisation> shortenedproduction ead times and delivery cycles> lowered sourcing,warehousingand transportationcosts.

From these principles L&F constructed the following central(1) dispersedmanufacturing; (2) a global supplier network; t3) acentric organisational tructure;and (4) leveraging he internet.1. Dispersedmanufacturing entails maximum outsourcingwithout saCii

customerquality.It is achievedby retaining end value-addedaii+jH+,3 uch as designand quality controf in HongKong,while relocatirrg'ffiactivitieso lowestcostsuppliers omplyingwith L&Fstandards.

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2. Theglobal uppliernformation etwork t ilO- r,rppfiurun *offi40 countries acts as a 'knowledge economy'; this ensuresbuilt-in .oni*

.i .tgpnnioq fnr nntont i r l 6r r^11 nrnin r l i . ' . ' ,n* ;n-^ .i * ^. f . r - ' r - - 1. ' -1, . i=genciesor potentialeconomic isruptionsn any of the supplier,,ff itries,as well as anticipating nd pre-empting hangesn the internatiffieconomv.

3. Customer-centricustomisedprocessesminimise suppliererrors.'.ffiexample,when Li & Fung receivedan order for transistor adios, t creatudt#little kits (plasticbags) filled with at l the componenrsnecessary o nuifdi

ation. A dedicated extranet linked key componentsof the supply chain,'io.l{r

'' ' . ' ; t " i : ' : i : ]provide tracking capabilities,streamlinethe flow of business nformitiofit '

andbnsuregranu1arControlofsupp1ychainact iv i t ies, .i .,f,,.i

rn 2002al ,t"rt.a a businessiuirion ro.ur.u o' business-to-burin.rri'iuvuDgu ull uuDfl lEDD-LU-uuDntrDD-'i-.-;

sourcing via an e-commercewebsite cared www.lifung.comthat linkid .$small- o medium-sizedusinessesith suppriers,imilar n concept *vl*.$alibaba.com.siaweekeportshat his 'mass ustomization's the companf:i,,;new strategy,meaning'Li & Fungcan offer buyersa wide varietyof choices":-+and combinationsof colour;size and design or; say,a polo shirt. . . and stili .t

speedilyexecute arge orders'.

In addition to the preceding T and process e-engineeringxpertise ff '_iintegratedhe centralchineseculturalvalueof informalnetworkingGuonxi) ',+,throughout ts 70 worldwideoffice locations,suppliers, ustomers nd trans- '*portation.L&Freducedts inventoryand optimisedust-in-timemanufacturing i=

using this informal trust network.

PART5 "t?-Internat ional perat ions

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This informal networksupportedby a corporateculturedriving harmony,

flexibilityandadaptability tartswith the company's hairmanand lowsdown

to all levelsof operations.ower-ievelusiness nit managersreempowered

to be entrepreneursi.e.havehighautonomyo determine roduct rices) nd

expectedo find innovativecost-efficient olutions o compiexsupplychain

puzzles.

Corporategovernance racticesguidethis dispersedautonomy hrough a

'Codeof Conduct or Vendors',which is premisedon high levelsof trust.It outlines he rules for sourcingsuppliers'corpolate esponsibility, nviron-

mentalprotection,humanrights,healthand safety,and t providescorrective

measuresor transgressors.

while L&F,ssupplychainmanagementuccesss unparalleled,t opelates

in a brutal industry [garments)of intensecompetitionwith continualdown-

wardpressure n profit malgins;additionally, upplychainexpertises rapidly

developing t lower prices n adjacentmalkets,suchasmainlandChina.L&F

respondedo this competitivechallenge_y shifting their focus to third-tier

Chinese ities ike Chongqingand Chenfiduwith a vision to fully integrating

China n the supplychain.l7

OUESTIONS

1. Discusshe re lat ionship etweenhe internat ionalupplychainas shown n

f igure13.1 and Li & Fung's evenprincip les f supplychain management. ha t

are he key success actorswith in he internat ionalupplychain act iv i t ies?

?. Ho wcan Li & Fung's dvancednformat ionechnology pt imise ts compet i t ive

advantagen supplychain partners nd nventory ontro l?

the ncreasingompet i t ionrommainland hineseompanies,ow an

Fungmaintaints eadershipn supply hainmanagement?

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case#4 superior supply chain management in li & fung ltd

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