LI & FUNG LIMITED

BEST PRACTICES
&

GLOBAL SUPPLY CHAIN MANAGEMENT

 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 SOURCING
1970-79

PRODCUTION
PROGRAMMER
1979-82

GLOBAL SUPPLIER
NETWORKS
1982 0NWARDS
 EVOLUTION OF SCM STRATEGY
 1970- 78
LI & FUNG acted as a regional sourcing agent
It extended its geography to establishing sourcing offices in Singapore, Korea, Taiwan
Reason 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 want
LI & FUNG benefitted by trading with those nations where quotas had not been exhausted, as
world trade was governed by quotas

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

 1980 onwards
LI & FUNG saw many Asian firms become labour intensive manufacturing hub while Hong –Kong
turned to become expensive
It 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 MANUFACTURING
Taking 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
NORTH ASIA
SOUTHEAST ASIA SOUTH ASIA Beijing
Bangkok Amman Seoul
Hanoi Bahrain Macau
Ho Chi Minh City Bangalore Shanghai
Jakarata Chennai Taipei
Makati Colombo Tokyo
Phnom Penh Delhi Hong Kong
Saipan Dhaka Liuyang
Shan Alam Karachi Hepu
Singapore Lahore
Mumbai
SOUTH AFRICA Sharjah
Durban
Madagascar
Mauritius
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 CONTRACT MANUFACTURING:

PROVIDED FIRST PARTY-RESPOSIBLE FOR PROCUREMENT OF RAW MATERIALS
THIRD PARTY- RAW MATERIAL PROVIDED BY CLIENTS

COMPOUNDING , MIXING AND PACKAGING:

BASED AND FORMULATION AND PROCEDURES PROVIDED BBY CLIENTS
WIDE RANGE OF PACKAGING SOLUTIONS HANDEL PACK SIZE FROM 1
MILLLION TO 1 TON

VALUE ADDED AND LOGISTICS SERVICES:

PRODUCT REGISTRATION
LABORATORY TESTING
COMPREHENSIVE 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
SUPPLIER FACTORY DCDC RDC RETAILER

Raw Materials
Finished Goods

Information Flow
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)