LI & Fung Supply Chain Case

LI & FUNG – GROWTH OF SUPPLY CHAINLI & FUNG – GROWTH OF SUPPLY CHAIN

NAMENAME ROLL ROLL NONO

Narayan Mitra Narayan Mitra 2323

Sailesh KumarSailesh Kumar 3333

Suraz VarmaSuraz Varma

Praveen PadalaPraveen Padala

LI AND FUNG GROUPLI AND FUNG GROUP

Li & Fung established 1906 in Guangzhou province in china.

First Chinese-owned company to engage in foreign trade.

Earlier as a Garment Trading company.

Total employee more than 26,000 across 40 countries.

It has three business entities.

Li & Fung trading

Integrated Distribution Services Group Ltd.(IDS)

Convenience Retail Asia Ltd.

Europe/Mediterranean(15 Locations)

Africa(3 Locations)

South Asia(11 Locations)

East Asia(21 Locations)

Southeast Asia(10 Locations)

Americas(9 Locations)

LI AND FUNG OFFICE WORLDWIDELI AND FUNG OFFICE WORLDWIDE

LI AND FUNG MARKET SEGMENTLI AND FUNG MARKET SEGMENT

Market segmentsFootwearFashionLiquorRetailFMCGPharmaceuticalAgrochemicalIndustrialCosmetics

Service offeringBonded warehousingInventory managementFreight forwardingMulti-modal transportationSpecialty warehousingRe-labeling and repackagingCustoms clearanceCross dockingRegional hubbingSupply chain management

Common warehouse management system – EXceed 4000 and proprietary web-based application to provide real time visibility of inventory, delivery status and KPIs

Before IDSBefore IDS

Factories inChina

DCs inUK

Germany DC

Australia DC

Japan DC

South Africa DC

U.S. DCs

Markets

Wholesalers or Retails

vendor shipmentsinter-DC transferinternational shipment

retail delivery

LI AND FUNG – EXPORT SC MODELLINGLI AND FUNG – EXPORT SC MODELLING

LI AND FUNG – EXPORT SC MODELLINGLI AND FUNG – EXPORT SC MODELLING

After IDSAfter IDS

Factories inChina

China hub

Germany DC

Australia DC

Japan DC

South Africa DC

U.S. DCs

Markets

Wholesalers or Retails

vendor shipments

international shipment

retail delivery

UKDC

Reform of business in three phases

Local trading company into regional sourcing agent

Office in Asia like Taiwan and South Korea.

Providing best quality and cheapest supplier.

Value added service for clients.

Contract manufacture from sourcing agent

Product prototype to whole production process.

To increase the efficiency of operation activities.

Shorten production lead time (Fashion Garments).

Reducing the delivery cycle for sourcing from suppliers.

consolidation service to clients to logistics end.

“ Tackling the soft $3”

It has three business entities.

Li & Fung trading

Integrated Distribution Services Group Ltd.(IDS)

Convenience Retail Asia Ltd.

LI AND FUNG BUSINESS TRANSFORMATIONLI AND FUNG BUSINESS TRANSFORMATION

LI AND FUNG - VALUE ADDED ACTIVITIESLI AND FUNG - VALUE ADDED ACTIVITIES

DESIGNSupport and trend

Information

MATERIAL SOURCINGCo-ordination of sourcing

activities

MANUFACTURING Quality control, Testing

Support

SHIPPINGConsolidation of goods for

easy delivery, Custom clearance through onshore

business

$4

Product Design

Sourcing Logistics WholesaleRetail

InformationManagement

$1

The cost that is spread throughout the distribution channels – the “Soft $3”

The cost that is spread throughout the distribution channels – the “Soft $3”

LI AND FUNG - TACKLING SOFT LI AND FUNG - TACKLING SOFT $3

LI AND FUNG EXPANSION STARTEGYLI AND FUNG EXPANSION STARTEGY

Across 40 countries with 80 buying offices to take advantage of Political, economic, and regulatory condition. Acquisition to extend its supplier network and customer portfolio. Inchcape Buying services a British firm in 1995 ( presence in ASIA) KarstadtQuelle AG whole buying division a retailer of Germany in 2006. Silvereed Group and Wilson & Wong Trading Co. Ltd(Hongkong).

Buying office in Turkey to take advantage of itsGeographic proximity Delivery time 7 days for finished garments to Europe by roads.Lower Production Cost.

LI AND FUNG EXPANSION STARTEGY LI AND FUNG EXPANSION STARTEGY Cont……Cont……

Onshore Business (2004) Li & Fung USA( San Francisco) played a role of importer than exporter. It mainly focused on three business areas Proprietary Brands. Private Labels Licensed Brands.

Higher profit margin due value added service. $1 billions (2004 -2007). Customer portfolio diversification in European market. From 18% in 2006 to 26% in 2007. It extended into health, beauty and cosmetics through the acquisition of Hong Kong based CGroup. RT sourcing: Point of sales display for cosmetics (US) a major supplier.

LI AND FUNG SCM EVOLUTION LI AND FUNG SCM EVOLUTION

LI AND FUNG IDS OPERATION LI AND FUNG IDS OPERATION

marketing logistics manufacturing

promote, sell, bill, collect

marketing

ship, store, deliver

logistics

make, test, package

manufacturing

QUESTION QUESTION

What could Li & Fung do to safeguard the growth of its business?What could Li & Fung do to safeguard the growth of its business?

Reduce lead time from 35 days to 7 days.Reduce lead time from 35 days to 7 days.

Reduce inventory holding.Reduce inventory holding.

Integration of operation and speed the efficiency of the supplier.Integration of operation and speed the efficiency of the supplier.

Integration of import and export operation.Integration of import and export operation.

Lower warehouse handling capacity thereby optimizing the cost.Lower warehouse handling capacity thereby optimizing the cost.

Procurement of raw material at lower cost and production at lower rate Procurement of raw material at lower cost and production at lower rate

through regional sourcing. through regional sourcing.

QUESTION QUESTION

How could it achieve the target turnover of US$ 20 billion between 2008 How could it achieve the target turnover of US$ 20 billion between 2008

and 2010?and 2010?

Import Direct, Buy Local - low landed cost, high inventory turn, maintain Import Direct, Buy Local - low landed cost, high inventory turn, maintain

service levelservice level

Global sourcing and procurementGlobal sourcing and procurement

Centralized inventory holding and replenishment at Global Export DC (Hub)Centralized inventory holding and replenishment at Global Export DC (Hub)

Optimized consolidation Optimized consolidation

Continuous replenishment (Buy less, more often)Continuous replenishment (Buy less, more often)

Collaborative global/regional promotion and new product introductionCollaborative global/regional promotion and new product introduction

Move costs upstream – improve bottomline and balance sheetMove costs upstream – improve bottomline and balance sheet

Minimize capital expenditure on distribution centresMinimize capital expenditure on distribution centres

THANK YOUTHANK YOU