Li & Fung: The Global Value Chain Configurator

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Case Details:

Case Code : BSTR149
Case Length : 30 Pages
Period : 1996-2004
Organization : Li & Fung
Pub Date : 2005
Teaching Note : Available
Countries : Hong Kong, US, Europe
Industry : Trading, FMCG

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Managing the Global Supply Chain

Li & Fung's evolution into a supply chain manager took place in three stages, driven by significant changes in the global retailing industry, customer and retailer preferences and economic trends across Asia through the early 1970s. In the first stage (during the 1970-78 period), Li & Fung acted as a regional sourcing agent. The company extended its geographic reach by establishing sourcing offices in Singapore, Korea and Taiwan. Li & Fung's knowledge and reach in the Asian region held value for customers...

Dispersed Manufacturing

Li & Fung broke the value chain into parts which it called 'Dispersed Manufacturing.' Under this, the company performed all high end value-added activities such as design and quality control in Hong Kong and outsourced low end activities like manufacturing to the best possible locations across the world. For every order, the company aimed at customizing the supply chain to meet the client's specific requirements. For example, when Li & Fung got an order for transistor radios, it created little kits (plastic bags) filled with all the components necessary to build a radio and shipped the kits to China, where they were assembled. The assembled radios were then shipped back to Hong Kong, where they underwent final testing and inspection...

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Global Supplier Network

When Li & Fung got an order from a customer, it sifted through its global supplier network (See Exhibit V for Li & Fung's Global Sourcing Network) to find the right manufacturer for the specific product and the most attractive combination of cost and quality. The company broke up its supply chain to disperse different production processes to manufacturers in various countries, based on factors such as labour costs, quality, trade barriers, transportation costs and so on. The company coordinated all processes in the value chain, managing the logistics and arranging the shipment of the finished order to the client...

The SCM Strategy

To ensure shorter product delivery cycles, Li & Fung managed the whole supply chain of its customers. To shrink the delivery cycle, the company reached upstream to organize production and ensured small production runs, which resulted in improved response time for retailers, enabling them to alter production in tandem with market trends. For instance, Li & Fung got to know that Levis would order 1 mn pieces of garments, but did not have specific details of style or colours. This would be disclosed only four weeks before delivery was due. Under these circumstances, Li & Fung, based on trust and its strong relationship with suppliers, reserved un-dyed yarn and locked up capacity at mills for weaving and dying...

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