Li & Fung Case Study

Question 2: Li & Fung do no manufacturing it. What then is its role? How does the
company create value?
Li & Fung is one of the leading consumer goods supply chain management company
which is responsible to manage the supply chain for retailers and several brands across
the globe. Li & Fung has been headquartered in Hong Kong and serves through 80
offices in more than 40 countries of the world. Li & Fung perform its core business as a
buying agency which is responsible to source products across the globe by virtual
manufacturing and supply chain service. It is the largest trading company in the world
mainly operating in the developing world. The annual sales of Li & Fung were more than
$11 billion which was just $1.2 billion in 2000. This shows that Li & Fung has been
growing day by day. Li & Fung basically does not take part in the manufacturing
activities. Contrary to this, it plays its role as a coordinator to integrate all supply chain
activities such as technical support, raw material purchasing, merchandising, quality
assurance, shopping and design. The activities of Li & Fung which create value for it are
grouped as:

Sourcing and procurement: Li & Fung have received design from the Limited to
source activities for major brands and manufacturers. Li & Fung also conducts

certain negotiations with the manufacturers and cut down the prices.
Scheduling production: Li & Fung generates value through its wide scale

activities such as Just-in-Time strategy.

Transportation: Li & Fung also operates in the logistics section. The means of
transportation used by Li & Fung are also based on cost effective mechanism.

Li & Fung has been creating value through its changing role from a buying agent to
sourcing agent to borderless manufacturing o virtual manufacturing. The value chain of
Li & Fung has been highly effectively developed and integrates several components as
given below:

Question 3: What do you think drives the choices that Li & Fung makes about
who should produce what for its clients?
Most importantly, Li & Fung is not engage in the manufacturing facilities rather it focuses
on choosing low cost providers who also provide high quality products to clients. In this
respect, Li & Fung aims to hire skilled labor from different locations. For instance, Li &
Fung takes yarn from Korea and waves and dyes it in Taiwan. Button and zipper are
manufactured in China which is one of the low cost labour countries. In addition, China
has sophisticated technology in its textile sector. This is the reason that China has
become an important attraction for clothing brads like Li & Fung.
Despite of this factor, outsourcing has become difficult for Li & Fung because of trade
barriers. In this particular case, Li & Fung has made a significant balance between
quotas on imports in Thailand. Despite of high quotas imposed in Thailand, Li & Fung
has chosen to open its locations in this country because it is the best assembly place for
finished goods. In addition to this, agile and flexible supply chain of Li & Fung provides a
range of choices to company for facilitating its clients across the globe.

Question 4: What is the source of Li & Fungs competitive advantage in the global
economy?

The basis of competitive advantage of Li & Fung is on its efficient supply chain network.
The supply chain of Li & Fung has been based on four important pillars viz. Flexibility,
agility, cost effectiveness and responsiveness. Flexibility enables Li & Fung to adapt to
new requirements of business. Agility has enabled Li & Fung to source and exports
products from 40 countries which have spread on 4 continents of the globe. Through its
cost effective supply chain, Li & Fung have reduced its cost across several operations
and enhanced profitability. Responsiveness allows Li & Fung to take quick action on
certain orders and changes in the external environment.
In addition to this, the supply chain of Li & Fung has been based on 7 major pillars
which drive competitive advantage for the company. These pillars are: 1) It is customer
centric and demand driven company, 2) it focuses on the core competency and
customer no-core activities, 3) it has developed a risk and profit sharing model with
business partners, 4) it designs, implements and evaluates work flow efficiently so that
physical material flow, information flow and cash flow in supply hand remain in
consistency, 5) it adopts information technology in supply chain for epitomizing its
outcomes in supply hand, and 6) it has shorten delivery cycles and lead times, 7) it has
lower cost in sourcing, transportation and warehousing