Li & Fung Group

The Li & Fung Group

 A Hong Kong-based multinational company founded in

1906
 Operates in some 40 countries and regions and employs
over 26,000 people worldwide
 Core competency: Supply Chain Management
 3 core businesses: Trading, retailing and distribution
The Li & Fung Group

Li
Li&&Fung
Fung(1937)
(1937)Ltd.
Ltd.

LiLi&&Fung
Fung(Trading)
(Trading)Ltd.
Ltd. LiLi&&Fung
Fung(Retailing)
(Retailing)Ltd.
Ltd. IDS
IDSGroup
Group
Product Sourcing Retailing Distribution, Marketing & Logistics
Product Sourcing Retailing Distribution, Marketing & Logistics

Publicly Listed
Publicly Listed
MSCI Hong Kong Index Publicly Listed Publicly Listed
MSCI Hong Kong Index Publicly Listed Publicly Listed
Hang Seng Index
Hang Seng Index
The Li & Fung Group

Li
Li&&Fung
FungTrading
TradingGroup
Group
••AALeader
Leaderin
inGlobal
GlobalSourcing
Sourcing
••70
70Offices
Officesin
in40
40Countries/
Countries/Regions
Regions
••9,600
9,600staff
staff
••Turnover
TurnoverUS$
US$8.7
8.7bb
The Li & Fung Group

Li & Fung Retailing Group

• Circle K (>300 stores)
• Toys R Us Asia (>49 stores)
• Others (Trinity, Branded
Lifestyle, etc.)
•11,000 staff
• Turnover US$ 700 m
The Li & Fung Group

IDS
IDSGroup
Group
••Marketing
Marketing&&Logistics
Logisticsexperts
experts
••99markets
marketsininAsia
Asia&&Greater
GreaterChina
China
••40
40distribution
distributioncenters
centers
••Over
Over300
300MNC
MNCprinciples
principles
••5,000
5,000staff
staff
••Turnover
TurnoverUS$
US$11billion
billion
Li & Fung Trading Group
Customer Base

Others USA
Europe 10% 72%
18%

Apparel
68%

Hardgoods
32%
Major Customers - North America
Europe
Rest of the World
Coordinated Global Network
70 Offices in 40 Countries / Regions
Europe/Mediterranean East Asia
(15 Locations) (21 Locations)

South Asia
(11 Locations)

Americas
(9 Locations) Southeast Asia
(10 Locations)

Africa
(3 Locations)
 Li & Fung’s
Supply Chain Management Model --
Thought Leader in the Industry
Supply Chain

Supply Chain
 A supply chain encompasses all activities from obtaining
the raw materials, through production, wholesale, retail,
warehousing and transportation, to the delivery of the final
goods or services to the end-customers.

“Four Flows” ： work flow

physical flow
information flow
funds flow
Supply Chain Management

Supply Chain Management (SCM)

Supply chain optimization
Deliver the right product at the lowest price, in the
shortest time, and in the right place to the end user
Advantage ： Overall cost reduction with maximum
efficiency
Li & Fung’s Supply Chain Management

 Globalization effect: Competition is no longer between

companies but between companies’ supply chains
 Definition of supply chain management is yet being
compromised
 Harvard Business Review: 6 case studies of Li & Fung
 As a leader in supply chain management, Li & Fung has
derived seven principles in supply chain management
The concept of “Soft $3”

Product Sourcing Logistics Wholesale

Information Management
Design Retail

$1 $4

The cost that is spread throughout the

distribution channels – the “Soft $3”
7 Principles of Li & Fung’s SCM

(1) Be customer-centric and respond accordingly to the

market demand ；
(2) Focus on one’s core competency and outsource non-core
activities, and develop a positioning in the supply chain ；
(3) Develop a close, risk- and profit-sharing relationship with
business partners ；
7 Principles of Li & Fung’s SCM

(4) Adopt information technology to optimize the operation

of the supply chain ；
(5) Design, implement, evaluate and adjust the work flow,
physical flow, information flow and cash flow in the
supply chain ；
(6) Shorten product lead time and delivery cycles ；
(7) Lower costs in sourcing, warehousing and transportation.
Li & Fung Trading’s Business Model
Li & Fung Trading’s Evolution to A Global Supply Chain
Manager

Global Supply
Chain Manager
Level of Value Added

Regional
Sourcing Agent

Trading
Broker

1906 Now
Dispersed Manufacturing / Borderless Manufacturing

Assembly
CHINESE
MAINLAND
Lining
TAIWAN Performing
Shell production slicing to
KOREA identify the best
by location/ country to
 undertake each
Made in Hong Kong stage of process,
adding value along
the way &
Filler integrating the entire
Label, elastic,
studs, toggle CHINESE supply chain
and string MAINLAND
HONG KONG Zipper
JAPAN
Orchestrator of the Supply Chain
Li & Fung (Trading)

Supply Chain Management Supply Chain Financing Supply Chain

Consumer Needs Financing Raw Material Mills

Product Design
Financing Factories
Product Development

Optimize the Supply Chain

Factory & Raw Material Sourcing Financing Shipping / Airlines

Manufacturing Control Importers,. Wholesalers

Retailers
Forwarder Consolidation
Consumers
Customs Clearance

Local Forwarding
Consolidation
Distribution Services

Inventory Management
Virtual Manufacturing

 Benefits from owning 7,500 “smokeless factories” without

investing huge sums of money to acquire the production and
associated logistics facilities
 Leverages the assets of our partners and mobilizes them to
reach our growth initiatives, instead of owning them
 Reduces the risks associated with the burden of asset
ownership
 Enjoys high degree of flexibility
 More responsive to potential market shifts and technological
changes
Capital-light / Leveraged Growth Business Model

 One of the best embodiments:

Virtual Manufacturing
 Maintains minimal financial leverage. Almost no debt on the
balance sheet
 Li & Fung continues to deliver a return on equity of more
than 20%
 Employee productivity: close to US$1 million in sales per
employee
Managing the Supplier Network

 Has intimate knowledge of suppliers

 Balances job allocation among our portfolio of
suppliers
 Becomes the orchestrator in the entire production
process, ensuring each milestone is achieved
Managing the Supplier Network

Share responsibilities with suppliers:

 Helps suppliers to solve their sourcing & manufacturing

problems. Leverages on our supplier network to secure
materials for our manufacturers at better terms
 Provides sufficient economic incentives for suppliers: take
30%-70% of their production capacity over the long term
Business Drives Information Technology

 The application of IT aims to provide more value-added

services, shorten lead time, lower cost and enhance flexibility
 Li & Fung has established sophisticated & Internet-based
systems to link up all its business partners, including
customers, producers, distributors, logistics service providers
etc
 Lead time is reduced from 3 months to 5 weeks
Business Drives Information Technology

Import Direct
 An interface software for e-commerce
 Core management system for Li & Fung
 Functions include:
(1)platform for e-commerce between suppliers
and customers
(supplier ： an interface for product promotion ；

customer ： a tool for sourcing and tracking

process)
(2) product catalogue
(3) enquiry on sourcing materials
(4) submit purchase orders and track production process
Business Drives Information Technology
Implementation of Import Direct
XTS-5

delivery of orders
direct access
Tracking System
Suppliers
Import
Direct Forwarder
Li & Fung staff
submit
Quotations estimate
Track production shipment schedule
progress

Customers
Business Drives Information Technology

Advantages of Import Direct

 Integration of all information
 Close communication with business partners
 Shorten back-and-forth adjustment time among various
components of the supply chain
 Information sharing
 Foster communication with participants in the Supply Chain
Organization Innovation

Smart Organization Design

 Customer-Centric Divisions
 Designed around customers
 Creates a customized value chain for each of the customer’s orders
 Encourages Entrepreneurship – Little John Wayne
Optimizes the supply chain by better fulfilling customers’ needs,
maximizing performance & maintaining high quality level

Think like a big company, act like a small one

Organization Innovation

 Operation Support Group (OSG)

 Centralizes and maintains tight control over the
financial control & operating procedures
 Set up an OSG to serve as the back-office hub
administering 3 functions: IT, finance & human
resources
 Marries the strengths of being both small and big at the
same time: being flexible and responsive, and having
rich & powerful resources