Its Impact On Supply Chain Management Essay

The Li & A ; Fung Group is a Hong Kong-based transnational company consisting of three nucleus concerns: export trading, distribution and retailing. Founded in Guangzhou in 1906, Li & A ; Fung Group, with an one-year turnover of around US $ 5.8 billion, operates in some 40 states and parts and employs over 10,000 people worldwide. Its nucleus competence is supply concatenation direction.

Export trading

The export trading concern is operated by Li & A ; Fung Limited ( referred to as Li & A ; Fung afterlife ) . It is the most of import section of Li & A ; Fung with an one-year turnover of over US $ 4.7 billion. Through a web of 68 sourcing offices in 38 states, Li & A ; Fung beginnings high-volume, time-sensitive consumer goods on behalf of clients worldwide. Garments make up a big portion of the trading concern, which besides covers the sourcing of manner accoutrements, trappingss, gifts, handcrafts, place merchandises, promotional ware, toys, featuring goods and travel goods.

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As a supply concatenation director for many manufacturers and states, Li & A ; Fung provides the convenience of a one-stop store for clients through a entire value-added bundle: from merchandise design and development, through natural stuff and mill sourcing, production planning and direction, quality confidence and export certification, to transporting consolidation.

Alternatively of having production installations, Li & A ; Fung manages over 7,500 quality-conscious, cost-efficient manufacturers who deliver to a short deadline for its clients.


The in private held Li & A ; Fung ( Distribution ) Limited ( “ Li & A ; Fung Distribution ” ) operates a distribution web covering nine ASEAN states every bit good as Greater China. It distributes fast-moving consumer and health care merchandises on behalf of 300 transnational principals.

Li & A ; Fung Distribution specializes in fabrication, selling and logistics, which are integrated to make optimized supply ironss for its principals.


The Li & A ; Fung ( Retailing ) Group ( “ Li & A ; Fung Retailing ” ) operates two forte concatenation shops in the ASEAN part and Greater China, viz. , Circle K Convenience Stores and Toys ‘R ‘ Us. The two ironss present client satisfaction by offering merchandise diverseness in a friendly and appealing environment. There are over 190 mercantile establishments across the whole part with an mean entire client count of over 400,000 per twenty-four hours.

Holistic supply concatenation direction

Pull offing dispersed fabrication was a existent discovery for Li & A ; Fung. The company so hunt for new and better beginnings of supply and extended our geographic range globally, therefore further developing our theoretical account of “ borderless fabrication ” . Under this theoretical account, Li & A ; Fung dissected the value concatenation, looked for the best solution at each measure, and organized production in the most cost-efficient topographic points. This was achieved by conveying together the lowest-cost, highest-quality concluding merchandise constituents from assorted beginnings throughout the parts for fabrication. Regional coordination is cardinal to this theoretical account.

If the company have an order from a European retail merchant to bring forth 10,000 garments. It is non merely a simple affair of our Korean office sourcing Korean merchandises or our Thailand office sourcing Thailand merchandises. For this client, the company might make up one’s mind to purchase yarn from a Korean manufacturer but have it woven and dyed in Taiwan. Since the Nipponeses have the best slide fasteners and buttons, they would travel to YKK, a large Nipponese slide fastener maker and order the right slide fasteners from their Chinese workss. Having considered the factors of quota and labour, they might make up one’s mind after all that the best topographic point to do the garments was Thailand, hence, ship everything at that place. The Supply Chain Managers might besides split the order among five different mills in Thailand to guarantee speedy bringing. Five hebdomads after having the order, 10,000 garments arrived on the shelves in Europe, wholly looking as if they came from one individual mill, with colourss and everything else absolutely matched. In this instance, Li & A ; Fung produced a truly planetary merchandise by drawing apart the value concatenation and optimising each measure.

Today, Li & A ; Fung is a planetary supply concatenation director for labour intensive consumer goods, a multi-faceted service organisation pull offing clients ‘ worldwide production plans. In short, provide concatenation direction is about purchasing the right thing and shortening the bringing rhythm. In add-on to moving as an agent, Li & A ; Fung besides works with clients as a principal. It is able to manage all the plants along the supply concatenation, including research on consumer demand, merchandise development, natural stuff sourcing, production planning, mill sourcing, fabricating control, quality confidence, export certification, transporting consolidation, distribution and logistic direction and selling, gross revenues and client service.

Macroeconomic background

Consumers presents demand merchandises to be produced at the lowest cost with the fastest turnaround clip possible. To accomplish this, Li & A ; Fung needs to interrupt down the supply concatenation into smaller constituents, select the most efficient manufacturer ( s ) at each phase of the production procedure, and run things in analogue instead than in sequence. With efficient supply concatenation direction, Li & A ; Fung succeeds in take downing the overall cost even after paying the excess cargo and handling charges.

The promotion in information and communications engineerings ( ICT ) in recent old ages implies that the ability of houses to gain from information lacking has been fast vanishing. As a consequence, Li & A ; Fung could no long cleaving to its traditional concern as a ‘trading agent ‘ . The chances of utilizing new information engineering substructure to work the cross-border synergisms available to reconstruct net income Margins. Cross-border distributed fabrication is a typical illustration. Besides, we find it of import to do usage of information engineering to heighten the efficiency of supply concatenation direction. For illustration, Li & A ; Fung has developed, particularly for clients in difficult goods, an e-commerce platform called Import Direct, which will be discussed subsequently.

Information Technology

Li & A ; Fung is a company that does non have a stitch when it comes to doing garments. It owns no mills, no run uping machines, and so on. They call themselves an “ information company ” , trusting on a widespread web of providers to make the work.

Back in 1997 when B2B exchanges and other signifiers of B2B web sites started to look, people were inquiring whether Li & A ; Fung be disintermediated from the middleman function. The reply to this inquiry is that the Internet is merely another communicating tool merely like the facsimile machine, which provides more value-added services and span communicating spreads with the clients.

Li & A ; Fung has established a sophisticated, intercrossed Internet-based system to pass on with its clients. For big clients, it has created an extranet called Export Trading System ( or XTS, version 5 ) that allows them to shop merchandises and topographic point orders online.

For illustration, as a garment moves through the production procedure, clients can do last-minute alterations to their orders via Import Direct ( a package interface that links to XTS-5 ) , which tracks the full production procedure. Back in the yearss when Li & A ; Fung was entirely run by phone and facsimile, an order of say, 60,000 Polo shirts, would take no less than four months to present due to legion back-and-forth readjustments. Now, until the cloth is dyed, the client can alter the colour online ; until it is cut, the client can alter the size and design online ; and until the stuff is woven, the client can call off the order online. With faster communicating, they are able to minimise errors and better fulfill clients ‘ demands and accommodations.

The XTS-5 system is mostly designed and written in-house by Li & A ; Fung, but it besides uses Hewlett-Packard and Compaq computing machines and Oracle database package to pull off information and shop informations. Wholly, the XTS-5 system presently holds a singular 1.5 TBs of informations, which is tantamount to 1.5 million books. The system is linked to the offices where staff can oversee the fabrication of client merchandises.

The degree of communicating between state offices and the Hong Kong central office varies, depending on the state ‘s telecommunication system. For case, in more advanced markets, the local subdivision offices can be linked straight to Hong Kong. Staff at those offices can associate up with the cardinal databases and send digital exposure of cloths or merchandises back and Forth. Staff at Li & A ; Fung calls this “ thick connexion ” . In states where telecommunication systems are comparatively crude, the subdivision offices will utilize Lotus Notes to pass on via electronic mails and email fond regards. This is called “ thin connexion ” .

In the old yearss when most staff at Li & A ; Fung still relied on paperwork, much of the information received from clients would be manually input into the cardinal database. For case, when staff received a purchase order from a client via electronic mail or facsimile, the order information would be manually typed into the cardinal database and transmitted to the several providers. At the provider terminal, they would hold to once more type in the information received from Li & A ; Fung, and so frontward to their ain providers. The mechanism was non merely time-consuming but besides prone to errors because informations had to be re-typed several times. The usage of Electronic Data Interchange was a large measure in more effectual informations transmittal between concern spouses. However, EDI is non merely dearly-won but a batch of its scheduling codifications for an order could non be reused for other clients.

Li & A ; Fung is besides to the full watchful to the demand to better the transparence of the supply concatenation. Take traditional supply concatenation for a garment as an illustration. Without cognizing the cargo day of the months, the parts provider will non be able to procure sufficient supplies, and without cognizing what the concluding merchandise looks like and the complete image of the client ‘s order, the provider can non offer the best pick and do any cross-selling for the order. Communication spreads are likely to decelerate the flow of merchandises along the supply concatenation, doing holds in bringing.

In July 2002, Li & A ; Fung worked with Microsoft ‘s Biztalk to better its supply concatenation efficiency by better linking front-end orders from its clients with the back-end order processing system. The solution includes two major constituents: the Li & A ; Fung Trade Gateway that is the cardinal papers exchange hub, and the Supplier SCMTalk solution that ensures smooth and efficient informations transmittal between Li & A ; Fung ‘s and providers ‘ systems. Customers can subject purchase orders, requisitions and other trade paperss in any formats such as facsimile, EDI, Microsoft Excel or Word files to Li & A ; Fung. The Gateway will change over the paperss into XML format and incorporate the information into Li & A ; Fung ‘s order processing system.

This does non intend that with this new engineering, every measure in the supply concatenation will go mechanical. They still retain and depend on human expertness at every important point in the supply concatenation, such as the designing of merchandises, and the pick and allotment of a large order to different mills to acquire the occupation done rapidly. Staff is besides relied on to guarantee the reaching of stuffs to providers and that production and shipment agreements are being scheduled. To do certain that makers comply with the client ‘s demands and cognize how they treat local labour. And these things can non be left to the computing machine and must necessitate human judgement and experience. For these grounds, the Internet is improbable to take control of the whole supply concatenation, nor can it orchestrate the supply concatenation. Rather it helped upon as an enabler to assist do the supply concatenation more effectual communicating for participants.

Since the clients are progressively demanding customized services to break their supply concatenation, Li & A ; Fung have started to plan and construct customized extranet sites for clients to pull off their ordination and tracking online. One of Li & A ; Fung ‘s successful instances is the Coca-Cola extranet site. A few old ages ago, Coca-Cola and its many independent bottlers around the universe were progressively trusting on premium ware tied to featuring ( Football, Cricket and Rugby etc ) events to advance the trade name. But Coca-Cola, being a drink company and non a premium merchandise maker, found it expensive to pull off all the fabrication activities and the procedure excessively slow to maintain up-to-date with the sporting and other amusement events.

In March 2002, Coca-Cola commissioned Li & A ; Fung to plan and construct a customized extranet site. The site allows Coke executives and bottlers to order merchandises they design along with Li & A ; Fung ‘s interior decorators, or to reexamine what other bottlers have ordered. If a Coke ‘s subdivision office selects a merchandise that is utile in its market, it can inquire on other bing orders. This can accomplish economic systems of graduated table in production and besides assist single offices of Coca-Cola to cut down cost. The new web site has received an enthusiastic response since we have the ability to present merchandises within a short clip frame.

Apart from Coca-Cola, Li & A ; Fung has besides developed customized extranet sites for other clients as good. The figure of extranet sites has grown from six to 15 during 2001-2002.

Advanced information engineering

In today ‘s extremely competitory planetary market, companies are forced to re-evaluate the manner they do concern. Customers are no longer taking purchasing determinations based entirely on monetary value and merchandise quality, but are besides demanding velocity with high degree of service quality and added values. One manner to run into these challenges is by turning the traditional supply concatenation that is focused on merchandise and efficiency into 1 that is advanced and customer-focused. At Li & A ; Fung, information engineering is seen as a liasaion in the company ‘s extended supply concatenation web and as instrumental to supplying customized, choice support for clients and their time-sensitive demands. They hence, continue to put in new Information Technologies for greater efficiencies across all facets of the supply concatenation and better the merchandise design capablenesss in order to further beef up our leading place in planetary supply concatenation direction.


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