Li&Fung Supply Chain Operations Analysis - Essay Example

Li & Fung Supply Chain Operations Analysis Introduction: The practice of supply chain management is a familiar concept among businesses today. Business integration at an international level has developed the significance of supply chain management. It encompasses overall management of the supply chains of companies and their business activities including the functionalities to design, make, deliver, and use a product or service. In terms of effective operability of supply chains, there are five main areas of business where strategic decision making is required. These are the major supply chain drivers (Hugos, 2003; Chopra and Meindl, 2007): Production - What, how and when to produce Inventory - How much to make and how much to store Location - Where best to do what activity Transportation - How and when to move product Information - The basis for making these decisions This paper briefly address the supply chain operations analysis of Li & Fung, a multinational consumer goods sourcing company managing the supply chain for retailers and brands in more than 40 countries across the world. It provides a short company profile and analyzes the supply chain operations analysis on the basis of which there are certain recommendations provided by the paper. Company profile: Headquartered in Hong Kong, Li & Fung is a global trading group supplying high-volume, time-sensitive consumer goods in more than 40 countries. Garments make up a large part of the Li & Fung business model, which also covers the sourcing of goods such as fashion accessories, furnishings, gifts, handicrafts, home products, promotional merchandise, toys, sporting goods and travel goods. As a supply chain manager across many producers and countries, Li & Fung provides value added services including product design and development, raw material and factory sourcing, production planning and management, quality assurance and export documentation to shipping consolidation. It is important that as trading company, Li & Fung manages a large number of independent producers instead of owning any production facilities. With nearly 12 billion USD in sales and 15,000 worldwide employees, Li & Fung is a worldwide name of corporate success and coordination. Its Garment and Apparel division is a leading competitor in the global marketplace. Its clients include some of the leading apparel manufacturers and retailers such as Wal-Mart and Target (Kapner, 2009). Supply chain operations analysis: In terms of analyzing a company’s supply chain operations, the five drivers of supply chain performance mentioned in the Introduction are to be considered as the design parameters or policy decisions that define the shape and capabilities of any supply chain. In order to discuss the supply chain operations of Li & Fung, we can organize the analysis by using the following four categories: plan, source, make and deliver. Coming to the deliver part, Li & Fung has been credited with a developing graph in terms of its total turnover and gross profit from 2004 to 2008. The following financial statistics proves it (Source: Interim and Annual Reports of Li & Fung): In HK$ 2004 2005 2006 2007 2008 Turnover 47,170,601 55,617,374 68,010,257 92,459,949 110,722,117 Cost of sales (42,847,976) (49,956,433) (60,674,807) (82,692,446) (99,119,132) Gross profit 4,322,625 5,660,941 7,335,450 9,767,503 11,602,985 Other revenues 223,444 264,384 311,553 518,225 420,925 If we summarize the performance of Li & Fung from 2004 to 2008, the company’s progress is evident even in challenging market conditions. In 2004, the Group achieved competitive advantage in the face of higher interest rates, sharp decline in the value of US dollar and higher oil prices. The Group turnover has witnessed a significant growth during these five years (Source: Interim and Annual Reports of Li & Fung): Year Increase in Group turnover 2004 11% 2005 18% 2006 22% 2007 36% 2008 20% 2004 witnessed margin improvement and licensing strategy for Li & Fung that resulted in the Group’s expanded interest in incorporating a wide range of add-on services, contributing effectively to its profit growth. In 2005, the Group adopted a complete outsourcing solutions process as its strongest business strategy. Outsourcing and supplying branded goods to retailers further resulted in gaining stronger consumer base in the US, the Group’s major export market. Some of the relevant marketing strategies adopted by the Group were: promotion of organic growth with smaller acquisitions of business, quick response sourcing and value-added services, and promotion of global trade. By 2006, the increasingly inter-linked world economy resulted in growth for supply chains with high profits and high growth worldwide. The processes of ‘supply chain globalization’ (Chan and Lee, 2005) created business opportunities for the Group to meet increasing demand of external outsourcing expertise. One of the winning strategies of Li & Fung is its expansion into new business lines that opened new avenues for growth as well as new consumer markets for the company in 2007. This strongly indicates the requirement of a higher degree of specialization and diversification in order to meet the increasingly diversified needs of the consumers. With global consolidation across the supply chain in 2008, Li & Fung adopted a business model of including variables rather than fixed costs. Consumer demand also shifted from high-end brands and luxury goods to value brands, which favored the company. Recommendations: The marketing strategies of Li & Fung are efficient and effective in favor of achieving competitive advantage. However, considering the fast changing marketplace and consumer demands in a global business, it is important that the supply chain include the following aspects for serious consideration: Ethics and CSR - Strong ethical values and corporate social responsibilities should be part of the management strategic planning. Product variability - As customer demands are becoming diversified, it is strategic for the supply chain to go for a wide range of product sourcing while quality is emphasized. Promotion of organic growth - With everything going organic, it is important to provide a healthy environment for consumers by promoting organic products. Safety and health issues - As outsourcing is becoming a norm in every supply chain, health and safety issues of consumers as well as employees should be emphasized in the strategic planning. Employee efficiency - The implementation of new technologies is significant for improving employee efficiency and effectiveness. Besides, coordination and cooperation are two important factors for againing competitive leverage. Conclusion: The concept of a global marketplace is fast changing the business scenario of supply chains. More and more emphasis is being given to the relevance and efficiency of business outsourcing. At the same time, the growth of information technology (Wang, Heng and Chau, 2007) has brought a revolutionary change in businesses, which means that there are better scope of growth in supply chains. While adopting all these business strategies, Li & Fung has definitely come out as a winning team of efficient souring and trading company across the world. References: 1. Chan, C. K. and Lee, H. W. J., 2005. Successful Strategies in Supply Chain Management. Hershey, PA: Idea Group. 1. Chopra, S. and Meindl, P., 2007. Supply Chain Management: Strategy, Planning, and Operation. 3rd Edition. London: Prentice Hall. 1. Hugos, M., 2003. Essentials of Supply Chain Management. New Jersey: Wiley. 1. Kapner, S., 2009. The unstoppable Fung brothers. Fortune, [Online] December 9, 2009. Available at: http://money.cnn.com/2009/12/07/news/international/li_fung.fortune [Accessed 9 December 2009]. 1. Li & Fung, Investor Relations 2004 – 2008 Interim and Annual Reports. 1. Wang, W. Y. C., Heng, M. S. H. and Chau, P. Y. K., 2007. Supply Chain Management: Issues in the New Era of Collaboration and Competition. London: Idea Group. Read More