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Li & Fung case study

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Key highlight of IT usage in Li & Fung Business.

Li & Fung case study

  1. 1. Li & Fung<br />Ashish Chinthal – EPGDBM090105 <br />Praveen Astagi – EPGDBM090115<br />Praveen Bhandari – EPGDBM090116<br />Pravin Iyer – EPGDBM090117<br />Tushar Phalke – EPGDBM090126<br />Venkat Rajendra – EPGDBM090129<br />EPGDBM<br />NMIMS University, Bangalore<br />
  2. 2. Agenda<br />Business of Li & Fung<br />Chronology of strategic shifts – drivers of shifts<br />Strategic grid quadrant of Li & Fungs IT investments<br />Strategic alignment model – Extent of alignment – Business, IT, Strategy, Capabilities<br />
  3. 3. Li & Fung Introduction<br />It is the world&apos;s leading consumer goods supply chain management company, managing the supply chain for retailers and brands worldwide. <br />Headquartered in Hong Kong, the Group services its customers globally through a sourcing network of over 80 offices in more than 40 economies.<br />12,000 International suppliers, 14,000+ staff<br />They are well-practiced at negotiating the system of quotas that govern world textile trade and know how to move orders between countries as quotas filled up.<br />A dedicated Extranet links together all the key components of the supply chain to<br />Provide tracking capabilities <br />Streamline the flow of business information and <br />Provide much more in-depth control of supply chain activities. <br />We deliver a new type of value added, truly global product that has never been seen before. We&apos;re pulling apart the value chain and optimising each step - and we&apos;re doing it globally.&quot;- Victor Fung, Chairman, Li & Fung, in June 2000<br />
  4. 4. Business of Li and Fung<br />Business:<br /><ul><li>Primarily into trading, a buying agency that does sourcing, borderless and virtual manufacturing by leveraging its supply chain.
  5. 5. Value added services across the entire supply-chain.
  6. 6. Sell “Soft” and “Hard” goods.
  7. 7. Soft – apparel including woven and knit garments etc comprise of 68% of Li Fungs business
  8. 8. Hard – toys , sporting goods , handicrafts, fashion accessories, house-ware, travel goods, festive + seasonal products, furnishings, promotional merchandise etc comprise of 32% of Li Fungs business</li></ul>Revenue Model:<br /><ul><li>Soft goods attract 6-8% margin
  9. 9. Hard goods attract 10-30% margin
  10. 10. Charged commission on supply of raw materials to its suppliers - managing inventory on the supplier’s behalf</li></li></ul><li>Revenues<br />The balance sheet clearly shows the financial strategy of Li & Fung. Acquisitions were made in 2007 which lead to the increase in net profits marginally but lead to a drastic increase in Intangible assets, clearly showing that the Goodwill of the companies acquired bi Li & Fung were included under this head.<br />The Reserves and Surplus also increased indicating future acquisition plans.<br />The Debt to Equity ratio for 2006 was 0.096 and in 2007 it was 0.5 indicating that the company is safe<br /><ul><li> Steady profit growth from 2004 onwards
  11. 11. Loss in 2001: Failure due to
  12. 12. Steady growth from 2004 onwards
  13. 13. Acquired 2 main rivals in 2007</li></li></ul><li>Customers, Sourcing, Subsidiaries and Competitors<br />Customers:<br /><ul><li>Global brands:
  14. 14. Coke, The Limited - GAP, Gymboree, American Eagle, Warner Brothers, Abercrombie and Fitch, and Bed Bath & Beyond. Tesco, Avon Products, Levi-Strauss, and Reebok, Guess, GAP etc.</li></ul>Sourcing:<br /><ul><li>China, US and Latin America, Bangladesh, Northern Africa, The Caribbean, England, South East Asia, Australasia etc.</li></ul>Principal Subsidiaries<br />Basic & More Fashion Limited; Camberley Enterprises Limited; Colby International Limited; CS International Limited; Dodwell (Mauritius) Limited; Janco Overseas Limited; Li & Fung (Exports) Limited; Lloyd Textile Trading Limited; Maclaine Limited; Shiu Fung Fireworks Limited; Toy Island Manufacturing Company Limited; Verity Enterprises Limited; LF International Inc. (U.S.A.).<br />Competitors:<br /><ul><li>APL Logistics
  15. 15. UPS Supply Chain Solutions
  16. 16. William E Connor & Associates</li></li></ul><li>Supply Chain of Li & Fung<br />Supply Chain based on<br />Flexible – Can be modified to suite new requirements<br />Agile – Can source and export from 4 continents across the globe<br />Cost-effective – Believes and deals in economies of scale<br />Responsive – Is fast to react to change<br />7pillars of Li Fungs supply chain;<br />Being customer-centric and market demand driven<br />Focus on one&apos;s core competency and outsource non-core activities<br />Develop a close, risk- and profit-sharing relationship with business partners;<br />Design, implement, evaluate and continuously improve the work flow, physical flow, information flow and cash flow in the supply chain;<br />Adopt information technology to optimize the operation of the supply chain;<br />Shorten production lead time and delivery cycles; and<br />Lower costs in sourcing, warehousing and transportation<br />
  17. 17. Strategy Changes<br />
  18. 18. IT strategy Grid<br />High<br />Impact on Business Operations<br />Low<br />Low<br />High<br />Impact on Strategy<br />
  19. 19. Information Platform for Integrated Solutions <br />Consolidation Centers in various origins<br />Drayage in various destinations<br />Li & Fung<br />De-Consolidation Hub at destinations<br />Suppliers in various origins<br />Shipping<br />Drayage in various origins<br />Send production orders<br />Custom Declaration<br />Custom Clearance<br />Consolidate orders<br />Destination DCs<br />Place one order<br />Update<br />Order & shipment status, inventory visibility<br />Management and Buyers receive reports<br />Buyers<br />Accounting receive a single invoice<br />Import Direct & Trigantic Extranets<br />Global Supply Chain Center<br />Transaction platform, product catalogue, suppliers, procedures, self-help manual, query, reports, customer service<br />supply chain analysis, inventory management<br />
  20. 20. Alignment between Business & IT<br />Three main business groups - Trading, Retailing, and Distribution.<br /> Established company-wide intranet linking critical company operations.<br /> Dedicated Extranet links key components of supply chain.<br />Provides tracking capabilities, streamline the flow of information and provide much more granular control of supply chain activities.<br />Believe that IT strategy central to supply chain management success. <br />Leverage the power of the internet as customers demand more customized product choices. <br />In 2002, started up an entire business division focused on B2B sourcing via an internet e-commerce website called linking small- to medium-sized businesses with suppliers similar in concept to <br />L&F leads the world in supplier sourcing as a true “clicks-and-mortar pioneer”.<br />
  21. 21. The Changing role of Li & Fung<br />Supply Chain<br />Management<br />Level of Value Added<br />Virtual<br />Manufacturing<br />Borderless<br />Manufacturing<br />Sourcing<br />Buying<br />Agency<br />1906<br />Now<br />
  22. 22. Alignment between Strategy and Capabilities<br />