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SCM and Network Orchestration The Li & Fung Experience

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Title: SCM and Network Orchestration The Li & Fung Experience


1
SCM and Network OrchestrationThe Li Fung
Experience
  • Chang Ka Mun
  • Managing Director
  • Li Fung Development (China) Limited
  • Li Fung Research Centre
  • 9 November 2010
  • APEC e-Trade and Supply Chain Management Training
    Course

2
Li Fung Group
  • Founded in Canton (now Guangzhou) in 1906
  • Global multinational headquartered in Hong Kong
  • Worlds leading supply chain manager in the
    consumer goods market
  • 2009 Total Revenue US16 billion
  • Staff Population 35,000
  • Geographic Spread Across 40 economies worldwide

3
Li Fung Group
  • Ranked number 888 in Forbes The Worlds 2,000
    Largest Public Companies in April 2009
  • One of Hong Kongs top 10 companies in the Wall
    Street Journal Asias Asias 200 Most-Admired
    companies in September 2009 and one of the top
    40 companies in BusinessWeeks The Worlds Best
    Companies in October 2009
  • Financial Times FT Global 500 in September
    2009 and Forbes Asias Fabulous 50 from 2007 to
    2009
  • Dr. Victor Fung Dr. William Fung have been
    inaugurated to the World Retail Hall of Fame by
    World Retail Congress in 2009

4
Our Chairman Group Managing Director
Victor K. Fung Group Chairman
William K. Fung Group Managing Director
5
Group Structure
Li Fung (1937) Ltd. A privately held entity and
controlling shareholder of the Li Fung Group
EXPORT SOURCING The Groups export trading arm is
Li Fung Limited one of the largest global
supply chain management companies that manages
the supply chain of high-volume, time-sensitive
consumer goods through its office network in more
than 40 economics
RETAILINGThe Groups retailing businesses
include the publicly listed Convenience Retail
Asia Ltd, the Trinity Group and privately held
Toys R Us, with store networks extending from
the China markets to Singapore, Malaysia,
Thailand, Indonesia, south Korea and the
Philippines
DISTRIBUTIONThe Groups distribution businesses
are housed under the integrated Distribution
Services Group which provides its customers with
a menu of integrated Distribution Services in
three core businesses across Asia Manufacturing,
Logistics and Distribution
Privately Held entity
Listed on HKSE
Listed on HKSE
Listed on HKSE
6
Li Fung Trading
7
Li Fung Trading
  • 100 years of trading history since 1906
  • Export trading arm handles the supply chain of
    high volume, time-sensitive consumer goods
    through its worldwide office network
  • Around 14,000 staff
  • Orchestrates nearly 15,000 international
    suppliers in over 40 economies to service
    approximately 2,000 customers
  • Member of Hang Seng Index, MSCI Index and
    FTSE4Good Index
  • 2009 Revenue US13.4 billion

8
Li Fung Trading
  • Li Fung specializes in orchestrating a
    highly-customized path through the supply chain
    in order to deliver high-quality, low-cost
    products to its customers reliably and quickly.

Suppliers
Manufacturers
Distribution
9
Global Network
Over 80 offices in over 40 economies with about
14,000 employees and a sourcing network of nearly
15,000 international suppliers
10
Global and Diversified Customer Base
North America Customers
European Customers
Others
Approximately 2,000 customers in major developed
markets
11
Li Fung Retailing
12
Li Fung Retailing
  • Focused on convenience retailing, toy retailing,
    international designer brands and lifestyle
    brands
  • Around 13,000 staff
  • 2009 Revenue US0.8 billion
  • Over 1,000 retailing outlets in Greater China, SE
    Asia and South Korea

13
Li Fung Retailing
14
Li Fung Retailing
Li Fung Retailing Outlets (as of 31 Dec
2009) Total Over 1,000 outlets
15
Li Fung Retailing
Li Fung Retailing Outlets (as of 31 Dec
2009) Total Over 1,000 outlets
16
  • Established in 1986 as a joint-venture with Toys
    R Us, USA
  • In May 2002, Li Fung Retailing acquired 100
    ownership as a licensee of Toys R Us
    International
  • Operates over 114 outlets across the region in
    Mainland China, in Hong Kong, Macau, Taiwan,
    Singapore, Malaysia, Thailand and the Philippines

17
  • Established the Circle K Convenience Store chain
    in Hong Kong in 1985
  • Listed on the Hong Kong Stock Exchange in January
    2001
  • Over 392 company owned and managed stores in Hong
    Kong, Macau, Guangzhou, Zhuhai and Shenzhen

18
  • The Saint Honore Cake shop in Hong Kong was
    established in 1973
  • Acquired by Convenience Retail Asia, the holding
    company of Circle K in February 2007
  • 101 company owned and managed stores

19
Trinity Group
  • Established in Hong Kong in 1971 as an apparel
    export manufacturer
  • On 29 April 2006, Li Fung (1937) Limited, with
    funds managed by LF Asia Investments Limited,
    acquired 100 of the Trinity Group of companies
    from the owner operators
  • Currently one of the largest high-end menswear
    retailers in the Greater China region
  • A fully integrated business model with in-house
    capabilities for product design, buying,
    sourcing, assembly and finishing plus a wholly
    controlled retail network
  • Operates a portfolio of 7 menswear brands through
    over 390 mono-brand outlets in major high-end
    malls and department stores
  • Successfully listed on the main board of the Hong
    Kong Stock Exchange in November 2009

20
Trinity Group
Trinity has full control over the value chain,
from design and sourcing, to sales and marketing
allowing it to swiftly respond to changes in
customer needs whilst maintaining the highest
standards of quality
Strong Customer Service
In-House Design
Self-Managed Retail network
Fabric Sourcing
Marketing and Pricing
Outsourced Manufacturing
Critical Assembly / Finishing
21
Trinity Portfolio
Trinity Group
22
Trinity Group
Li Fung Retailing
398 Stores
23
IDS
24
IDS stands for ....
Integrated Distribution Services
25
  • Provides a menu of Integrated-Distribution
    Services in three core businesses across Asia
    Marketing, Logistics and Manufacturing
  • 2009 Revenue US1.8 billion
  • Around 8,000 staff

26
  • Marketing
  • Provide comprehensive distribution services
    specializing in Consumer and Healthcare products
  • National coverage of over 150 cities
  • Distribution coverage reached 15,000 retail
    points (Abbotts distribution is over 11,000)
  • Operating in 6 regions supported by 18 branch
    offices and over 500 staff across China
  • Logistics
  • Logistics services managed by IDS Logistics (23
    facilities, 1100 staff, 1.6M ft² of warehouse
    space in China)
  • Investment on technology to support operation
    provide information visibility

27
Our Business Network
Distribution
Logistics
Manufacturing
International
  • 4,000 staff
  • 100 DCs depots covering over 10m sq ft with
    deep extensive logistics network in ASEAN,
    Greater China, USA UK
  • Transportation Management Services
  • 1,200 staff, 4 centers of excellence
  • Home personal care, health beauty, food
    beverage, and pharmaceuticals with growing export
    volume
  • Diverse production lines with full GMP ISO
    compliance TetraPak, Hot PET, aerosol, jars,
    tubes, sachets etc
  • Regional and global SCM services with hubbing and
    end-to-end logistics capabilities
  • Freight Forwarding services to facilitate
    International Trade
  • Offices in HK, SG, US UK
  • 2,500 staff
  • Asian-wide distribution network for FMCG and
    Healthcare products covering modern trade and
    traditional trade, hospitals clinics
  • Asian wholesaling of apparel accessories

28
Our Business Partners
400 local, regional and global brands partner
with IDS, throughout Asia and across our core
businesses
29
I. Basic concepts
30
1. Supply Chain Management
31
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
  • (1) Work flow
  • (2) Physical flow
  • (3) Information flow
  • (4) Funds flow

32
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
  • AdvantageOverall cost reduction with maximum
    efficiency

33
Orchestrator of the Supply Chain
Li Fung (Trading)
Supply Chain Management
Supply Chain Financing
Supply Chain
Consumer Needs
Raw Material Mills
Financing
Product Design
Factories
Financing
Product Development
Optimize the Supply Chain
Factory Raw Material Sourcing
Shipping / Airlines
Financing
Importers, Wholesalers
Manufacturing Control
Forwarder Consolidation
Retailers
Customs Clearance
Consumers
Local Forwarding Consolidation
Distribution Services
Inventory Management
34
Principles of SCM
  • Globalization effect Competition is no longer
    between companies but between companies supply
    chains
  • Definition of SCM is yet being compromised
  • 5 fundamental principles are identified

35
5 Principles of SCM
  • Be customer-centric and respond accordingly to
    the market demand

36
5 Principles of SCM
  • Focus on ones core competency and outsource
    non-core activities, and develop a positioning in
    the supply chain

37
5 Principles of SCM
  • (3) In contrast to the traditional adversial
    relationship, modern SCM emphases a close, risk-
    and profit-sharing relationship with business
    partners
  • A collaborative environment that is flexible and
    adaptable to the changing customer needs
  • Working with critical entities along the supply
    chain as a team to eliminate non value-added
    processes, and leveraging the capabilities of
    each team member to maximize value.
  • Avoid wasting time in matching the right
    partners, improve product quality, shorten
    production lead-time and lower costs.

38
5 Principles of SCM
  • Adopt IT to optimize the operation of the supply
    chain
  • Facilitating information sharing, reducing lead
    times, increasing accuracy in planning and
    enabling business partners to engage in
    instantaneous worldwide communication, analysis
    of complex decision rules, and real-time
    visibility in most business processes.
  • Business drives IT not IT drives business

39
5 Principles of SCM
  • Design, implement, evaluate and adjust the work
    flow, physical flow, information flow and fund
    flow in the supply chain
  • Shorten product lead time and delivery cycles
  • Lower costs in sourcing, warehousing and
    transportation

40
2. Network orchestration and supply chains
41
Networks and supply chains
42
Three roles of Network Orchestration
  • Design and manage networks
  • The best supply chain is drawn from a robust
    universe of suppliers
  • The orchestrator creates, develops, and expands
    the network, and then draw supply chain from it

43
Three roles of Network Orchestration
  • Control through empowerment
  • In contrast to rigid control system, a
    combination of empowerment, training and
    certification is adopted to manage a network
  • Actors along the supply chains can act
    entrepreneurially

44
Three roles of Network Orchestration
  • (3) Create value through integration
  • Identify new opportunities by leveraging the
    competence of actors across the network

45
3. Process orchestration Dispersed and virtual
manufacturing
46
Process orchestration
  • It is more than sourcing products or components
  • It involves
  • Breaking up the processes/ stages of the supply
    chain
  • Farming them out to different companies in
    different locations
  • Managing these dispersed processes
  • It requires designing the entire supply chain,
    drawing players from the networks, optimizing and
    managing the whole process

47
Dispersed Manufacturing /Borderless
Manufacturing
Lining Taiwan
Assembly Chinese Mainland
Design USA
Made BY Hong Kong
Shell Korea
Filler Chinese Mainland
Label, elastic, studs, toggle and string Hong Kong
Zipper Japan
Performing production slicing to identify the
best location/ country to undertake each stage of
process, adding value along the way integrating
the entire supply chain
48
Virtual Manufacturing
  • Benefits from owning 12,000 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

49
The 10 flatteners
  • Competing in a flat world

50
The 10 flatteners
  • End of the Cold War
  • Computer technology development personal
    computer and internet
  • Available resources on the Net
  • Free tools and workflow software
  • Search for free information
  • Changing ways of production
  • Offshoring
  • Outsourcing
  • Insourcing
  • Supply Chain

51
II. Competing in a flat worldThe Li Fung
Story
52
1. Take a holistic view of the supply chain
  • Compete network against network
  • Dont optimize just one section of the supply
    chain
  • Cases
  • Overtime payment and airfreight are expensive,
    but they can boost efficiency and thus avoid a
    huge markdown cost
  • Improve forecasts by delaying ordering and
    sourcing decision to avoid markdown
  • Baby Talk Doll accessing best in class
    capabilities
  • 9/11 and SARS building resilience
  • 2 million Christmas trees boosting speed

53
2. Orchestrate discover value along the supply
chain
54
2. Orchestrate discover value along the supply
chain
The Evolution of SCM
55
2. Orchestrate discover value along the supply
chain
  • Capture the Soft 3 by looking beyond the
    factory
  • For example
  • Boosting efficiency containers and flawless
    execution
  • Improving coordination minimizing markdowns
  • Onshore business of the Trading Group
  • Selling to the source synergy of companies
    within the Li Fung Group

56
3. Redesigning the whole chain for optimization
  • Process mapping to enhance efficiency
  • Formation of middle office
  • Cases IDS

57
Postponement Strategy For Diageo
Improve Diageos Asia-Pacific supply chain
through a Postponement strategy at IDS bonded
ASRS facility
  • Final market specific labeling packaging on
    bespoke, high-speed, semi-automated production
    lines
  • Throughput of 3.5 million cases in Year 1
    increasing to 6 million in Year 2 initially
    servicing 11 countries in Asia
  • Lead time to market cut from 10 weeks to 2 weeks
  • Regional markets can now also arrange for special
    promotions/packing for other than main line
    brands
  • Increase market sales with reduction in overall
    stock position

58
Regional Hubbing SCM For Timberland
  • Reduced Inventory by over 30 and warehousing
    costs by over 20
  • Shortened order leadtime and improved
    responsiveness fulfillment
  • More efficient supply chain, leading to improved
    profitability
  • Visibility of inventory and orders tracking
    leading to better control and decision making

59
China Offshore DC For Pacific Brands
  • Moving distribution centre operations to China
    reduce inventory holding, and warehousing
    transportation costs
  • Pick and pack operations in China, cross-dock in
    Australia for direct delivery to retailers
  • Estimated pilot program cost savings from
    warehousing, transportation and inventory
    reduction estimated US1.5M p.a.
  • Increased sales due to more efficient and
    responsive supply chain

Offshore DC
Domestic cross-dock depot
60
4. Organization management control
empowerment
  • Take responsibility for the whole chain
  • (whether you own it or not)
  • Addressing the root cause control without
    ownership
  • Creating a code of conduct
  • Monitoring rigorously
  • Anticipating
  • Ensuring accountability
  • Creating the context

61
4. Organization management control
empowerment
  • (2) Building the company around the customer
  • Customers evoking supply chains
  • Build network around the potential needs of
    future customers
  • Evoke a specific supply chain from this network
    based on the needs of specific customers
  • Cosourcing with customers
  • Understanding and anticipating customers
  • Increasing customization
  • Engaging in Co-Development
  • The need for thick connections a combination of
    human relationships, business processes, and
    technology

62
4. Organization management control
empowerment
  • (3) Think like a big company, act like a small
    one
  • Nimble Organization Design
  • a. Customer-Centric Divisions
  • Designed around customers
  • Creates a customized value chain for each of the
    customers orders
  • Encourages Entrepreneurship Little John Wayne
  • Optimizes the supply chain by better fulfilling
    customers needs, maximizing performance
    maintaining high quality level

63
4. Organization management control
empowerment
  • b. 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

64
(4) Manage a loosely coupled network
4. Organization management control
empowerment
  • A network of 12,000 active suppliers
  • 80 offices in 40 countries

65
4. Organization management control
empowerment
  • (4) Manage a loosely coupled network
  • Follow the 30/70 rule to create loose-tight
    organizations
  • Becomes the orchestrator of the entire production
    process
  • Share responsibilities with suppliers

66
5. Asset light model
  • One of the best embodiments
  • Virtual Manufacturing
  • Maintains minimal financial leverage. Almost no
    debt on the balance sheet
  • Minimum fixed assets Sales and lease back office
    buildings and warehouses
  • Li Fung continues to deliver a return on equity
    of more than 20
  • Employee productivity close to US1 million in
    sales per employee

67
6. Business drives IT
  • 1995 Intranet
  • 1997 Extranet
  • 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

68
7. Three-year plan
  • Trade off between salability and
    responsiveness
  • 3 years stable and can be measured
  • After 3 years zero-based
  • The power of stretch
  • A new organization every three years

69
8. Use of acquisitions
  • Creating a plug-and-play enterprise
  • This requires the appropriate technology and the
    modular structure
  • This approach has led to a very high retention
    rates of managers after acquisition and best
    practices of acquisitions are absorbed to improve
    the overall business
  • Acquire new talents and new capabilities
    product range, technology, customers
  • 100-Days Acquisition
  • 50 acquisitions since 1992 with 100 successful
    rate of integration

70
9. Corporate Social Responsibility
  • Interest of the stakeholders
  • Vendor compliance
  • Corporate governance
  • Sustainability

71
Thank you!
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