SCM and Network Orchestration
The 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
Li & Fung Group
• Founded in Canton (now Guangzhou) in 1906
• Global multinational headquartered in Hong Kong
• World’s leading supply chain manager in the consumer
goods market
• 2009 Total Revenue: US$16 billion
• Staff Population: 35,000
• Geographic Spread: Across 40 economies worldwide
Li & Fung Group
• Ranked number 888 in Forbes’ “The World’s 2,000
Largest Public Companies” in April 2009
• One of Hong Kong’s top 10 companies in the Wall Street
Journal Asia’s “Asia’s 200 Most-Admired companies” in
September 2009 and one of the top 40 companies in
BusinessWeek’s “The World’s Best Companies” in
October 2009
• Financial Times’ “FT Global 500” in September 2009 and
Forbes Asia’s “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
Our Chairman & Group Managing Director
Victor K. Fung
William K. Fung
Group Chairman
Group Managing Director
Group Structure
Li & Fung (1937) Ltd.
A privately held entity and controlling
shareholder of the Li & Fung Group
EXPORT SOURCING
DISTRIBUTION
RETAILING
The Group’s export trading arm is
The Group’s distribution
Li & Fung Limited – one of the
businesses are housed under the
largest global supply chain
integrated Distribution Services
The Group’s 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
management companies that
manages the supply chain of highvolume, time-sensitive consumer
goods through its office network in
more than 40 economics
Listed on HKSE
Group which provides its
customers with a menu of
integrated Distribution Services in
three core businesses across Asia:
Manufacturing, Logistics and
Distribution
Listed on HKSE
Listed on HKSE
Privately Held
entity
Li & Fung Trading
Li & Fung Trading
• 100 years of trading history since 1906
• Export trading arm handles the supply chain of high volume, timesensitive 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: US$13.4 billion
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
Global Network
East Asia : 24
Beihai
Beijing
Chengdu
Dalian
Guangzhou Hangzhou
Liuyang
Longhua
Nanjing
Ningbo
Qingdao
Seoul
Shantou
Shenzhen
Xiamen
Zhanjiang
Europe & The Mediterranean : 29
Bucharest
Cairo
Casablanca
Denizli
Istanbul
Izmir
Kahramanmaras Keighley
Lucca
Milan
Moscow
Oporto
Sofia
St.Albans Trowbridge
Vilnius
The Americas : 8
Guatemala City
Managua
Santo Domingo
Marketing Offices
Amersfoort
Amsterdam
Bremerhaven Druillat
Hamburg
Huddersfield
Paris
St.Gallen
Warsaw
Marketing Offices
Gaffney
Mexico City
New York City
San Francisco
San Pedro Sula
South Africa : 3
Antananarivo
Durban
Moka
Barcelona
Dusseldorf
London
Vienna
Changsha
Dongguan
Hong Kong
Macau
Panyu
Shanghai
Taipei
Marketing Offices
Tokyo
South Asia
Amman
Chennai
Delhi
Faisalabad
Lahore
Sharjah
: 12
Bangalore
Colombo
Dhaka
Karachi
Mumbai
Tirupur
Over 80 offices in over 40 economies with about 14,000
employees and a sourcing network of nearly 15,000
international suppliers
Southeast Asia : 9
Bangkok
Hanoi
Ho Chi Minh City
Jakarta
Johor
Makati
Phnom Penh
Saipan
Singapore
Global and Diversified Customer Base
North America Customers
European Customers
Others
Approximately 2,000 customers in major developed
markets
Li & Fung Retailing
Li & Fung Retailing
• Focused on convenience retailing, toy retailing, international
designer brands and lifestyle brands
• Around 13,000 staff
• 2009 Revenue: US$0.8 billion
• Over 1,000 retailing outlets in Greater China, SE Asia and South
Korea
Li & Fung Retailing
Li & Fung Retailing
114 Stores
Li & Fung Retailing
Outlets
(as of 31 Dec 2009)
Total : Over
493 Stores
398 Stores
1,000 outlets
Li & Fung Retailing
South Korea
28 Stores
Mainland China
379 Stores
Taiwan
60 Stores
Hong Kong and
Macau
457 Stores
(as of 31 Dec 2009)
The Philippines
Thailand
36 Stores
14 Stores
Malaysia
21 Stores
Li & Fung Retailing
Outlets
Singapore
10 Stores
Total : Over
1,000 outlets
• 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
• 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
• 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
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 monobrand outlets in major high-end malls and department stores
• Successfully listed on the main board of the Hong Kong Stock Exchange
in November 2009
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
Self-Managed
Retail network
7
1
In-House Design
6
2
Fabric Sourcing
3
5
4
Marketing and
Pricing
Critical Assembly /
Finishing
Outsourced
Manufacturing
Trinity Portfolio
Trinity Group
Trinity
Group
Li
& Fung
Retailing
Chinese Mainland
278
Cerruti 1881/ Blue
69
South Korea
Kent & Curwen
78
Ferragamo
Durban
47
Gieves & Hawkes
64
Taiwan
44
Intermezzo
15Hong Kong and Macau
38
5
Kent & Curwen
13
Durban
12
Cerruti 1881
12
10
10
Altea
28
28
Intermezzo
2
Gieves &
Hawkes
Durban
7
Kent & Curwen
Cerruti 1881
8
Gieves & Hawkes
6
3
Altea
2
Ferragamo
3
Thailand
Malaysia
3
Ferragamo
3
Singapore
4
Ferragamo
4
398 Stores
IDS
IDS stands for ....
Integrated
Distribution
Services
• Provides a menu of Integrated-Distribution
Services in three core businesses across
Asia: Marketing, Logistics and
Manufacturing
• 2009 Revenue: US$1.8 billion
• Around 8,000 staff
Marketing
•
•
•
•
Provide comprehensive distribution services specializing in Consumer and Healthcare products
National coverage of over 150 cities
Distribution coverage reached 15,000 retail points (Abbott’s 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
Our Business Network
Distribution
Manufacturing
 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
UK
 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
Logistics
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
 Regional and global
SCM services with
hubbing and end-toend logistics
capabilities
 Freight Forwarding
services to facilitate
International Trade
 Offices in HK, SG, US
& UK
China
Pakistan
Bangladesh
Thailand
Malaysia
US
Taiwan
Hong Kong
Cambodia
Philippines
Brunei
Singapore
Indonesia
Our Business Partners
400 local, regional and global brands partner with IDS,
throughout Asia and across our core businesses
I. Basic concepts
1. Supply Chain Management
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
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
Orchestrator of the Supply Chain
Li & Fung (Trading)
Supply Chain Management
Supply Chain Financing
Supply Chain
Consumer Needs
Financing
Raw Material Mills
Financing
Factories
Financing
Shipping / Airlines
Product Design
Product Development
Optimize the Supply Chain
Factory & Raw Material Sourcing
Manufacturing Control
Importers, Wholesalers
Forwarder Consolidation
Retailers
Customs Clearance
Consumers
Local Forwarding
Consolidation
Distribution Services
Inventory Management
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
5 Principles of SCM
(1)
Be customer-centric and respond accordingly to the market
demand
Distribution/ retail
Manufacturers
Sell
Sell
Inventory
Consumers
Inventory
Supplier-centric/ the “Push” model
Demand
Manufacturers
Distribution/ retail
Demand
Quick response, zero-inventory
Customer-centric/ the “Pull” model
Consumers
5 Principles of SCM
(2)
Focus on one’s core competency and outsource non-core
activities, and develop a positioning in the supply chain
High
M&A
Outsourcing
Selfestablished
Can consider
outsourcing
Low
The uniqueness of the capability
Develop with
outside
consultant
Low
High
The enterprise’s capability
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.
5 Principles of SCM
(4) 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”
5 Principles of SCM
(5) 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
2. Network orchestration
and supply chains
Networks and supply chains
Three roles of Network Orchestration
(1) 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
Three roles of Network Orchestration
(2) 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
Three roles of Network Orchestration
(3) Create value through integration

Identify new opportunities by leveraging the
competence of actors across the network
3. Process orchestration —
Dispersed and virtual manufacturing
Process orchestration



It is more than sourcing products or components
It involves:
(1) Breaking up the processes/ stages of the supply chain
(2) Farming them out to different companies in different
locations
(3) Managing these dispersed processes
It requires designing the entire supply chain, drawing players
from the networks, optimizing and managing the whole
process
Dispersed Manufacturing /
Borderless Manufacturing
Lining
Taiwan
Assembly
Chinese Mainland
Made BY Hong Kong
Label, elastic,
studs, toggle
and string
Hong Kong
Design
USA
Shell
Korea
Filler
Chinese Mainland
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
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
4. The 10 flatteners –
Competing in a flat world
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
II. Competing in a flat world—
The Li & Fung Story
1. Take a holistic view of the supply chain
 Compete network against network
 Don’t 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
2. Orchestrate & discover value along the
supply chain
Product Sourcing Logistics Wholesale
Information Management
Design
Retail
$1
$4
The cost that is spread throughout the distribution
channels – the “Soft $3”
2. Orchestrate & discover value along the
supply chain
The Evolution of SCM
Consumer
Needs
Product
Design
Product
Development
Raw Material
Sourcing
Consumer
Li & Fung’s
Supply Chain
Wholesaler
Factory
Sourcing
Local Forwarding
Consolidation
Customs
Clearance
Forwarder
Consolidation
Shipping
Consolidation
Manufacturing
Control
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
3. Redesigning the whole chain for optimization
 Process mapping to enhance efficiency
 Formation of middle office
 Cases: IDS
Postponement Strategy For Diageo
Improve Diageo’s 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
Regional Hubbing & SCM For Timberland
Europe / USA
Korea
Japan
China
Asia
Pacific Hub
- HK
Taiwan
Hong Kong
India
Thailand
MalaysiaOrders
Singapore
Indonesia
Australia / NZ
 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
China Offshore DC For Pacific Brands



Offshore DC
Domestic
cross-dock
depot

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 US$1.5M p.a.
Increased sales due to more
efficient and responsive supply
chain
4. Organization & management – control & empowerment
(1) 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
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
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 customer’s
orders

Encourages Entrepreneurship – Little John Wayne

Optimizes the supply chain by better fulfilling customers’
needs, maximizing performance & maintaining high quality
level
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
4. Organization & management – control & empowerment
(4) Manage a loosely coupled network

A network of 12,000+ active suppliers

80 offices in 40 countries
Europe/Mediterranean
(12 Locations)
East Asia
(24 Locations)
South Asia
(10 Locations)
Americas
(5 Locations)
Southeast Asia
(9 Locations)
Africa
(3 Locations)
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
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 US$1 million in sales per
employee
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
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
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
9. Corporate Social Responsibility




Interest of the stakeholders
Vendor compliance
Corporate governance
Sustainability
Thank you!