Li & Fung: A Case Study
Li & Fung
Established in 1906, Hong Kong–based Li & Fung is now one of the largest multinational trad-ing companies in the developing world, with annual sales of more than $7 billion in 2005, up from just $1.2 billion in 2000. The company, which is still run by the grandsons of the founder, Victor and William Fung, does not see itself as a traditional trading enterprise. Rather, it sees itself as an expert in supply chain management for its 500 or so customers. These customers are a diverse group and include clothing retailers and consumer electronics companies. Li & Fung takes orders from customers and then sifts through its network of 7,500 independent suppliers located in 40 countries to find the right manufacturing enterprises to produce the product for customers at the most attractive combination of cost and quality. Attaining this goal frequently requires Li & Fung to break up the value chain and disperse different productive activities to manufacturers located in different countries depending on an assessment of factors such as labor costs, trade barriers, transportation costs, and so on. Li & Fung then coordinates the whole process, managing the logistics and arranging for the shipment of the finished product to the customer.
Typical of its customers is The Limited, Inc., a large U.S.-based chain of retail clothing stores. The Limited outsources much of its manufacturing and logistics functions to Li & Fung. The process starts when The Limited comes to Li & Fung with designer sketches of clothes for the next fashion season. Li & Fung takes the basic product concepts and researches the market to find the right kind of yarn, dye, buttons, and so on; it then assembles these into prototypes that The Limited can inspect. Once The Limited has settled on a prototype, it will give Li & Fung an order and ask for delivery within five weeks. The short time between an order and requested delivery is necessitated by the rapid rate
Established in 1906, Hong Kong–based Li & Fung is now one of the largest multinational trad-ing companies in the developing world, with annual sales of more than $7 billion in 2005, up from just $1.2 billion in 2000. The company, which is still run by the grandsons of the founder, Victor and William Fung, does not see itself as a traditional trading enterprise. Rather, it sees itself as an expert in supply chain management for its 500 or so customers. These customers are a diverse group and include clothing retailers and consumer electronics companies. Li & Fung takes orders from customers and then sifts through its network of 7,500 independent suppliers located in 40 countries to find the right manufacturing enterprises to produce the product for customers at the most attractive combination of cost and quality. Attaining this goal frequently requires Li & Fung to break up the value chain and disperse different productive activities to manufacturers located in different countries depending on an assessment of factors such as labor costs, trade barriers, transportation costs, and so on. Li & Fung then coordinates the whole process, managing the logistics and arranging for the shipment of the finished product to the customer.
Typical of its customers is The Limited, Inc., a large U.S.-based chain of retail clothing stores. The Limited outsources much of its manufacturing and logistics functions to Li & Fung. The process starts when The Limited comes to Li & Fung with designer sketches of clothes for the next fashion season. Li & Fung takes the basic product concepts and researches the market to find the right kind of yarn, dye, buttons, and so on; it then assembles these into prototypes that The Limited can inspect. Once The Limited has settled on a prototype, it will give Li & Fung an order and ask for delivery within five weeks. The short time between an order and requested delivery is necessitated by the rapid rate