LI & FUNG
SUJITHA VATTIKONDA (57)
K.J. Somaiya Institute of Management Studies and Research Mumbai
Q1. Explain briefly Li & Fung’s business model today. Comment on the sources of its competitive advantage. Is it sustainable? Why? Li & Fung:
Li& Fung was founded in 1906 by Fung Pak-Liu (Pak-Liu) and Li To-ming (To-ming) in Guangzhou (South China) and was one of the first Chinese-owned export companies. Established in Hong Kong, Li & Fung is now one of the largest multinational trading companies in the developing world with annual sales of more than 4 billion dollars in 2002. Now, the company sees itself as an expert in supply chain management for its 350 or so major customers, providing the convenience of one-stop shopping for raw material sourcing, production planning and management, quality assurance, export documentation and shipping consolidation. Today, Li & Fung sources and manages the global supply chain for high-volume and time-sensitive consumer goods for large and successful companies such as The Limited, Warner Brothers, Avon etc. Business Model: Business model of Li & Fung contains the following important aspects: Customer segments: Li & Fung used to do simple sourcing: a customer asks to procure A at $X, and it finds a factory that can do that. Now, it provides one-stop shopping for customers: from product design and development; through raw material and factory sourcing, production planning and management, quality assurance, and export documentation; to shipping consolidation. And it packages all these into one and provides merchandise for private labels. Increasingly Li & Fung is also deeply involved in inventory management. Its customers are a diverse group and include clothing retailers and consumer electronics companies. Almost 75% of the customers are based in United States. Value Proposition: Li & Fung acts as a value added intermediary between the developed world and manufacturers in the developing world. Its value proposition to its customers is its ability to coordinate globally dispersed manufacturing processes to get products quickly to customers at a low cost. This enables the customers to make quickly to the market and gain first mover advantage. The value proposition by Li & Fung is more of use especially in industries like fashion or any other industry where the changes are rapid because the service of Li & Fung reduces the lead time which in turn reduces the risk of product becoming obsolete. Customer Relations: To better serve the need of customers, Li & Fung is divided in to numerous small, customer focused divisions. Li & Fung is a leader in establishing real time Internet based links with its customers. Revenue Stream: The Company gets its revenues from the clients who outsource their supply chain and logistics activities to Li & Fung Key Activities: Li & Fung after taking the orders from the clients explores across its network of 7000 independent suppliers located in 40 countries to find the right manufacturing enterprises to produce the product for the customers at lowest cost and best quality. To facilitate this, Li & Fung breaks up its value chain and disperse different activities to manufacturers located in different countries depending on an assessment of factors such as transportation costs, labor costs, and trade barriers 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. Sources of Competitive advantage:
* Information aggregation and economies of specialization like managing dispersed manufacturing and monitoring trade quotas through...