A value chain is an activity path through an organization and can be a very helpful tool for understanding the difference between two organisations that appear to be functioning in similar ways in the same sector. This is because organisations can construct their value chains in very different ways. A different design of the value chain, by which we mean a different activity path through the organisation, might simply indicate a different way of doing things, or it might generate notable competitive advantage.
Li & Fung is Hong Kong's largest export trading company. The company has moved from acting as a middleman between retailers and manufacturers to playing a much more extensive role in the management of the whole value chain. They work closely with their customers in the design and specification of products. Li and Fung have a close involvement in the high value-added front-end and back-end activities in the value chain. They are closely involved with design, engineering and product planning at the front end. At the back end, they carry out quality control, testing and handle logistics. They manage the lower value-added middle stages through a large network of (7,500) suppliers across the region. The case mentions that when Li and Fung got an order from Levis to produce garments. It's not a simple matter the Korean office sourcing Korean products or the Indonesian office sourcing Indonesian products. For this customer they have to buy yarn from a Korean producer but have it woven and dyed in Taiwan. The Japanese have the best zippers and buttons, but they manufacture them mostly in China and order the right zippers from their Chinese plants. Because of quotas and labour conditions, making the garments is at Thailand. And because the customer needs quick delivery, the order was divided across five factories in Thailand. Effectively Li and Fung are customizing the value chain to best meet the customer's needs. Li and Fung is considerably a...
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