Li & Fung – the Global Value Chain Configurator

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This case study explains both the philosophy behind supply-chain management and the specific practices that Li & Fung has developed to reduce costs and lead times, allowing its customers to buy "closer to the market." Li & Fung, Hong Kong 's largest export trading company, has been an innovator in global supply-chain management. Li & Fung has also been a pioneer in "dispersed manufacturing." It performs the higher-value-added tasks such as design and quality control in Hong Kong, and outsources the lower-value-added tasks to the best possible locations around the world. The result is something new: a truly global product. To produce a garment, for example, the company might purchase yarn from Korea that will be woven and dyed in Taiwan,…show more content…
It would source zippers from the Chinese plants of leading Japanese companies. Based on quotas and cost of labour, Li & Fung would then decide where the production of garments would take place. To reduce dependence on a single production point, the order would typically be distributed among different factories within the country. In the case of shirts for the American market, Li & Fung would buy cotton from America, knit it and dye it in China and sew the garment in Bangladesh.
By spreading its value chain across different countries, Li & Fung had reduced the time between obtaining orders and their execution. With customer tastes rapidly changing, retailers in the West had more seasons a year and a shorter lead time for the fashion trends to be noticed. As a result, the business had become time sensitive. Li & Fung had attempted to build excellent relationships with its suppliers, and win their loyalty to ensure that they responded quickly to any situation . For a company so heavily dependent on outsourcing, quality control had become a major issue. Li & Fung carried out regular inspections at the raw materials, manufacturing and finished goods stages. Li & Fung had attempted to differentiate itself from its competitors by its ability to locate raw materials and components. Trading staff had detailed information on where the cheapest and the best quality material such as embroidery,

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