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Li & Fung Ltd.- A Supply Chain Competency Success Story

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I often speak to clients and audiences on the difficult challenge of implementing both overall supply chain efficiency as well as agility.  These combined challenges can often provide built-in conflicts, especially in the context of a globally based product outsourcing strategy, or trying to navigate around depressed consumer demand brought on by global recession. Success in both often leads to broader integration of product, business process, and order fulfillment strategy.

This conflict is especially challenging in fashion  apparel and toys.  Market timing of product introduction is critical, and product costs are highly labor intensive, with razor thin margins.  When global economies really started to tank in late 2008, it was the apparel and toy factories in China and other regions that experienced the most severe blows, causing many to experience bankruptcy. This is also an industry segment where streamlining process efficiencies from sourcing to consumer sale have provided the greatest benefits.

One of the outsourcing giants in apparel and toys has been Li & Fung Ltd..  The company has just released its first-half earnings report, which has positively impressed investors and analysts.

Li & Fung is on a roll within its segment.  In my view, it is a successful supply chain outsourcing company. 

In addition to being the largest supplier of apparel and toys to Wal-Mart, the company operates the sourcing activities of Toys “R” Us, Timberland, and Tommy Hilfiger, among others. Recent announcements include an outsourcing agreement with specialty retailer Talbots Inc., and an $83 million sourcing agreement with Liz Claiborne Inc.  In all, the company operates 80 sourcing offices in most all regions of the world.

What is especially admirable is that during these especially challenging times in supply chain, the company has managed to sustain earnings on the basis of cost-cutting vs. increased revenues. But the biggest financial headline for Li & Fung is its ability to amass $1 billion of cash, with the corresponding statement from its president that it will be aggressively seeking acquisitions in the U.S. or Europe.  Target segments mentioned are beauty, health or cosmetics.

As a consultant and industry observer, I often admire the abilities of Li & Fung to successfully practice both efficiency and agility within one of the most challenging supply chain environments. Their global process capabilities and industry knowledge are exemplary. But what has set this firm apart from all others is its focus on one-stop, holistic supply chain outsourcing. Their knowledge of products, suppliers, production capability and distribution needs have all been integrated into a holistic fulfillment model.

I certainly hope that if Li & Fung does decide to further grow via an acquisition strategy, that the same knowledge and execution traits will follow them.

Bob Ferrari

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