WAL-MART & LI &

FUNG
GROUP 6

QUESTION - 1
Other than need to expand, what other reasons would
Wal-Mart have for opening stores globally?
Why would the company want a strong centralized
control over its store?
Why Would it want strong local control?

Following Major Forces lead the

Globalization:

The opportunities for growth dwindled at home country

To capture the new emerging markets like south America, Indonesia china
because the US markets are saturating & overseas markets have lots of
opportunities
Addressing global risk
Global location of research-and-development facilities is becoming more
common
Low cost of unskilled labor was decisive factor in determining factory location
Global expansion actually fulfills the dream of Sam Walton to give Wal-Mart
a true Multinational image

COMPANY WANTS A STRONG

CENTRALIZED CONTROL
OVER ITS STORE BECAUSE:

Untimely delivery of merchandize

5%

stockout rate in US & 40% in Brazil

Error occurred very often

Supply

disappeared
Absence of monitoring/tracking system

Poor packaging and quality control

THEY WANT STRONG LOCAL

CONTROL BECAUSE:Wal-Mart international operation is completely
based on think global act local strategy
Local suppliers have the geographical knowledge
of the territory where Wal-Mart is operating
They are in better position to know about the
cultural sentiments of the local consumers & can
give first hand primary information about the
market because they are in direct touch with the
intermediaries
Local suppliers also reduce logistical sourcing
cost, so it is also preferable to have local suppliers
in the international market operation

QUESTION - 2
What were the major problems Wal-Mart Faced
During the initial years of Operation in South
America?
What were the major drivers of these problems?

MAJOR PROBLEMS FACED BY

WAL-MART:Problem in supply chain integration
Lack of communication between the supply chain
intermediaries
Different political conditions in different regions
chances of the theft & pilferage
Fluctuations in delivery time
Risk due to unforeseen events like natural
calamities
difficulties in achieving the uniformity in
approach

MAJOR DRIVERS OF THESE

PROBLEMS ARE:Integrating the supply chain through ERP & Extranet
Taking suitable insurance coverage
Hiring third Party Logistics provider (3PL)
Enhancing collaborative planning, forecasting &
replenishment system ( CPFR)
Efforts in establishing cultural balances
Bargain with political factors
Increases the efficiency of the entire operation by
newly technologies & practices

QUESTION - 3
Managing dispersed production forced us to get smart
about dissecting the value chain. Explain.

Li and fung provide the supply chain management services that

determines what supplier in which country will best maximize its
clients quality and time expectation at the lowest possible cost
Dispersed manufacturing find the right manufacturer for the
specific product with most attractive combination of cost and quality
Dispersed manufacturing means breaking up the value chain and
rationalizing where you do things
The labor intensive middle portion of the value chain is done in
southern China and Hong-Kong does the front and back ends
For its soft goods customers the company provides product planning,
design services and development
It also supplies quality control, testing, export, documentation and
logistics services

DISPERSED MANUFACTURING
E.g.: Transistor radios

Source components from Korea/Taiwan

Send kits to China for assembly
Treat and inspect in Hong-Kong
Ship out to the world.

QUESTION - 4
When large manufacturing companies managing their
own supply chain, how does it help to lower markdown
for the retailers?

Retailers were participating in product designing

process
they also managed supplier through Li & Fung and
were even reaching down to their suppliers
They were able to manage their inventory in a better
manner and lower markdown in the store
Retailer can be involved in making a decision which
product they should buy or which not

LOWER MARKDOWN TO
RETAILERS

Shorter ordering times

Reaching to the suppliers to ensure supply on time and at
the right quality level
Reduction in time and cost of product delivery cycle
Buying the right things and shortening the delivery cycles
which leads to reduced inventory cost
The shorter delivery cycle leads to up-to-date fashion and
market trend information

QUESTION - 5

Explain the role of Li & Fung in shortening the buying

cycle and how does it help them to lower the cost in the
supply chain?

ROLE OF LI & FUNG

Focuses on the entire supply chain
Flexibility, response time, small production runs
and minimum order quantity
Ability to shift directions as the trend moves
The trust between the company and the suppliers
Adopted upstream to organize production

LOWER THE COST

They

were able to eliminate the consolidator,

hence total system costs were reduced

They

inspect production, but they manage the

workers and dont own the factories

Cost

was better spread throughout the

distribution channels

QUESTION - 6

How is the organization of Li & Fung different from

others in the industry? How does this help the
company achieve its strategic objectives?

ORGANIZATION LI & FUNG

DIFFERENT FROM OTHER IN
THE INDUSTRY

Supply chain based on: Flexible:

Can be modified to suite new requirements

Agile: Can source and export 4 continents across the globe
Cost effective: Believes and deals in economies of scale
Responsible: Is fast to react to change
Customer focused divisions are basic operating unit.
Entrepreneurship is practiced
Autonomy in decision making but corporate centre
controls finance and procedures
Cell organization: customer business and country based

CONTD

7 pillars of Li-Fung supply chain: Being

customer-centric and market demand driven

Focus on core competency and outsource non-core
activities
Develop a close, risk and profit-sharing relationship with
business partners
Design, implement, evaluate and continuously improve the
work flow, physical flow, information flow and cash flow in
the supply chain
Adopt information technology to optimize the operation of
the supply chain
Shorten production lead time and delivery cycles
Lower cost in sourcing, warehousing and transportation

STRATEGIC OBJECTIVE
Primary alignment is around customer and their
needs
Develop a close, risk- and profit-sharing
relationship with business partners
Lower costs in sourcing, warehousing and
transportation
Shorten product lead time and delivery cycles

MANAGING THE SUPPLY CHAIN

Fast moving markets face the problem of obsolete
inventory
Shortening buying cycle helps
The company has better bargaining power
They reserve undyed yarn
Order given 3 weeks in advance
Delivery cycle shrinks and the retailer waits before
having to commit a fashion trend

QUESTION - 7

What were the basic changes that took place in Li

& Fung as it grew over the years both in size and
geographic scope? What effort did the company
take to hold the organization together?

Stage 2
Stage 1
Regional
Sourcing
Agent

Manager
and
Deliverer
of
manufactu
ring
Programs

Stage 3

Stage 4

Dispersed
Manufactur
ing

Integrated
Supply
Chain

STAGE - 1
Geographical Expansion: Offices in Taiwan,
Korea, Singapore
Assortment Packaging : assembling the best
components provided in whole region

Stage 2: Customization
Understand the customer idea
Develop a product program
Search the market to find the right type of
materials, colors and quantities
Take the product concept and realize some
prototypes
Create an entire program for the season
specifying the product mix and the schedule
Contract for resource working with factories to
plan and monitor production mix and schedule
Final Order

STAGE - 3
Li & Fung does the high-value-added front-and back-end
tasks in Hong Kong
Front end design
Back end quality control
engineering production
testing logistics
planning

It organizes the lower-value added middle stages

through its network of 7,500 suppliers, 2,500 of
which are active at any one time

Raw material and

component
sourcing

Managing
production

Stage 4: Integrated Supply

Chain

We
deliver
a
sophisticated
product
and we deliver it fast

Li and Fung offers Complete Service Chain acting as an

extension of its customers business to manage all aspects of
its global supply chain

COMPANY HELD THE

ORGANIZATION TOGETHER
BY:

Managed on day-to-day basis by the product group

managers
Policy

committee (Top management)

Meet once every five to six weeks

People fly in from around the region to discuss and
agree on policies
Committee (30 people) not only shapes our policies
but also translates them into operating procedures

QUESTION 8

With the advent of IT, doing business became

both easier and difficult for the company. How did
the company envisage reconciling with the new
systems and also retaining the traditions they
had built over the years?

ALIGNMENT BETWEEN BUSINESS &

IT
Three main business groups Trading, Retailing &
Distribution
Established company-wide intranet linking to enable
free information flow
Extranet links for components of supply chain and
major customers
In 2002, diverts its focus on B2B sourcing for linking
small to medium sized business with suppliers
Helps in easy tracking of goods and orders
Reduction in cost from the firms perspectives
Provide tracking capabilities, streamlining flow of
information

THE WAYS ARE :

By giving close attention to the details of the

consumers, they try to maintain the heritage of
customer service.
By creating a database to systematically track the
relationship with the suppliers
By auto guarding the information system from
stealing, to maintain long relationship with the
suppliers.
A system to review the performance of the suppliers
Employees were treated as the members of their
family

THANK
YOU !