Year 2007 - Critical Success Factors

Supply Chains Orchestration – Its Concept and Relevance to the Insurance Industry Introduction The Li & Fung Group is a Hong Kong-based multinational company consisting of three distinct core businesses: export trading, distribution and retailing.With an annual turnover of around US$135 billion in the year 2007, Li & Fung Group operates in some 40 economies and employs over 25,000 people worldwide. Its core competency is supply chain management. In this essay, I would like to discuss the key concepts of Supply Chain Orchestration by Li & Fung’s experience and to discuss briefly its implication for the insurance industry. The Development of Li & Fung The export trading business operated by Li & Fung Limited (referred to as Li & Fung hereafter) is the most important segment of Li & Fung Group with turnover of over US$118 billion in 2007. Through a network of 80 sourcing offices in over 40 economies, Li & Fung sources high-volume, time-sensitive consumer goods on behalf of customers worldwide. Garments make up a large part of the trading business, which also covers the sourcing of fashion accessories, furnishings, gifts, handicrafts, home products, promotional merchandise, toys, sporting goods and travel goods. As a supply chain manager for many producers and countries, Li & Fung provides the convenience of a one-stop shop for customers through a total value-added package: from product design and development, through raw material and factory sourcing, production planning and management, quality assurance and export documentation, to shipping consolidation. Instead of owning production facilities, Li & Fung manages nearly 10,000 quality-conscious, cost-effective manufacturers who deliver to a short deadline for its customers. Trading broker When Li & Fung started in Guangzhou in 1906 during the Qing Dynasty, it functioned essentially as a trading broker, charging a fee to bring buyers and sellers together. In those days, no one at the Chinese factories spoke English, and the American merchants spoke no Chinese. As a broker with the ability to communicate with both buyer and seller, Li & Fung’s commission was 15%. Regional sourcing agent As the need for trading companies gradually diminished, Li & Fung became a regional sourcing agent for Pacific Rim production and extended its geographic reach by establishing offices inTaiwan, Korea, and Singapore. Li & Fung’s knowledge of the region presented enormous value to customers. Most big buyers could presumably manage their own sourcing if their sole need were to deal with Hong Kong. As such, they would only need to know which handful of factories to deal with and would have no need for any help from outside. However, dealing with the whole region was far more complex. Li & Fung’s co-ordinated regional sourcing network and dedicated customer-oriented teams served to provide manufacturing information around the region to customers, match customers’ production needs with factories’ capabilities, and supervise production and quality control in factories. For example, Li & Fung knew which quotas had been used up in Hong Kong and when it had to start buying from Taiwan. Li & Fung also knew that Taiwan had better synthetics but Hong Kong was the place to go for cottons. Supply chain manager − adding values along the way In the 1980s, Li & Fung moved one step further to become a manager and deliverer of manufacturing programs. Under the new model, customers would simply say, for example, in the next season, this or that type of look and such and such colors 10 Feature