Wal-Mart & Li & Fung

GROUP – 2

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 it’s 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 don’t 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 1

Regional Sourcing

Agent

Stage 2

Manager and Deliverer of

manufacturing Programs

Stage 3

Dispersed Manufacturing

Stage 4

Integrated Supply Chain

STAGE - 1

• Geographical Expansion: Offices in Taiwan, Korea, Singapore

•Assortment Packaging : assembling the best components provided in whole region

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 2: Customization

Front end design engineering production

planning

Back end quality control testing logistics

Raw material and component sourcing Managing production

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

Li & Fung does the high-value-added front-and back-end tasks in Hong Kong

STAGE - 3

Li and Fung offers Complete Service Chain acting as an extension of its customer’s business to manage all aspects of its global supply chain

“We deliver a sophisticated product and we deliver it fast”

Stage 4: Integrated 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 firm’s 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 !