Li & Fung – the Global Value Chain Configurator

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, then shipped to Thailand for final assembly, where it will be matched with zippers from a Japanese company. For every order, the goal is to customize the value chain to meet the customer 's specific needs. To be run effectively, the company maintains, trading companies have to be small and entrepreneurial. He describes the organizational approaches that keep the company that way despite its growing size and geographic scope: its organization around small, customer-focused units; its incentives and compensation structure; and its use of venture capital as a vehicle for business development.
The Issues raised in the case study are:
•Understand how a regional trading company used its core advantage (its vast sourcing knowledge and network) to become a global value chain manager, providing global economies of scale and scope to its customers
•Study the importance of efficient value chain management for a global company
•Examine the role of IT and the Internet as major drivers of globalization
•Study the importance of acquisitions and alliances in a company 's globalization strategies
•Understand how innovation, differentiation and customization can be used as strategic and competitive advantages by a company, to maintain its