Operating without borders in a flat world

In order to better understand the challenges that Li & Fung has had to tackle and ultimately, identify its key success factors, it helps to draw an analogy to a symphonic orchestra, which for the purpose of this paper, may be viewed as an ‘ensemble’ of different types of musical instruments, each with its own unique sound attributes and requirements. The challenge here for any conductor is to lead and coordinate his team by signaling to each player when to start playing, what to play, how to play, etc.

The conductor must be able to oversee the actions of all players and to ensure that they are all synchronized with one another, so that the final outcome is the pleasant and harmonious music the audience expects to hear. For the musical ensemble therefore, the importance of the conductor is beyond dispute as as each player, left on his own, would play his instrument the way he prefers, and not the way that is mandated by the orchestra, and as a result, in sharp contrast to the needs of the audience.

At this point, the following interrogative needs to be addressed: what is the ‘orchestra’ and in what way is Li & Fung its conductor?Metaphorically speaking, the orchestra is the network of 9000 suppliers in over 40 countries that the Li& Fung Group manages in order to fulfill the sourcing/manufacturing needs of its global customers, while the musical concert refers to Li & Fung’s tailor made supply chain formula for manufacturing and delivering each product to their intended ‘audiences’.

Unfortunately the metaphor isn’t bulletproof as in reality, each order necessarily requires a different supply chain formula in order to be fully optimized for the customer, while the same orchestra will usually perform several different musical concerts, without any major discrepancies in quality. Moreover, Li & Fung delegates a considerable amount of autonomy to its team members, while the same cannot be said about the orchestra players, who are required to play the notes they have in front of them.

Nevertheless, the above parallel to the world of music should shed light on some of the skills that are needed to become a ‘true maestro’. After careful thought, it is my opinion that the successful orchestration of a truly global supply chain network of Li & Fung’s magnitude rests on the following fundamental pillars and the synergies that they create: 1. Superior logistics 2. State of the art IT infrastructure 3. A holistic vision of the network and its maintenance/proliferation needs A few words about the historical time we live in follow:

We live in a new era of literally operating without borders. In this new era, traditional modus operandi of restricting the manufacturing process to one source become outdated and inferior to the possibilities offered by these ‘new’ ,’flat world’ realities. Li ; Fung was one of the first to clearly understand that geographically dispersed production would become the next big trend and was able to position itself ahead of the rest, in front of the multi sourcing ‘wave’, which has subsequently grown into a global scale ‘tsunami’ phenomena , fueling the Hong Kong’s firm growth into a multibillion dollar enterprise.

Clearly, the successful management of such a vast network requires a very high level of coordination.. At the core of any coordination lies the need for exchanging information and managing information flows. Perhaps Li & Fung’ greatest asset in this respect is the superior IT infrastructure that it has developed, which enables its trading partners to monitor and review orders, cargoes, delivery dates and act ‘just in time’ for superior inventory management. This system is very much reminiscent of WalMart’s Information Technology infrastructure, beyond doubt one of the most important tenets of the American retailer’s competitive advantage. Similarly, we can claim that the IT enabler has greatly enhanced communication effectiveness along Li ;Fung’s colossal supply chain. This is of paramount importance as all coordination efforts must be executed in a very prompt manner in order to ensure the fastest possible turnaround time.

Although it is virtually guaranteed that in the absence of these two enablers Li & Fung would have never been able to build and manage such a vast network, it is perhaps equally true that the maintenance of such a network and hence its long term existence can only be safeguarded by an adequate culture and leadership style that fosters a holistic understanding of the ‘orchestra’ and its roles. Trade partners need to feel as if they were key elements of ‘the big picture’ and need to be retained by the network . For this purpose, proper incentives should be in place to allow them to migrate up the value chain, exercise discretionary power and make important decisions in order to truly feel entrepreneurial and in control.

This is crucial as otherwise, in the absence of an orchestrator, each firm will tend to focus on its own particular sector of that supply chain, thereby compromising the holistic needs of the network. In today’ rapidly changing world, the ability to adapt to new environments is of vital significance and its becoming conspicuously clear that vertical integration is no longer a prerequisite for competing in the global market place.

In Li ; Fung’s case dispersed manufacturing system, this translates into reconfiguring, renewing its existing supply chains whenever new and better suppliers are found, or whenever the increasingly ever changing customer needs need to be addressed. Flexibility therefore, is an important staple of the Li & Fung corporate culture, and with its network of 9000 suppliers worldwide, one may confidently assert that Li & Fung certainly enjoys a lot of leeway in crafting its customized supply chains.

Furthermore, with its comprehensive logistics, encompassing anything from product development to customs clearance, Li&Fung is able to cover virtually all the steps required to dispatch its customers orders in a timely manner. Taken all together, the company’s portfolio of unique resources and practices is very much propitious to a successful GSCM, making Li ; Fung the world’s uncontested leader in this field.