| iassignment.co.uk Assignment on MIS- A case Study on Li & Fung

Introduction:

This case study is based on a Chinese export based supply chain management company Li &

Fung. As the requirement of the course, managing information system (MIS), this article

seeks to analyse and find out answers for following issues:

Why a strong supply chain management company like Li & Fung is required to go

online? How use of technology help manage a supply chain more efficiently?

Should the development of technology within the organization (Bubble in) or should

it be outsourced to third party (Bubble out)? What is the best option?

What security measures should be taken to build an efficient e-commerce system in

order to protect it from hackers and other related risks associated with it?

With the objective of finding out above answers in relation with assigned case study, it is

important to first shade light on the key terms; Supply chain management, Integrated

management system, Relationship between managing information system (MIS) with supply

chain management (SCM) and e-commerce & risk issues.

Supply chain management (SCM):

Jasperson & Larsen (2005) has referred to Handfield and Nichols (2002) who has defined

supply chain as IASSIGNMENT.CO.UK business processes effectively to create high performing value system for member

organizations to get competitive advantage’’.

‘’ Supply chain management is the

IASSIGNMENT.CO.UK who are linked

thorough upstream and downstream which produce value in the form of goods or services for

the ultimate consumer’’ (Stadler,H. And Kilger,C. 2008).

Managing Information System (MIS):

MIS is the integration of hardware and software which produce information accurately and

timely to help management of business organization efficiently (Bidgoli,H., 2011). But, this

definition of IASSIGNMENT.CO.UK below looks more appropriate:

‘’Management information system is the balance of hardware, software, processes and people

which produce right information and deliver it to right people at right time’’ (Lowry et al,

undated).

Relationship between MIS and SCM:

From the above definition of MIS and SCM it can be seen that in both of the entity,

information flows from one end to another. SCM is the management of chain of information

in a way that produce value for the organization. On the other hand, MIS helps SCM to

accurately manage supply chain by producing faster information at the right time to the right

people. Therefore, there is a strong link between MIS and SCM. Billington, C. and Lee,L.H.

(1992) asked ‘’ Do you consider inventory and distribution cost when you design a product?

And can you keep you customer informed about the delivery status?’’ In their paper, authors

has shown because of the lack of information system, a supply chain management company

can be victim of some dangerous pitfalls; such as, Bad customer services, inaccurate delivery

status data, complex and uncertain stocking policies, poor coordination and inaccurate

assessment of inventory cost. Therefore, use of MIS accelerates better supply chain

management to bring competitive advantage for the organization.

E-commerce and risk issues:

The synonyms e-commerce stands for electronic commerce which facilitates business

transaction electronically to transfer and receive payment for buying and selling product

online (Daniel, I. 2011).

IASSIGNMENT.CO.UK by hackers

(Yehoshua Liebermann and Shmuel Stashevsky, 2002). Therefore understanding possible

types of risk in e-commerce and solutions to face those risks are first priority for any

organization doing business online.

Case Study analysis:

The case study of Li & Fung: internet issues, opens the window of discussion with the

dialogue between two top decision makers of the organization William and victor who posed

the question ‘’ is the internet going to disintermediate them? And the discussion between two

partners were IASSIGNMENT.CO.UK through two partners Fung Pak-Liu and Li To-Ming. Later on, Li & Fung changed its head

office to Hong Kong after the World War 2 and started growing under the leadership of two

Harvard graduates brothers William and Victor Fung who were actually third generation of

the family business.

Li & Fung’s product mix is a combination of both soft and hard goods. Soft good includes

woven and knit goods for all gender and people of all ages with a lower margin of profit

between 6%-8%. On

IASSIGNMENT.CO.UK goods every year

which increased from 22.5% of total sales in 1998 to 29% to 2002.

Under the leadership of these two highly educated brothers, by 2000, Li & Fung came a long

way from an ordinary trading company to a highly sophisticated borderless value chain

organization operating 32 countries with 48 offices. Li & Fung created value to the clients by

fast delivery of orders by supply-chain customization which saves inventory costs, quality

assurance, information about up-to-date fashion trend and economy of scale. These expertises

helped Li & Fung to extend the business to Africa, Eastern Europe and Caribbean as well.

Li & Fung grew through three business strategies discussed as follows:

Organic growth:

The key to the economic growth of Li & Fung is the adoption of the Chinese community

type economic planning system. Li & Fung used to take plan for every three years. Every

three years they will achieve something different form before. Li & Fung grew organically

by receiving more orders

IASSIGNMENT.CO.UK its sourcing

around the globe with new offices in places as diverse as Bangladesh, Sub-Saharan Africa,

and Manchester, England. In this way, Li & Fung won over the Hang Seng Index (HSI) by

over 75% in 2000.

Acquisitions and global expansion:

By the acquisition process Li & Fung got new client accounts by buying rival companies. In

ten years time about nine companies were bought. They include their closest competitor

Inchcape Buying Services, Dodwell, Swire Group and Camberley etc. Li and Fung achieved

better economy of scale thorough acquisition because of better expertises and resources.

Supply chain extension by using internet technology:

Li & Fung introduces an intranet to link the organization’s offices and manufacturing sites in

different countries for simplifying internal communications. They also launched secure

extranet sites that linked the company directly to key customers. The extranet provided for

customization to satisfy customer’s individual needs and provided a platform for

manufactures and retailers to streamline communication. Successful implementation of these

systems provided the initial building blocks of Li & Fung’s launch of e-commerce and B2B

portals which greatly enhanced supply chain management.

Why was it necessary to go online?

The key question came whether to go online or not by the doubt whether Li & Fung is staying

relevant to the market and the fear of disintermediation. From the previous discussion it can

be seen that introduction of intranet and extranet helped in getting internal efficiency and

improved communication between Li-Fung and customers. Therefore, extension of online

presence was more relevant.

On the other hand, it was necessary to take action of doubt of disintermediation by facing

competitive threats. On a visit to USA William discovered that old economy retails customers

were threatened by internet pure plays. Even though William thought because of value added

services and long time experiences

IASSIGNMENT.CO.UK friendly

organizations. That may threat long term existence of any organization even by smaller

competitors who may even hire big company’s talent. An online company may collaborate

with old company or an old company may partner with a giant dot com organizations.

Therefore, it was crucial for Li & Fung to seriously think about extension of their online

existence with long term viewpoint.

E-Commerce makes SCM faster:

Golicic et al (2002) showed in their research that use of e-commerce to manage supply chain

is an innovative way to cut cost, grow market and hence increasing profitability. It is found

that use of MIS in SCM help take faster decision (doing a deal in a minute), increased rate of

new product introduction as well as increased speed of customer transaction (Greenstein and

Feinman, 2000).

E-Commerce brings better connectivity:

E-commerce opens and removes technology barriers among supply chain members bringing

all under, one umbrella to get better connectivity. It also helps reaching unreachable

customers. On the other hand, e-commerce is also a cost effective way to smaller customers

who were ignored before for low margin of profitability.

E-Commerce facilitates transparency and visibility:

Integration of production planning, scheduling and inventory control through a e-commerce

system brings visibility for all stakeholders in supply chain management which helps in

getting real time response from customers.

E-Commerce influences stronger relationship management:

A big supply chain management organization needs to contact and manage thousands of

suppliers and customers. With the help of personal account manager in e-commerce through a

person’s name, email address and personal schedule brings a one to one relationship with

each customer and supplier.

In order to find out whether introduction of e-commerce helped Li & Fung to get competitive

advantage, let us analyse the organization with the help of Michael Porter’s value chain

model.

Firm- based- value chain model:

According to Michael Porter (1985) it is important to understand competitive position of an

organization to propose any strategy for operation excellence by detailed analysis of value

chain model. Value chain model is a useful tool to find out ways in which an organization

can add value to the products and services. It also enables one to identify specific, critical

leverage points where

IASSIGNMENT.CO.UK primary

activities possible and include administration and management, human resources, technology

and procurement. The firm itself gets input from its suppliers and distributes its products and

services as outputs to customers. Therefore above explanation of value chain model brings

the question ‘’ How the use of information technology brings values for customer to achieve

operational efficiency?

An application of Porter’s value chain model to Li & Fung is shown in Figure below:

Figure: Porter’s Value Chain Model for Li & Fung

From the above, looking at the primary activities of Li & Fung, it is clear that the firm do

more than the trading it originally set out to do. By 2000, Li & Fung was more sophisticated

than a typical Hong Kong import-export trading company. The primary activities started with

the development of the idea for the product. Then using their global sourcing network, they

are able to source appropriate raw materials from any of their regional offices. After that raw

materials were sent

IASSIGNMENT.CO.UK was dyed. On the

other hand, introduction of e-commerce added flexibility of sending the modified order to any

of their network of factories. Quality was of utmost importance; therefore, Li & Fung

maintained control of it before the assembled product is finally ready for shipping

consolidation. In particular, although it had a high geographical spread over 32 countries, the

company provided value-added services over the entire supply chain. They also put a greater

focus on the primary activities. For instance, the value chain caused Li & Fung to start

focusing on raw material sourcing for its customers because it came to realization that it

understood this area better than the manufacturers.

Bubble in or Bubble out:

After initial decision of using internet technology for supply chain management, Li & Fung

outsourced the software development for both intranet and extranet even though it has 60

people in its IT department. But after taking the further decision of extending organization’s

online presence in a

IASSIGNMENT.CO.UK who was the

venture capital arm of Li & Fung also felt that e-commerce should be build internally as

outsourcing to third party is like ‘’ putting the fox in the chicken coop’’. Because this will

make the organization depend on a third party who may leak the information to the

competitors.

With this mindset of in house e-commerce development, William insisted on having a

balance of both new and old economy mindset. Before, developing the e-commerce system, it

was important to do the research h, how this going to help Li & Fung manage efficiently

supply chain and what is the response from target customers.

After the research it was found that there is a prospect of reaching 20,000 retailers and 2,800

wholesalers in the united state with a total market size of $54 billion. With the introduction

new e-commerce system, Li & Fung will be able to reach small and medium sized (SME)

target market with limited mass customization choices but still giving differentiation options.

But these SMS’s were ignored before because of orders below factory minimum. With the

help of portal, Li & Fung will be able to offer better rate to these customers. As there is no

minimum order requirement in e-commerce portal, therefore, it is going to save customer

money by allowing them to reduce inventory cost which is definitely adds value compared to

traditional method.

Small Suppliers Large Buyers

SME buyers

Li & Fung Trading

Lifung.com

E-commerce portal also segregate customers from same industry by putting wall between

them IASSIGNMENT.CO.UK the other

hand, portal made it easier in quality control activities such as inspection with the help of

digital photo.

Security issues to implement an e-commerce system:

The one who do not apply new remedies must welcome new evil, for time is the greatest

innovator (Newman & Clarke, 2003).

IASSIGNMENT.CO.UK security

measures, it can bring threat to the long term existence to the organization. There are

different threats in implementing an e-commerce system which are outlined below.

Hacking:

E-commerce is the juicy target of any hacker. Hacking is the biggest threat to the e-

commerce. Though there is no clear definition of hacking, but media often portrays hacking

Figure: Li & Fung Market positioning

as entering into unknown computers without permission and stealing and monitoring personal

information for own gain (Beaver, K. 2010).

Viruses:

Viruses are the most common threat to a client system. If there are no security measures are

taken by customer,

IASSIGNMENT.CO.UK to harm the

computer.

Trojan Horses:

This is a special kind of viruses written with computer code and programming which can not

only change important data of computer system also it can monitor, control, examine all

kinds of transaction and activities in the computer. Examples of Trojan horses are Netbus and

B02k.

Trojan Horses are most serious threat to e-commerce. A hacker can enter into a client system

and then can initiate thousand fraudulent orders from a victim’s system.

Recommendation to Li & Fung on security issues:

Because of above huge threat of fraudulent activities which can damage an organization’s life

time reputation and

IASSIGNMENT.CO.UK by organization.

There are number of defence strategy against hacking in e-commerce, for example;

encryption and switched network topologies. Encryption facility will make sure no data in

saved after the transaction at client side so that hacker is not able to still it later. Encryption

techniques like digital signature and secret-key, public key etc are some way of ensuring

transaction privacy and confidentiality.

If hacker attacks the server of any organization, it may start attacking all the client computers

in the network which may even crash whole system. Therefore, server administrator should

be highly trained about security issues.

In general Li & Fung should have combination of following security tools attached to the e-

commerce:

Firewall

Digital certificate

Digital signature

Encryption software

Passwords

Locks and Bars

Conclusion:

In conclusion it can be said that ‘’ Innovate or die’’ is the formula of success. Any

organization either needs to adapt the change in the environment or leave the business at the

long run. Information technology is not a black box which can bring success itself nor is it a

ghost which can harm the organization. With the proper use of security measures in place, an

e-commerce system can definitely bring value for the organization to bring long term

profitability, brand image and operational excellence.

References:

Beaver, K. (2010) Hacking for Dummies, 3rd ed. Wiley Publishing Inc.

Bidgoli, H. (2011) MIS, Student edition, Course Technology, USA.

Billington, C. and Lee,L.H. (1992) Managing supply chain inventory: Pitfalls and

opportunities, Sloan management review, Pg 62,Spring 1992. Available at:

http://allman.rhon.itam.mx/~gigola/Curso_pron_inv/Pitfulls.pdf, Accessed on 24th Dec’2011.

Daniel, I. (2011) E-commerce: Get it right, First edition, Neuro Digital. Available at:

www.ecommercegetitright.com.

Greenstein, M. and Feinman, T.M. (2000) Electronic Commerce: Security, Risk Management

and Control, IrwinMcGraw-Hill, Boston, MA.

Golicic et al (2002) The impact of e-commerce on supply chain relationship, The

international journal of physical distribution and logistics, Vol 32, No 10,pp-851-871.

Jasperson & Larsen (2005) Supply chain management: In theory and practice, 1 st ed.

Copenhagen business school press, Denmark.

Laudon, K. & Laudon, J. (2007) Management Information Systems: Managing the Digital

Firm. In Global E-Business: How Businesses Use Information Systems (pp. 42-67). Upper

Saddle River, NJ: Pearson Education, Inc.

Lowry et al (undated) MIS Legitimacy and the Proposition of a New Multi-dimensional

Model of MIS, Available at: http://web.cgu.edu/Faculty/leroy/content/Papers/Lowry-SAIS-

2000.pdf, Accessed 27th of Dec’2011.

Michael Porter (2008) Value Chain Framework,

Available at http://valuebasedmanagement.net/methods_porter_value_chain.html

Newman & Clarke (2003) Superhighway Robbery, Preventing e-commerce crime, William

publishing, UK.

Stadler,H. And Kilger,C. (2008) Supply chain management and advanced planning- concept,

model, software and case studies, fourth edition, Sprinber, Heidleberg.

Yehoshua Liebermann, Shmuel Stashevsky, (2002) "Perceived risks as barriers to Internet

and e-commerce usage", Qualitative Market Research: An International Journal, Vol. 5 Iss: 4,

pp.291 - 300