Li & Fung GroupLi & Fung Group

28 May 2004

Li & Fung GroupLi & Fung Group

Li & Fung (1937) Ltd

Li & Fung (Retailing) Ltd

Financial InvestorsPublic Shareholders

IDS Group/Li & Fung (Distribution) LtdLi & Fung (Trading) Ltd

Core Export trading Business: of soft goods and hard goods to US & EU

Turnover: US$ 4.5 Billion

Employee: 6,000

Retailing in Greater China and ASEAN countries:• Toy R Us• Circle K

US$ 0.26 Billion 2,000

Marketing, logistics & contract manufacturing in Greater China and ASEAN• IDS Manufacturing• IDS Logistics• IDS Marketing

US$ 1 Billion

6,000

LI & FUNG (TRADING) LTDLI & FUNG (TRADING) LTD

BackgrounBackgroundd

Li & Fung is a specialist in the sourcing of private label consumer goods, primarily to retailers and brands

•Headquartered in Hong Kong•Close to 100 years of history•a sourcing network of 68 offices in 40 countries•6,000 staff•Member of Hang Seng Index, Morgan Stanley Hong Kong Country Index, Dow Jones Sustainability Index•Market cap approx US$5 billion

Li & Fung’s Supply Chain Management

• A supply chain encompasses all activities from obtaining the raw materials, through production, wholesale, retail, warehousing and transportation, to the delivery of the final goods or services to the end-customers.

• “Four Flows” ： work flow physical flow information flow funds flow

Supply Chain and Supply Chain ManagementSupply Chain and Supply Chain Management

Supply Chain

• Supply chain optimization

• Buying the right thing and shortening the delivery cycle

i.e. products to be produced at the lowest cost with the fastest turnaround time possible

• Advantage ： Overall cost reduction with maximum efficiency

Supply Chain and Supply Chain ManagementSupply Chain and Supply Chain Management

Supply Chain Management is about:

The concept of “Soft $3”The concept of “Soft $3”

$1 $4

Product design

Sourcing LogisticsWholesale

retailInformation Management

The cost that is spread throughout the distribution channels – the “Soft $3”

• Globalization effect: Competition is no longer between companies but between companies’ supply chains

• Definition of supply chain management is yet being compromised

• Harvard Business Review: 6 case studies of Li & Fung

• As a leader in supply chain management, Li & Fung has derived seven principles in supply chain management

Li & Fung’s Supply Chain ManagementLi & Fung’s Supply Chain Management

(1) Be customer-centric and respond accordingly to the market demand ；

(2) Focus on one’s core competency and outsource non-core activities, and develop a positioning in the supply chain ；

(3) Develop a close, risk- and profit-sharing relationship with business partners ；

(4) Design, implement, evaluate and adjust the work flow, physical flow, information flow and cash flow in the supply chain ；

(5) Adopt information technology to optimize the operation of the supply chain ；

(6) Shorten product lead time and delivery cycles ；

(7) Lower costs in sourcing, warehousing and transportation.

The 7 Principles of Li & Fung’s Supply Chain The 7 Principles of Li & Fung’s Supply Chain ManagementManagement ：：

Li & Fung’s Supply Chain ManagementLi & Fung’s Supply Chain Management

The Changing Role Of The Trading CompanyThe Changing Role Of The Trading CompanyLe

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BuyingAgencyBuyingAgency

SourcingSourcing

BorderlessManufacturing

BorderlessManufacturing

Borderless ManufacturingBorderless Manufacturing

AssemblyCHINA

ShellKOREA

LiningTAIWAN

FillerCHINA

ZipperJAPAN

Label, elastic,studs, toggle

and stringHONG KONG

Made in Hong Kong

by

The Changing Role Of The Trading CompanyThe Changing Role Of The Trading CompanyLe

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BuyingAgencyBuyingAgency

SourcingSourcing

BorderlessManufacturing

BorderlessManufacturing

VirtualManufacturing

VirtualManufacturing

The Changing Role Of The Trading CompanyThe Changing Role Of The Trading CompanyLe

v el o

f V

a lue

Add

ed

1906 Now

BuyingAgencyBuyingAgency

SourcingSourcing

BorderlessManufacturing

BorderlessManufacturing

VirtualManufacturing

VirtualManufacturing

Supply ChainManagementSupply ChainManagement

Li & Fung’s Business ParadigmLi & Fung’s Business Paradigm

Supply Chain Supply Chain ManagementManagementSupply Chain Supply Chain ManagementManagement

LocalForwarding

Consolidation

LocalForwarding

Consolidation

ConsumerConsumer

RetailerRetailer

WholesaleImporter

WholesaleImporter

ConsumerNeeds

ConsumerNeeds

ProductDesignProductDesign

FactorySourcingFactory

SourcingMfg

ControlMfg

ControlExport Docu-

mentationExport Docu-

mentationForwarder

ConsolidationForwarder

ConsolidationCustomsClearanceCustomsClearance

Raw MaterialSourcing

Raw MaterialSourcing

Supply Chain FinancingSupply Chain Financing

Raw MaterialMill

Raw MaterialMill

Supply ChainSupply Chain

FactoriesFactories

FinancingFinancing

ShippingAirlines

ShippingAirlines

FinancingFinancing FinancingFinancing FinancingFinancing

ProductDevelopm’t

ProductDevelopm’t

Thank you.Thank you.

28 May 2004