Moving up the Intermediation Value Chain - Li & Fung

By Pritom Roy

Siddhartha Deshmukh

Case FactsLi & Fung is an intermediary service provider

for companies world wideIt initially started as being a transaction

facilitator between buyers and sellers due to common language barrier and lack of shared business connections

Presently the company is an aggregator, distributer and advisor for trading, distribution and retailing

Continued…It helps companies optimize cost by breaking

up supply chains in order to maximize efficiency and quality in each segment across different suppliers in different countries

Because of the deep knowledge with several thosand asian suppliers,it has built the quality and credibility which are required by its western cultures.

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Institutional VoidsLanguage barrierLack of connections in the country where the

materials are sourced fromPoor quality of local infrastructureLack of information for foreign companies to

do business

Continued…The various voids were which Li & Fung

addressed as followsProduct PlanningExecuting DesignManaging quality controlManaging customs requirementsHandling Shipping Consolidation Other Logistics operations

SolutionsTransaction facilitator between buyers and

sellers

Facilitated companies by providing them with credible and reliable suppliers from various Asian countries

Had internal information sharing systems to respond to customers demands with speed and flexibility

Continued…Help retailers save cost by sourcing components from

different countries like for example in putting together a toolkit – Li & Fung used to source wrenches from one country and screwdrivers from another.

By reserving undyed fabric and mill capacity in advance and hence limiting excess out of style inventory by responding to changing consumer tastes and fashion trends more quickly.

The company alleviates information and contracting problems for its customers exploiting its knowledge of suppliers and taking on the risk of contracting with them.

Continued…Provided value added services like

Advise in assessing suppliers by price, quality, reliability, credibility

For suppliers it was a credibility enhancerAligning itself with customer needs by

organizing its operations in small , autonomous , customer dedicated units

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