Sourcing in Adaptations of Reactions and crisismadeinasia.hk/sites/default/files/files/Sourcing in...

Marc Compagnon

Sourcing in Reactions and

Adaptations of Companies

in the 21st

Century crisis?

LF Sourcing | Marc Compagnon

Positioning for the Next 3 Years: Our Organizational Structure


Fung Group StructureFung Holdings(1937) Limited

A privately held entity and major shareholder of the Fung Group

*Joint venture with Toys “R” Us Inc.

Logistics RETAILINGDISTRIBUTIONTrading

LI & Fung Limited

Listed on SEHK

Global Brands Group

Listed on SEHK

Fung Retailing Limited

Privately Held Entity

Convenience Retail Asia LimitedTrinity Limited

Listed on SEHK

Branded Lifestyle Holdings LimitedLiFung Kids (Holdings) Limited

Toys “R” Us (Asia) *Suhyang Networks

UCCAL Fashion Group

Privately Held Entity

LF Sourcing | Marc CompagnonFUTURE SOURCING LANDSCAPE

Trading Office

OnShore Office

Logistics Office

Distribution Centres

About 300 offices and DCs in more than 40 economies with 28,000 employees and a sourcing network of over 15,000 suppliers

Li & Fung’s Global Network



PART ONE

CRISIS or OPPORTUNITY?FUTURE SOURCING LANDSCAPE


Is the Sourcing Industry really in crisis?


However, we are sourcing from an

increasingly fragile & interdependent

environment, influenced by a multitude of factors


RAW MATERIAL

PRICES

WAGES

$£¥€TRADE/ LABOUR

RELATIONS

POLITICAL/ SOCIAL

SPEED TO MARKET

CHANGING FACE OF RETAIL

DEMOGRAPHICS of consumers

DEMOGRAPHICS of production

countries

ECONOMIC STABILITY

GLOBAL SOURCING

ARENA

LF Sourcing | Marc CompagnonCURRENT SOURCING LANDSCAPE

KEY SOURCING INDICATORSSource: CPI - International Monetary Fund, World Economic Outlook Database, April 2014 | Primary Commodity Prices - IMF (http://www.imf.org/external/np/res/commod/index.aspx) | Currency Data - http://www.forecasts.org ; http://www.economist.com/blogs/graphicdetail/2014/08/chinese-and-american-gdp-forecasts Brent oil price: EIU Economic and Commodity Forecast, February 2015

2013 2014 2015 2016 20171.4 1.5 1.6 1.8 1.9

5.8 5.5 5.2 5.44.9 CPI r% (Emerging market

and developing economies)

CPI r% (Advanced Economies)

90.4

80.2

68.872.2

63.8

104.1 102.899.4 97.3 95.4

104.198.9

54.4

71.4

86.1

‘A’ Cotton Index (cts/ lb)

Spot Crude (US$/bbl)(Dotted: Previous predictions, prior to recent drop)

6.236.13

5.9515.778

5.61

6.236.13 6.22 6.315 6.41

RMB/ USD (predictions)

GLOBAL SOURCING

KPIs FOR THE NEXT 3 YEARS

http://www.imf.org/external/np/res/commod/index.aspx




http://www.forecasts.org




http://www.economist.com/blogs/graphicdetail/2014/08/chinese-and-american-gdp-forecasts




http://knoema.com/EIUEF2015Feb/eiu-economic-and-commodity-forecast-february-2015





But let’s put some context to the key indicators! - Wages - Currency - Combined effect!


MINIMUM WAGE TRENDS 2010 - 2014

0

31.25

62.5

93.75

125

2010 2011 2012 2013 2014

% increase relative to 2010

VIETNAM +112%BANGLADESH +61%CAMBODIA +60%THAILAND +51%PAKISTAN +47%

CHINA +33%

INDIA +26%

PHILIPPINES +9%

C.AMERICA +22%

TURKEY +0.5%

INDONESIA +26%

**All minimum wages are averages of all provinces within the country**Data source: LF Vendor Compliance

MINIMUM WAGE MOVEMENT IN LOCAL CURRENCY


CURRENCY TRENDS 2010 - 2014

% increase relative to 2010

-35.0

-22.5

-10.0

2.5

15.0

2010 2011 2012 2013 2014

C.AMERICA -4.5%BANGLASDESH -11%VIETNAM -13.3%PAKISTAN -17.1%INDONESIA -21.9%INDIA -24.7%TURKEY-31.9%

THAILAND +1.75%PHILIPPINES +3.4%CHINA +11.6%APPRECIATION

DEVALUATION

PLUS: CURRENCY FACTOR


US$/Month

0

150

300

450

600

2010 2011 2012 2013 2014

TURKEY $338 -32%

THAILAND $238 +54%

CHINA $209 +49%

C.AMERICA $174 +17%PHILIPPINES $165 +13%

INDONESIA $106 +15%

CAMBODIA $94 +54%VIETNAM $93 +84%

PAKISTAN $ 100 +22%

INDIA $72 -5%BANGLADESH $61 +43%

**All minimum wages are averages of all provinces within the country**Data source: LF Vendor Compliance

EQUALS: WAGE MOVEMENT IN ABSOLUTE USD TERMS: Adjusted for Currency Fluctuations

MINIMUM WAGE TRENDS 2010 - 2014


Other factors to consider:- Economic & Social- Top Sourcing Country Trends


Bangladesh

Pakistan

Vietnam

Who’s next?

ECONOMIC/ SOCIAL STABILITY


64th in Labour Cost Index

Ranked

Social Security contribution20%

ECONOMIC/ SOCIAL STABILITY**Data source:http://maplecroft.com/portfolio/new-analysis/2015/02/04/ “Low labour cost countries linked to highest risks”

LOW WAGED COUNTRIES v.s. HIGHER RISKS

LABOUR COST

BOTTOM 03Rated as ‘extreme risk’ - health and safety- poor working conditions- child labour and human trafficking- no social security contributions

Cambodia

Bangladesh

Myanmar

169170171

Rankings on Labour Cost Index out of 172 Countries

Italy FranceBelgiumSpainFinlandSloveniaLuxembourgAustriaIcelandGreece

01

TOP 05

LABOUR COST

http://maplecroft.com/portfolio/new-analysis/2015/02/04/


ECONOMIC/ SOCIAL STABILITY

“The true cost of business in the emerging economies is more than the direct expenses associated with the labour force ...

It is essential for companies to understand and price in risks, such as strikes, disruptions and poor worker health, when making market entry or strategic sourcing decisions.”

**Data source:http://maplecroft.com/portfolio/new-analysis/2015/02/04/ “Low labour cost countries linked to highest risks”

Countries with low levels of socioeconomic development and inadequate environmental protections present a host of additional risks and indirect costs to business – including brand damage, investor alienation, and potential lawsuits.




SOURCING MARKET: DEVELOPMENTS

Top 10 Apparel Exporters to the US:

TOP SOURCING COUNTRIES For the US & EU

Source: European Commission

!"#$%&'

()#*$&'

+#),&'

)#*"&'

(#)$&'

-#)"&'

*!#*%&'

(#),&'

(#-!&'

((#*"&'

,#*%&'

%#(,&'

!"# $!"# %!"# &!"# '!"#

()*+,#

-*./+,0#

*+12+.3*,#

*+1*,#

/),*4,+1#

(,0521*,#

)6789::8;# ,<<67=>#Source: U.S Department of Commerce and the U.S International Trade Commission

US$ Million

China

Vietnam

Indonesia

Bangladesh

Mexico

India

Honduras

Cambodia

El Salvador

Sri Lanka

0 10,000 20,000 30,000 40,000

1,581

1,591

2,513

2,648

3,176

3,869

4,325

5,036

7,051

31,685

1,725

1,583

2,534

2,522

3,375

3,842

4,795

5,084

8,085

32,385

2013 2012

Top 5 Apparel Exporters to the EU:

EU

China

Bangladesh

Turkey

India

0 15,000 30,000 45,000 60,000

4,020

8,398

8,397

27,408

55,061

2,979

7,190

7,999

22,627

47,098

2013 2012 Euro€ Million

3.7% 17.5%


PART TWO

REACTIONS & ADAPTATIONSTHE NEW REALITY


World Population

7billion

Developed World Population

1billionEmerging Market Population

6billion

Global National Disposable Income

$40 trillion


SIZE OF APPAREL MARKET GROWTH OF APPAREL MARKET

Source from: Datamonitor, publication date in Dec, 2010

•Traditional Markets Growth 0-2% (EU, UK, USA)•BRIC Countries Growth 4-10% (Brazil, Russia, India, China)•50% of world apparel growth is driven by China

!"#$%&'(#)*+&

,+(-#)%&

./#!)&

0.#102&

3(#4!$&

(0..!#&

!)5!#&

*6!)#&

0-2%

gro

wth!

4 –

10 %

gro

wth!


SHIFTING DEMOGRAPHICS

The New Juniors!The Graying of Economies

Source from: United Nations, Department of Economic and Social Affairs, Population Division (2013). World Population Prospects: The 2012 Revision, DVD Edition.

Swing (69+)10.5%

Baby Boomers (50-68)23.6%

Gen X (38-49)15.4%

millennials (20-37)24.5%

Gen Z (<19)25.9%

There is a population tsunami approaching

361,000Approximate number of babies born in

the world each day.

More than a quarter of

America’s population belongs to

Gen Z, and with each birth, the

segment is growing.

50.4% COMBINED


Then &

Now

Image courtesy of The Robin Report (http://therobinreport.com)

1. “Retail-tainment” 2. We really know you…Predictive Analytics3. Mobile Everything4. Do Retailers have the right management for the 21st century?5. Re-rationalisation of distribution channels and buying behaviour6. Speed-to-Market and the impact on supply chains7. Bricks , TECH & Clicks8. Start-ups: Small but disruptive in the Aggregate

CHANGING FACE OF RETAIL

http://therobinreport.com

http://therobinreport.com

Opposing

FORCES inhibit

collaborative solutions

SuppliersSuppliers RetailersRetailers

LF Sourcing | Marc CompagnonTHE NEW REALITY

Supplier’s side Retailer’s side

• Increasing Compliance/sustainability demands

• Shorter lead times • Smaller order quantity

• Higher SKU counts

• Operating cost increases

• China++ • Wage inflation

• Fewer basics more fashion styles

• Higher frequency of style change

• Buyer resistances to price increase

• More demand on PD• Increasing tests requirements

• Multi-port delivery

• Fragmented and financially fragile vendor base

• Changing consumer buying pattern

• Boomers to millennials (The new juniors)

• Margin pressures

• Deflationary pricing structures

• Mark-down model

• Omni-channel demands

• More informed consumers (Bloggers/Watchdogs)

• Real estate burden • Foot traffic challenge

• Fast-fashion war • Online-To-Offline (O2O)

Pain Points!

What is LFS doing about it?


Customer Customer Customer Customer Customer

Vendor Vendor Vendor Vendor Vendor

VSS Vendor Support Services

CSI Customer Service Initiatives

LFAgency Services

LF Credit

Vendor Supply Chain

Vendor Compliance & Sustainability

Design Support Services

Data Analytics (Consumer Focused)

Market Intelligence/Trend

forecasting

Other Consulting Services


S-Lab TM

(Sourcing Laboratory) Experimentation and Exploration of a new way

of doing old things!

SUSTAINABLE ENTERPRISE - LF ZB - Technology as Competitive Advantage

Acceleration of the use and application of technology into the sourcing and procurement

service and value proposition we offer, coupled with a new image, culture and attitude


Incubate and foster the use of technology in aggregate. Simultaneously deploy , explore and experiment to understand the benefits obtained through synergies

acheived through the use of multiple forms of technology.

World Class Technology / Operating Platform

Competitive Advantage

PLM – CentricDrive down operating costs for LFZB as well as for new customers who will be able to tap into technologies otherwise too prohibitive to launch

Fast Fit 360 Drive down operating costs for LFZB as well as for new customers who will be able to tap into technologies otherwise too prohibitive to launch

Shoe Master Software

Drive down operating costs for LFZB as well as for new customers who will be able to tap into technologies otherwise too prohibitive to launch

3D Sampling - Optitex


RFID – Sample/Prototype Tracking


RFID – Production & Supply Chain Connectivity


Mobile IP Phone – JabberMobile devices – iPad

LF ZB - Technology as Competitive Advantage


TECHNOLOGY AS ENABLER + BUSINESS FACILITATOR!


• Inspections

• Purchase memoranda

• Finance • Shipping and Billing Notices

• Debit Notes• Payments & Invoice Handing

• Vendor Profiles and Catalogues

• Factory Compliance and Evaluations

• Alert and Notification• 24/7 real-time engagement with customers

• Cloud Provisioning

• Easy case management and tracking

• Drill-down Capability

• Accessible by Mobile Devices

• Interactive charts and graphs

VENDOR PORTALVENDOR PORTAL CUSTOMER PORTALCUSTOMER PORTAL


ThankYou

Sourcing in Adaptations of Reactions and crisismadeinasia.hk/sites/default/files/files/Sourcing in...

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