Li & Fung will be the first to admit that the role of an agent isn’t what it used to be and neither is the apparel sector—but those two factors seem to have pushed the 111-year-old supply chain management company to innovate more than it ever has before.
The company launched its new Three-Year Plan in March and since then it’s been about reshaping its supply chain thought processes.
Sourcing Journal sat down with Li & Fung Group CEO Spencer Fung to get a closer look at what the company’s latest reinvention means for both Li & Fung and the sourcing space as a whole.
“I don’t think we have actually been this excited as a company,” Fung said. “Our goal is to build the supply chain of the future and we’ve been pursuing this goal but now we are really in execution mode, because what we are trying to do now is really a transformation of the company and the industry.”
The first step in what will be a slow but steady process is to truly digitize the supply chain.
Going digital in a bigger way
To start, Li & Fung wants to digitize what has perhaps been the biggest hold-up in apparel supply chains: the sampling process. But beyond just creating robust digital samples that help eliminate the four or five times a sample typically travels across seas between supplier and buyer, Li & Fung is using digital samples to put product in the market before it’s even produced.
In collaboration with online clothing retailer, Betabrand, Li & Fung created a digital sample for a product that didn’t yet exist and Betabrand put it out to their community of collaborators for crowdsourcing and crowdfunding. It wasn’t until the product got enough votes (the company lets consumers vote on products they’d like to see come to market in exchange for a discount when any crowdfunded design idea does launch) that Li & Fung began production.
“This was one of those future scenarios where I think what a lot of retailers should do is to basically start the whole journey in a digital format, using a sample and engaging it to drive demand and start selling,” Fung said. “But then you need to supplement that with a super-fast supply chain to actually produce and get the product to the end consumer quickly.”
In a scenario like this, the seller can gauge demand for the product in a matter of hours, assess what they think might be an appropriate run to produce and make it knowing it’s really already sold. This made to ship model removes a lot of the flying blind that lands products on sale racks where they don’t move the way the retailer guessed they would.
[Learn more about Li & Fung’s three-year plan: Here’s How Li & Fung Plans to Create the Supply Chain of the Future]
“When we talk about the goal of what Li & Fung desires to create for the future, we really want to put this future scenario into action today,” Fung said. “The world is moving in a new direction and we’re ready to work with brands and retailers who want to start building the future of retail and supply chain together.”
Embracing real automation
Automation isn’t just about Pepper or Cartman bots, which can greet customers and pick and pack warehouse product, it’s about making the supply chain itself automatic—which will be what facilitates the speed needed in sourcing today.
“In our Three-Year Plan, the whole digitization, that is what is going to get us closer to more data-driven decisions and ultimately speed up the entire supply chain,” Fung said. “We will be running the supply chain by using a lot more data and automation than we do today.”
In this present and future scenario, the supply chain becomes the data chain. Analytics serve to support supply decisions, which will thus happen faster and help reduce lead times, which, in turn, will mean a reduction in working capital.
“That is what we see as the supply chain of the future, and we want to start building this capability for our customers right now,” Fung said.
[Read more about the new sourcing landscape: Sourcing Scoop: With William E. Connor II]
Getting better at fewer things
The last time Li & Fung did a reorganization, it was 2015 and Spencer Fung was fairly new in his role as CEO. And as new CEOs do, he questioned the state of most things, landing squarely on the question: What is Li & Fung good at?
The answer, according to Fung, amounted to “We are good at everything!”
“But then I looked at our numbers and turned back to what we do every day and my conclusion was, no we are not good at everything, we are pretty good at everything but we aren’t the best at everything,” Fung explained. “The direction I started taking the company was, let’s try to be the best at a few things, rather than be pretty good at everything.”
The reason Li & Fung arrived at being pretty good at most things, according to Fung, was because of its growth over the last 20 years, evolving from a $500 million company to a $20 billion company and becoming too diversified in the process.
Since then, the company took steps to simplify their business—a strategy from their previous Three-Year Plan, and focus on its core sourcing and logistics businesses. This included the spin-off of its brands and licensing business, Global Brands, in 2014 and the divestment of its Asia consumer and healthcare distribution businesses, LF Asia, in 2016.
“There was one time a few years ago, I looked at Luxottica and their business where they focus on one category, eyewear, and are the best in the world. I was looking at our business and I did a comparison: one was a $20 billion revenue company—we were only $6 billion in market cap at that time. Luxottica, by being the best in the eyewear space, was an $8 billion revenue company worth $20 billion in market cap,” Fung said. “To me, this is a prime example of really focusing on a few things and being the best. The market rewards you a lot more than if you are a generalist that is good at everything.”
It was that realization about the importance of focus that inspired Li & Fung to create its product verticals—furniture, sweaters and beauty—and more or less consolidate its related businesses into these three verticals.
“We said, ‘let’s be the best at these three things so we can promote, organically, top line, bottom line as well as margin,’” Fung said, adding that the strategy has proven successful, with the company’s furniture vertical now registering double-digit bottom line growth.
Staying agile to field what’s ahead
Not even the heir to a centenarian sourcing throne has a crystal ball for what’s to come in supply chains, but even though the future is a looming question, the answer is in agility.
“Even the most innovative guys can’t tell you what the future will be, but the only thing that I can do for the company, and for everyone, is to make sure that we have a vision of the future and that we can also be super agile so we can actually react fast to whatever comes at us,” Fung said. “We know that everything we do today is going to change within a few years’ time, so we want to make sure that we change fast. We don’t want to become irrelevant in a few years’ time. We want to very much create the future as soon as possible so we can move forward in this world.”