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Upstream Focus: Li & Fung’s Joseph Phi on Diversification, Sourcing Decisions and the Demand Rebound

Fashion is at a crossroads: continue with cutting-edge strategies developed to persevere during Covid or slide back into familiar (yet unprofitable) habits? Get the experts' perspective at our in-person Sourcing Summit, Oct. 19 at New York’s Cipriani 42nd Street.

Upstream Focus is Sourcing Journal’s series of conversations with suppliers, associations and sourcing professionals to get their insights on the state of sourcing, innovations in manufacturing and how to improve operations. In this Q&A, Joseph Phi, group CEO of sourcing and supply chain solutions company Li & Fung and CEO of LF Logistics, discusses the need for geographically diverse supply chains and what factors his company is considering when choosing sourcing locations.

Joseph Phi Li & Fung

Joseph Phi, group CEO of Li & Fung and CEO of LF Logistics

Name: Joseph Phi

Title: Group CEO, CEO of LF Logistics

Company: Li & Fung

What’s the number one question you get from your clients now that was never really a consideration before?

With restricted travel and heightened volatility, there is a greater demand for visibility and agility at all tiers of the supply chain. This accentuated the strategic importance of Li & Fung having boots on the ground in more than 40 production and sourcing countries, as we are able to provide real-time insights that allow our clients to respond to market changes on a timely basis.

Which processes have you put in place due to Covid-19 that you’d like to see continue even after the health crisis is behind us? 

Promoting organizational well-being, empowering frontline staff close to the needlepoint and providing flexibility of remote work come to mind. These not only strengthen our employee engagement and retention but make us more agile.

How are you evaluating potential brand and retail clients differently now compared to before the pandemic?

Covid-19 has created ripple effects across the entire ecosystem covering both the demand and supply chains, and we’ve seen that brands and customers have reacted differently to the situation. The consequences of the pandemic have prompted us to address the underlying vulnerabilities and ensure we have a strong partnership among all ecosystem partners—from the mills, suppliers, factories, logistics providers through to our customers. Each one is only as strong as the weakest link.

As the apparel industry tries to overcome its pandemic overstock issues, how can supply chain partners improve inventory management?

The problem started with overstocking, which later turned into understocking. Inventory management was a challenge even before the outbreak. The only sustainable way to address this perennial problem is for companies to improve the visibility and velocity of their supply chains. Companies can improve visibility by undertaking comprehensive system integration among all stakeholders, allowing open access to real-time consumer insights. Companies can improve velocity by creating a robust sourcing and production network that mitigates risk and optimizes response time.

What should be brands’ and retailers’ top lesson from Covid-19? How can they address this in their operations?

Pre-Covid, many companies pursued a “just-in-time” strategy that maximized efficiency. Covid taught us the importance of “just in case,” striking a balance between operational efficiency and risk mitigation. The key is to diversify. From a supply chain perspective, this means creating a strong backbone of core vendors and factory partners across geographies. From a retail perspective, this means building a strong omnichannel sales channel covering both physical and digital, online and offline. This diversification mindset must also extend to logistics, given the recent global freight issues.

How are you working with your factories to support quick-turn, small-run orders?

There is no one-size-fits-all approach. One common way is to tag small-run orders onto larger orders with similar silhouettes, with pre-positioned materials and components allowing for quick turnaround. Advanced capacity planning is essential.

Which new sourcing regions are you either considering or ramping up today? 

It’s less about finding new sourcing frontiers than optimizing our customers’ sourcing strategy to meet their specific needs. What’s critical is to build in flexibility and resilience. It’s important to appreciate each sourcing region’s unique strength and specialization, including the presence of duty-free concessions, and leverage them prudently and accordingly.

Li & Fung has been in this business for more than a century. Our global network allows us to provide the optimal strategy for our customers and execute nimbly according to changing market conditions.

As you’re considering where to source, what are your top considerations today?

The decision is multifaceted. Aside from cost, key criteria include the capabilities and geographic spread of the vendor, the track record of the factory in the areas of compliance and sustainability, the geopolitical stability of the location, tariff considerations, availability of raw materials and lead time.

What keeps you up at night?

Although we are making strides in vaccination efforts, the battle against Covid-19 is far from over. Further outbreaks and countrywide shutdowns continue to threaten the global supply chain and peoples’ livelihoods. Widespread store closures and bankruptcies are likely to continue across the retail industry. Last but not the least, the ongoing tension between China and the U.S., the world’s two largest economies, weigh heavily on my mind. So, what keeps me up at night is thinking through where and how we at Li & Fung can continue to stay relevant and add value to our customers and vendors during these unprecedented times.

What makes you most optimistic?

Li & Fung took immediate action across the board as soon as the pandemic hit. Today, as an organization we are leaner and flatter. Decision making is faster. People are more engaged. Very importantly, our capital structure is stronger. Overall, I am cautiously sanguine that we will emerge from this crisis much stronger than when we entered it.

As vaccination efforts ramp up globally, we’re anticipating a robust consumption rebound. Our teams are fully geared up to work with our enviable portfolio of global customers—brand owners and retailers—in both our logistics and sourcing business to tap the opportunities ahead.

What’s in store for Li & Fung in 2021?

We believe 2021 will be a breakthrough year for Li & Fung, where we fully realize the benefits of the transformative changes made last year. As we engage our people in navigating the constant changes of our industry, we will continue to unlock new value for our customers and vendor partners. As a 115-year-old company, our best days are still ahead of us.

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