Li & Fung
2. Intermediaries such as Li & Fung need to be paid. Why, after paying Li & Fung a fee, buyers and suppliers still find it valuable to deal through an intermediary? In other words, why don’t they trade directly? Li & Fung provides an interface between multiple buyers and suppliers by linking larger retailers in the developed world to a network of suppliers and factories throughout Asia.Buyers still find it valuable to deal through an intermediary because the experience and connection of Li & Fung in Asia could reduce the transaction costs associated with the haggling, uncertainties and headaches as compared to buyers and suppliers bargain directly. Due to strong bargaining power over small suppliers in Asia, Li & Fung has the abilities to provide both low-cost and quick, responsive sourcing.
For firms that emphasize brand reputation, Li & Fung strongly enforces the policy to prevent substandard quality and labour abuses.Suppliers pay intermediary for the access to global market because Li & Fung has over 70 offices in more than 40 countries. When Li & Fung encourage buyers to enter into long-term sourcing arrangements with them, it has pooled the sourcing needs of different buyers and using the pooled demands it is better positioned than individual buyers at incentivizing suppliers and also encouraging suppliers to enter into long-term arrangement. Essentially, sourcing for multiple buyers provides Li & Fung with a certain flexibility in meeting the commitment to provide future business to a supplier.Why is Li & Fung able to emerge stronger during the 2008-09 global economic crisis? Global financial crisis had lead to cost cutting in all industries, most multinationals, big brands and retailers. In order to slash cost, having a department in the organisation just for procurement has become unnecessary as outsourcing could well perform similar task at lower cost and better outcomes. By leveraging local knowledge and relationship with wide range of suppliers, Li & Fung able to manage supply chain of high-volume, time-sensitive consumer goods produced throughout Asia.
Li & Fung Essay Example
Li & Fung specializing in product sourcing could also assist retailers to manage their inbound logistics while buyers can focus more effort on their outbound logistics such as distribution channels to reach end consumers. Multinationals who set up their own buying office tend to rely on floating tenders and other competitive rituals that ensured low prices with acceptable quality. However, in a fast changing world, it is evident that there is disadvantage where by in natural a long term sourcing arrangement would restricts firms to employ new suppliers in case of a need arise.Eventually this will cause firms to become less responsive. Alternatively, Li & Fung able to exploit the relational advantage of intermediation that simultaneously provide flexibility of competitive sourcing and the confidence of long-term relationship. Li & Fung posses the triple As in its supply chain management competency that is considered as a competitive capability against competitors; Agility, Adaptability, and Alignment. Under external shocks, an agile supply chain can quickly react to unexpected shifts in supply and demand.
Assume that, if there is any sensitive disruptions caused by a wide range of different causes such as natural disasters in one of the city in Asia which affect production of certain components. Li & Fung’s complex supply chain could easily shift to any one of its other 8300 suppliers and ensure no interruption in meeting its customers’ demands. Adaptability, refers to the ability to reconfigure supply chain in response to longer term external changes. Surely, this requires regular monitoring of global trends in politics, social and technology.Providing that Li & Fung owns neither factories nor is it in any business of directly retailing the vast majority of the products it sources, it has the flexibility of choosing which buyer to match to which supplier. To illustrate, if a buyer is unsatisfied with the existing suppliers’ pricing, Li & Fung could provide the service to seek for more appropriate suppliers who fit buyer’s requirement. Alignment refers to the balancing both suppliers and buyers’ interests in the supply chain.
Conceptually, power and trust are the two key elements to achieve alignment. Due to unequal power between firms and suppliers, a recognized and reputable intermediary like Li & Fung definitely possess high bargaining power to facilitate legitimacy and efficiency of the whole supply chain. Given that it is possible that either buyers or suppliers can come from a bigger firm, Li & Fung plays an important role as a neutral intermediary or third-party logistics provider to effectively balance the interests in the supply chain.