1. How does Li & Fung create value for its customers and suppliers?

How do international differences in labor costs play into this value? Lu & Fung Ltd is a company that functions in two ways: firstly, it works to link the suppliers of various goods with the traders from all around the world and secondly, it has its own manufacturing sites where it manufactures various goods. The most important asset of this company is its strong relationship with more than 2000 suppliers in over a dozen of East Asian countries. The Network, coupled with its trader knowledge, capabilities and strength of the countries and individual factories in it, provided its customers with a wide variety of manufacturing options which has enabled them to achieve better price and quality. Network constitutes of two important but intangible assets, relationship with factory owners and managers and knowledge of manufacturing capabilities, specially skills and business practices of each country and each supplier. And this relationship conferred its credibility with suppliers. Suppliers too, gave priority to orders from Li & Fung as the suppliers believe that they would pay on time and would not reject finished goods for spurious reasons. Without common identity as Li & Fung, customers, foreign buyers would have had to use the same factory for several orders, or do so even without the benefit of mutual trust. Through Lu & Fung, they gained access to good relationship with many factories and contributed to the maintenance of these relationships. Knowledge allowed Li & Fung to help customers choose among the manufacturing options, its network provided. There are various features that helped the company to provide values to both the customers and suppliers, some of which are as follows: a) Sourcing: With their knowledge and expertise, they efficiently matched suppliers with customers and even recommend several suppliers to choose from to their customers. b) Value Added Services: They themselves monitor the whole process of production to meet desired quality and on-time delivery. c) Quality Assurance: They sent their experts to visit the suppliers at least 4 times during the production process. The first visit is done before the production begins. It is done to inspect raw material and collect each sample for laboratory test. The second visit is done to catch flaws in the cutting and sewing process. The third visit is done to check pressing and packing activities. The final visit is given when 4/5th of the packaging is done. Few samples are taken randomly and tested to access whether they meet the standards or not. If the standard is not met, they would return the good and then ask the supplier to check it themselves. This way, they ensure that the required quality is being met. d) Production monitoring: To speed up the delivery of the goods, they often work with the suppliers to create a production schedule. They would sent their engineers to work with the suppliers and they would even provide the required expertise to the supplier and even suggest them the way of getting the raw material for the production. e) Raw material and component sourcing: They are often found advising suppliers on how to obtain raw materials at a quality and price that suite each customer preferences. f) Customized service offerings: They always work with the customers through the whole process of product development, right from the designing session. Most of the products that they produce are labor intensive. So, the cost of labor always plays the most important role in the production process. Their main focus has always been to find the ways of cutting costs on labor without compromising the quality of the product. The product should meet the standard mentioned by the customers and at the same time will have to be cheap enough to be competitive in the market. In order to meet these needs, they search for

the manufacturing site where the cost of production in minimum (where the labor cost is minimum). And, since they have the good knowledge on the cost of labor in different countries, they are able to meet the desires of their customers. So, to have the knowledge of the labor cost on various countries is crucial for them to maintain the cutting edge. 2. Should Charles Ho (Li & Fung's HX division manager) send Classique's order to Qingdao, China, or the Philippines? If he sends the order to China, should he ask the HV division to supervise it? If he sends it to China and has his own staff supervise it, how many visits should they make to the factorytwo, three, or four? Consider the division manager's personal interests, as well as those of the customer and of Li & Fung. Charles Ho has considered two production sites for the production of the skirts. The lowest bidder between the two is Qingdao of China, who offered them to produce the skirt at US$ 7.50 per piece whereas the other bidder is Manila of Philippnes who could produce the same at US$ 8 per piece. However, there are several factors to consider before taking the decision. The biggest problem is the quota system. The Chinese government has not yet confirmed the quota for Qingdon. Some government officials have suggested that there was sufficient quota left and they would eventually get the quota. There is no problem regarding quota in case of Manilla. Furthermore, Qingdon has never worked for Classique before. So, they have not much understanding about the quality that Classique would be expecting. There is not any staff working for Li & Fung in that area. So, deploying staff in that area would again increase their expenditure. There are very few experts who could check the production process. To worsen the situation further, there is no quality control manager in Qingdon. So, even if they decided to send their engineer, they will have to send them at least twice which would cost them $10500 extra. Considering the price difference between these two supplier, Li & Fung would just save $20,000($0.5*40,000) which might not be enough if they have to send their experts in Qingdon for 4 times as recommended. Further, they would like to keep direct cost 50% below commission revenue. On other hand, Manilla has product manager and the quality control Engineer in Li & Fungs Manilla office. They have experience of working for Classique as well. It has also been mentioned that Classique is a big customer and that currently, Li & Fung and the other two companies supply only 5% of their total sales. So, they would like to have a good impression on them and be able to maintain a long term relationship with them. So, I would suggest them to give the order to Manilla instead of Qingdon. It has also been mentioned that if they ordered the item to Qingdon, then sending their own staff would rather be expensive, so they will have to ask HV to take the project and in that case, all the revenues would go to the other branch. The commission that the branch manager and all other staff should be getting would go to some other division which the division Manager does not seem to like. 3. Assess Li & Fung's internal structure, including its organizational structure and the ways in which it motivates its employees. How does it align employees' interests with both customer satisfaction and Li & Fung's financial performance? The management team is guided by the chairman, Victor Fung, followed by the managing Director, William Fung. Under them are the two executive directors Danny Lau and Henry Chan who control several other managers such as Country managers, Division managers, Hard and Soft goods managers, Chief Financial Officers, Product managers, Branch managers, etc.

Li & Fung has maintained its branch offices around Asia near concentration of its suppliers. In mid 1995, it had branch offices in ten countries among which seven were located in China. Most of the branches have its own staff and in most of the branches, the staff was native born. So, they could easily identify best factories in the area and form good relationship with them. Staff in branch either belonged to one or more particular divisions or was shared in common and available to serve any division that needed them. Common staff included specialist at all levels in trading, quality control, shipping and other functions. Division stationed their own staff permanently in the branch offices in countries to which they send many orders. If there was no staff at the region of a particular supplier, then they would send staff from their head quarters to supervise the orders, or they even used to have common staff with the supplier. Branch offices also provided centralized financial, computing and administrative support to the division staff working with the supplier. To satisfy customers, each of its branch was independent, and so they acted like different companies and they compete with each others to get customers and businesses for their countries. Those who just wanted to visit their suppliers were set free to do so and they did not even have to come to the office. Li & Fung did not calculate profit and loss for each branch and they did not evaluate managers by profitability. The absence of this pressure encouraged branch office Managers to advice division managers impartially about their countries ability to handle each order effectively and as per the need of their customers. To satisfy their staff, they would distribute bonuses equally among its entire staff on the basis of the revenue that the branch has collected. To satisfy the customer was their main objective and to do so, they would not even hesitate to handle the task to some other branches. 4. Should William Fung follow Danny Lau's recommendation to extend the restructuring experiment to all soft goods divisions? Lau has proposed to eliminate the system in which there are chances that customer would form a strong relationship with only one of the branches of the company and the branch would also be working for only the limited number of its loyal customers. At the same time, the supplier each division could use would be limited to those in the region near their headquarters. Customers would choose which division they worked with on a particular order on the basis of region where they want their product to be manufactured. In this way, a particular area would be assigned to each division where they could operate. This system would organize its branches in a manner that there is no competition between its branches. Rather, the branches would be controlled by head office of that particular region, so customers and even the staff would have better knowledge about the possibility of the production in that region. All the branches will work as a single unit and so will be determined to create a value to its customers. In absence of such categorization, there may be unwanted competition among the branches that would ultimately harm the customers. The staff of two different branches may also act selfishly if their area is not properly determined. So, such division would be helpful to bring all their staff together and make them work as a unit. Such division would enable customer to have a better of where they would like their product to be manufactured. So, I think William Fung should consider the idea given by Lau. 5. How do business-to-business services differ from business-to-individual consumer services?

In business to business services, the manufactures designs a certain product that are mass appealing, in the most cost efficient manner, so as to globalize the product. Such product would generally address few of the needs of most of the customers but would not meet all the needs. Here, one business would generally try to understand the need of the other business unit and would manufacture product in a way that could be targeted to most of the population. Business-to-business (B2B) describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer. Contrasting terms are business-to-consumer (B2C) and business-to-government (B2G). The volume of B2B (Business-to-Business) transactions is much higher than the volume of B2C transactions. The primary reason for this is that in a typical supply chain there will be many B2B transactions involving sub components or raw materials, and only one B2C transaction, specifically sale of the finished product to the end customer. For example, an automobile manufacturer makes several B2B transactions such as buying tires, glass for windscreens, and rubber hoses for its vehicles. The final transaction, a finished vehicle sold to the consumer, is a single (B2C) transaction. B2B is also used in the context of communication and collaboration. Many businesses are now using social media to connect with their consumers (B2C); however, they are now using similar tools within the business so employees can connect with one another. When communication is taking place amongst employees, this can be referred to as "B2B" communication. In business to individual consumer services, product would be made to meet the specification given by a particular individual. These individual has a very well defined set of needs and would not even bother to pay more for the product that it desires. So, the business unit works with the individual, find out the features that the individual wants, carry out the feasibility study, design the product and then deliver the specified product. Such product are usually not produced in large numbers but are produced only for the person who has ordered for the product.