Session 8 Competitive nature of apparel industry in Hong …edblog.hkedcity.net/te_tl_e/wp-content/blogs/1685/uploads/S8 Dr... · 7. Service‐centric, globalizing sourcing and manufacturing

Session 8

Competitive nature of apparel industryin Hong Kong

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Competitive Nature of Apparel Industry in Hong Kong

Service‐centric, globalizing sourcing and manufacturing operation

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Service‐centric, globalizing sourcing and manufacturing operations

The Story of Li & FungL&F has changed dramatically in scale, but its fundamental philosophy

has not changed. They just apply it with more sophistication and

more depth

Growth over the past decade were due to fundamental strategies + three‐ year planning process Victor (non‐executive Chairman) and William Fung

(Group Managing Director) instituted in 1989.Today, L&F is yet to broaden its wings as a truly full‐service global

business in sourcing, retail, and distribution


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The Story of Li & FungL&F growth through its intense planning and scrutiny of its core

sourcing

businessFirst: Not owning supply chain to focused on optimising

the pricing

structure of each segment of the global supply chain, i.e., squeeze more efficiency (in logistics, shipping, and customs) in the supply chain

between the factory and the consumerCost savings from these efficiencies + profit maximising

and creating by

creating more sophisticated value‐added services for its customers


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The Story of Li & FungL&F launched onshore partnership with its key customers to create

customized strategies and servicesUS onshore strategy allows L&F to become more versatile in its offerings

to customers through the development of proprietary/private‐label brands


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The Story of Li & FungSecond: Continued acquisition of competitors – 22 acq. Since 1999. The

acq. of two export trading “Swire & Maclaine”

and “Camberley”

+ Colby Group Holdings in late 2000 = 21% in revenue in 2000 year‐end result –

L&F as leading in sourcing and export trading


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The Story of Li & FungFrom mainland China to Hong Kong

1906: Founded in Guangzhou by Fung Pak‐liu

and Li To‐mingPorcelain and silk – bamboo and rattan ware, jade, ivory, handicrafts, and

fireworks (with fireworks still offering today)28 Dec., 1937: established in HK as ltd.1943: Fung Hon‐chu

took over the

late Fung Pak‐liu

+ retirement of LiLi = ‘profit’

+ Fung = ‘abundance’


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The Story of Li & FungExpansion beyond Hong Kong

1949: rise of the Communist Party in mainland China –

influx of refugees –

turned HK economy into an important manufacturing center

for labor‐intensive consumer productsL&F expanded to garments, toys, electronics, and plastic flowers

–

become one of HK’s largest exporters


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Early 1970s: Victor and William Fung studied in the USVictor completing PhD at business economics Harvard U + William

getting MBA at Harvard Business School when they observed changes in the sourcing industry –

redefine the way L&F conducted its business

1972: William returned to HK to work in L&F + Victor remained as professor at Harvard Business School

1974: Victor returned to HK, together they modernised

and rebuilt L&F into a structured business run by professional management at all

levels


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1978: China opened up – rapid industrialisation

of less developed Asian countries – L&F investing in and sourcing supplies from relocated

factories in southern China and Asia – L&F established as regional network of offices beyond HK focusing on various customers

1985: L&F expanded to include retailing (Li & Fung (Retailing) Limited) = Circle K + Toys “R”

Us, etc. – right to establish stores to Taiwan,

Singapore, Malaysia, the Chinese mainland and other Asia countries


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1989: Victor and William Fung owned the whole of L&F and was taken private for restructuring into two core areas: export trading + retail


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The Story of Li & FungMergers and acquisitions spur growth

1995: Acquired Inchcape Buying Services (also Dodwell), a HK‐based export‐trading company –

established a strong European customer base to

complement the US strength + expanded sourcing network to include south Asia, Mediterranean, and the Caribbean

End of 1999: Acquired two Swire subsidiaries, i.e., Swire & Maclaine

Ltd. + Camberley

Enterprises Ltd. and gained expertise in the design process


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The Story of Li & FungMergers and acquisitions spur growth

Early 2000: Bought Colby Group Holdings Ltd.2002: Took over Janco

Overseas Limited

Customer base broadened + management team strengthened + product offerings enhanced + geographic reach expanded

Today, L&F is a truly multinational company


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The Story of Li & FungBroadening the business model

L&F expanding on the sourcing side in the Indian subcontinent and the Caribbean and Mediterranean basins that were important given their

geographic closeness to the key North American and European markets1999: L&F diversified into distribution business through Li & Fung

(Distribution) Ltd. which acquired the marketing services businesses of Inchcape in the Asia‐Pacific region –

continue core business in

manufacturing + logistics + marketingL&F (Distribution) Ltd. listed as Integrated Distribution Services Group


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The Story of Li & FungThe Export‐Trading Business –

Traditional Supply Chain Services

The ultimate middlemanBusiness strategy – disciplined entrepreneurship

Transforming the customer experienceInformation technology as a core strength

Moving up the value chain


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The ultimate middlemanIntroduction of a seller to a buyer ‐

maximise

its potential through

sophisticated technologies + networks + knowledge + staff + informationSoft goods (garments, apparel) + hard goods (fashion accessories, toys,

travel goods, gift items, fireworks, stationery, furniture, shoes, etc.)SG = 2/3 total trading business, US = 69% of SG businessBig‐box/superstore retailers – specialty stores ‐

brands


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Business strategy – disciplined entrepreneurship170 entrepreneurial profit centers to maintain a customer‐centric focus

Competitive compensation + incentive bonus plans + stock‐option grantsA culture of 3‐year business planning ‐

process institutionalisation

(failure

analysed) ‐

managers accountable for goals (management/business theories tested)


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Transforming the customer experienceTradition = shipped goods 4 times for 4 seasons; now more and fasterCompress between planning, designing, sourcing, and manufacturing

Expertise: an ability to collect the most up‐to‐date information on how to best manufacture a product for a customer

Manager intranet for info on best supplier and factory = top‐notch quality at the best price in the timeliest manner


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Transforming the customer experienceWoven in China, fastened in Korea, sewn in Guatemala“Just‐in‐time”

coordination –

flexibility for changes

L&F philosophy was to organise

around the customer in a ‘flat world’


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Information technology as a core strengthTo manage logistics of the supply chain process

L&F focused on sharing/connecting information across headquarters, customers, sourcing offices, and factories (including adopting customer’s

in‐house system software systems, if required) = real customer‐centric“The Wired 40”

in 2005 along Apple, Google, Samsung, Yahoo…

“Plug and play”

model for back‐end operations: admin, finance, HR, IT…


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Moving up the value chain by doing moreWilliam Fung: “Nobody is going to pay you more unless you do more”SG customers: besides traditional raw material and factory sourcing ‐

product planning, design services, and developmentL&F customer‐facing teams provides creative suggestions on colors and

fabrics against season + QC, testing, export documentation, logistics services


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The Story of Li & FungEating into the Soft $3

US onshore strategy to gain more margin by providing more values through new services between factory and selling floor, e.g., orders analysis to reduce markdowns + decrease the inefficiencies of the reorder

cycle + minimise

risk of inventory to logistics


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The Story of Li & FungEating into the Soft $3 –

70% customers are based in the US

4 benefits of the onshore strategy: closer relationship for improved margins with more services within the value chain + create more

stickiness between L&F and their best customers + closer to information and responds faster to changes and announcements + penetrate the

import market for middlemen sourcing products through L&F on behalf of their US customers

L&F onshore business now grows from nothing to US$1b


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The Story of Li & FungEating into the Soft $3 ‐

Licensing recognised

brand

By controlling product design, branding, sourcing, product delivery, quality control, pricing, warehousing of licensed brands like Cannon, Royal Velvet, Disney and Levi’s for twice the project over mere sourcing

2005: acquired Briefly Stated with 60 brands focusing on loungewear and undergarments for children and adults


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The Story of Li & FungEating into the Soft $3 ‐

Private label

Strategy to acquire companies that specialised

in producing finished products with a specialty in design for retailers that would give the

product a private label/in‐house brand to differentiate its offerings from those of its competitors

Private‐label had proliferated/transformed retail industry over the years


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The Story of Li & Fung ‐

Proprietary brandsCombination of the previous two

Strategy focused on making an already recognised

brand exclusive to a retailer. Examples include housewares

by Michael Grave for Target,

Martha Stewart for Kmart, Karl Lagerfeld, Stella McCartney, and Viktor & Rolf at H&M, Nicole Miller at J.C. Penney, etc.


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The Story of Li & FungThe Next Wave of Acquisition –

Rebalancing the Portfolio

Major sourcing acquisitions2006: Acquired KarstadtQuelle’s

sourcing arm

KarstadtQuelle

is a major German catalog and retail business and Europe’s largest department store operator –

brought L&F over US$1b

additional revenues and a stronger base in Europe


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Steady drumbeat to fill in the hard‐goods mosaicSought acquisitions in products and regions in which it was weak

Eyed small and medium‐sized sourcing offices with specific specialties in areas such as furniture, home textiles

HG are less profitable, longer lead times to production setup, more labor intensive, less customer prices than those for soft goods. Yet, huge growth potential.


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Steady drumbeat to fill in the hard‐goods mosaicLess than 10% of trade business in 1992; over 30% in 2006 (US$3b)

China remains the key HG supplier: Southern China (primarily HK and Guangdong Province); Central China (Shanghai); Northern China

(Qingdao and neighboring areas of Beijing); Western China (Chengdu)


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Steady drumbeat to fill in the hard‐goods mosaicSouthern China (primarily HK and Guangdong Province) for

sophisticated design yet highest labor cost; Central China (Shanghai) for its strength in cheaper labor, smaller quantity production on home textiles,

glass, ceramics, home decoratives, and plush toys; Northern China (Qingdao and neighboring areas of Beijing) for its strong expertise in metal, home textiles, ceramics, and glasses; Western China (Chengdu) is

viewed to be Shanghai region of 20 to 25 years ago


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Steady drumbeat to fill in the hard‐goods mosaicVietnam for wood, sea glass, shoes, and gardening items; Southeast Asia

(Indonesia) for wood and furniture products; India and Pakistan for home textiles and handicraft items in metal; Turkey, Eruope, and Mexico for

hard‐goods business


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Growing Europe from 20% to 33% of the trading businessFour concerns:

1. Geographically fragmented and more work to penetrate2. The buying, sourcing, and logistics business was sophisticated

3. Multiple agents and supply chains used in Europe – smaller business4. Buyers opted for diversified vendors for creative services for a variety

of ideas to make up for the lack of scale and design in‐house


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Growing Europe from 20% to 33% of the trading businessThe four concerns + specific European tastes present a challengeLearn from the US onshore experience for the Europe market


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The Story of Li & FungThe Second Hundred Years

Problems facing:An unbalanced portfolio

An over‐reliance on the US marketA rather diversified European market

A global saturation of demand for soft goodsNew business?

Other supply chain efficiencies unanalysed

yet?


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Design and coordination services in sustaining supply function efficiency and effectiveness


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The Case of TAL Apparel Group

Single textile mill in Hong Kong ‐

global powerhouse in apparel design, manufacturing, and logistics

= synchronisation

–

the simultaneous and highly efficient coordination of far‐ flung supply chain, product development, and marketing and sales

activities

with customers and suppliers


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Hong Kong baseOne of the largest apparel manufacturers in the world

Double set of cost pressures:Retail customers

International multitude of competitors, e.g., mainland ChinaDifferentiators: cost, quality and delivery


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Competitive situation –

distinct advantage beyond cost, quality, and deliverysynchronisation

of supply and demand to a new level of performance

by linking activities on the factory floor ‐

its various Asian factories ‐

points of sale at retailers in the US

Established closer ties with retail customerscommodity manufacturer – full‐fledged, synchronisation

services provider


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Close and stable customer relationshipsCapability to create new materials, products, manufacturing, and

logistics

processes to help ensure continued improvement of its business model


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1947 – South ChinaAlliance w/ Jardine

Matheson Group ‐

Textile Alliance Limited (TAL)

Met various challenges over time: Reduce cost and cycle time –

increase quality, on‐time delivery, collaboration and differentiation

Acquire new skills, develop new resources


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Meet demands of cost efficiencies by economies of scaleSingle textile spinning mill in HK –

production facilities in Thailand, Malaysia,

Taiwan, China, US, Indonesia, Vietnam, Mexico – 3.5m ft2

factory floor41m tops, 8m pants, 1.5m outerwear, 0.13m tailored suits

23000 workforce –

US$600m annual turnoverMajor customers: Brooks Brothers, L.L. Bean, J.C. Penny, Giordano, Land’s End,

Liz Claiborne, Nautica, Tommy Hilfigar…


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TAL’s

sales –

retailers, i.e., high profit w/ less middlemen80% US market, i.e., 1 out of 8 dress shirts sold in the USExport countries: South Korea, Japan, China, Europe…


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Cost pressures in the US market since 1960sFirst wave to outsource to Asia –

cheaper labor, lower cost, same quality

TAL benefited with cost containment + qualityMeanwhile, retailers looked for designers for heighten product demand and

margins by changing the product look more frequently –

fashion in apparelCost containment + quality are not enough

Reduced cycle time for product development and launch areYarn dyed fabric – shipment, 5 months – 60 days


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Cost containment + quality control skills + improved communications with global customers – provision of flexible and responsive manufacturing and design systems

Early 1970s ‐

electronic data interchange systems (EDI)TAL exchanged documents with customers electronically = IT

Today, EDI for purchase order (PO), advance ship notice (ASN), invoice,point‐of‐sales (POS) data, order status, etc.


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Late 1980s to 1990s – rise in supply chain management software, i.e., i2 Technologies, Manugistics

in consumer goods and retail industries

TAL provided rapid replenishment for J.C. Penney, etc. = much faster shipment + heavily reduced cycle time + more efficient inventory operations


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Late 1990s to date – hurdle raised again = synchronize supply and demand activities more effectively –

ensuring close coordination among far‐flung

product development, marketing/sales and supply chainsTAL enabled vendor managed inventory with customers such as J.C.

Penny

Link designers with factory globally to points of sale in the US

= greater efficiencies for its customers and expanded business opportunities


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TAL model –

traditional manufacturer –

flexible manufacturer – integrated synchronisation

services provider with capabilities for rapid design, flexible

manufacturing, and collaborative planning, forecasting, and replenishment, including vendor managed inventory (VMI)


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Traditional manufacturing –

command demand = no visibility into customers’ demand requirements and simply responded to orders + competition

based on

price, quality = strict manufacturer + supplierGreater cost + delivery pressure –

retail customers forced TAL to be a flexible

manufacturer that responded to their demand on the warehouse or store levelTAL started to synchronize to such demand by offering logistical services on

top of manufacturingToday, TAL has visibility into demand at point of sale + link info back to

production operations, R&D, etc.


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Since 1995 –

TAL’s

synchronisation

of supply + demand = rapid replenishment to J.C. Penney’s warehouses

TAL ‐

Penney’s demand – TAL warehouse levelWeekly orders communicated by EDI – shipped within a week

Cycle times reduced from 4‐6 months to 30 daysInventory reduced from 6 months to 7 weeks


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TAL factories shipped directly to Penney storesSee shop floor demand – pack, bar code, consolidate shipping orders to storesCustomized heat shrink packing to meet individual stores’

packaging needs

minimised

factory inventory + higher order fill ratesNo warehouse inventory and handling for Penney = improved fill rates +

increased customer satisfactionDirect shipment to shores – less 15% of cost free on board (FOB)


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Tight collaboration yields synchronisationTAL ‐

suppliers – customers = respond holistically to demand

Tight collaboration = efficient, quick, accurate, and extensive syncCustomer’s customer demand = data not from Penney but data from POS store

level – TAL demand forecasting model yielding dynamic model stock of stock keeping units (SKUs) for each store

“Fire truck”

cycle – shipment within 4 hours


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Sharing point‐of‐sale (POS) data with customer, i.e., PenneyFaster + more flexible + more accurate response to consumer market –

greater

sales + fewer closeouts + reduced inventorySupply = demand driven = more pull than push process

Close collaboration with customers – design products for them = Penney’s shirt + Dillard’s private label shirts

Also with supplier = wrinkle‐free, 100% cotton shirts + patented, pucker‐free seams + pinpoint oxford shirts that can withstand machine washing up to 50 times or more


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Yarn‐dye‐fabric – idea and design to delivery ‐

180 days to 90 days nowWeave‐dye‐item – less than 60 days shipment inclusive


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Referenceshttp://www.51hotnet.com/archiver/showtopic‐43581.aspx http://www.nanfangdaily.com.cn/jj/20050630/zlygl/200506290088.asp http://deloitte.com/dtt/cda/doc/content/arg_tall_06‐2005.pdf http://www.lawson.com/www/resource.nsf/pub/Fashion_News_04_03_en.pdf/$FILE/Fashion_News_04_03_en.pdf http://blogs.sun.com/MortazaviBlog/resource/ATransactionCostEconomicsViewofUncertaintyAmplificationInSupplyChains.dochttp://en.ec.com.cn/topic/apecgslmfirsten/ppt/KurtCavano.ppthttp://books.google.com/books?id=XsdDf4a1e98C&pg=PA86&lpg=PA86&dq=TAL+VMI+Penney&source=web&ots=TctDd3OiNK&sig=POda‐FG___tbqURxVZu3kT9hRmA http://news.ctei.gov.cn/zhuanti/fenghui/CITALES_2005_2.htm http://www.leaonline.com/doi/abs/10.1207/S15324796ABM2603_03 http://www.efu.com.cn/data/2005/2005‐10‐31/125182.shtml http://www.cz.capgemini.com/m/cz/tl/Consumer‐Driven_Replenishment_‐_A_Collaborative_Approach.pdf

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References

http://www.intracen.org/textilesandclothing/get‐connected_study.pdfhttp://www.ism.co.at/analyses/Fashion/Intentia_Movex/Intentia_Movex.htmlhttp://www.nanfangdaily.com.cn/jj/20050630/zlygl/200506290088.asp http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6W45‐4K23YF9‐4&_user=107833&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000008378&_version=1&_urlVersion=0&_userid=107833&md5=c8bd41bf3240af90402ddd8778fb24c2 http://www.all56.com/list0.php?docid=30596 http://www.curtn.com/news/window_detail.php?hid=488&querys=%C3%87%C3%AB%C3%8A%C3%A4%C3%88%C3%AB%C2%B9%C3%98%C2%BC%C3%BC%C3%97%C3%96 http://www.consumergoods.com/Media/PublicationsArticle/10_CG_0507.pdf http://www.supermarketalert.com/pdf%20docs/04specrptsfr03/4altchannels‐web.pdf

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Market driven apparel design managementand product categorization


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Market driven apparel design management and product categorization

The Story of Zara

March 29, 2006 – Spanish retail group Inditex

–

best known for its ZARA stores in Europe reported 21% sales growth in 2005, to $8.15 billion, putting the group ahead of H&M.

ZARA’s

Secret?


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The Story of Zara

It moves fast!In‐house design team based in La Coruna, Spain + tightly controlled

factory

and distribution network = design on drawing board to store shelf in 2 weeks ‐allows ZARA to introduce new items every week –

customers come back again

and again to check latest styles out


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The Story of Zara

Surprise!At least half of its factories are in Europe where wages are much higher than in

Asia and AfricaTo maintain quick inventory turnover by reducing shipping time

Fast moving fashion reduce its exposure to fashion faux pasCut losses quickly for unsold item of small quantity – move on to other styles

12 collections a year


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The Story of Zara

Popular items appear and disappear within a week – an image of scarcity that shoppers find irresistible –

“an excitement around snapping up new clothes

before they go…keeping sales high throughout the year…margin‐stripping markdowns to a minimum”

Designers in daily contact with store managers, discussing which

items are most in demand and which are not


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The Story of H&M

Around one quarter of its stock is made up of fast fashion items

that are designed in‐house and farmed out to independent factories

H&M keeps a large inventory of basic, everyday items sourced from cheap Asian factories

H&M also struck deals with Stella McCartney and Karl Lagerfeld to create limited, one‐time collections which generally sell out within days


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Rapid Expansion of Fast Fashion Stores

H&M (Swedish), Zara (Spanish), Mango (Spanish), Top Shop (Britain), etc. expanded fast, e.g., Inditex

opened 448 new stores in 2005, H&M 145; Inditex

opened another 490 stores in 2006 which include first Chinese outlet in Shanghai. By 2010, global total from 2700 to 5000.

Yet, cautiously in the US, only 19 in the States; H&M 91 (1200 globally)


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The Story of NIKE iD

With an extra $10, allow customers to personalize shoes by picking colors, putting own name or team name on

Visit NIKEiD.STUDIO


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References•

https://www.just‐style.com/article.aspx?ID=93565&lk=ht •

http://www.businessweek.com/globalbiz/content/apr2006/gb20060 404_167078.htm

•

http://www.yeald.com/Yeald/a/8824/h_m__inditex_and_gap_sales _increases_are_only_a_fashion_fad.html

•

http://money.cnn.com/2005/08/23/news/international/international _retailers/

•

http://bmelie.wordpress.com/ •

http://www.fashionmission.nl/nieuws/news‐ details.id.1220.titel.Zara‐beats‐HM‐to‐take‐over‐

Europe.aspxhttp://www.nikebiz.com/media/#&view=pressreleases •

http://www.aflcio.org/aboutus/globalunions/ns03062001.cfm http://nikeid.nike.com/nikeid/index.jhtml;nisessionid=0YAF54R22E

WLMCQFTBECF3Y?_requestid=1165628#home •

http://www.idsa.org/idea/idea2005/s26.htm

Documents

Session 8 Competitive nature of apparel industry in Hong …edblog.hkedcity.net/te_tl_e/wp-content/blogs/1685/uploads/S8 Dr... · 7. Service‐centric, globalizing sourcing and manufacturing