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Li Fung Trading Case Study Solutions:

1. How does Li Fung create Value for its Customers and Suppliers? How international differences in labour do costs play into this value?

Various features that helped the company to provide values to both the customers and suppliers as follows:

I) a) Sourcing: Through knowledge and expertise, they efficiently matched suppliers with customers. They 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: Functional expects to visit the suppliers at least 4 times during the production process. 1 visit before production begins. To inspect raw material and collect each sample for laboratory test 2 visit to catch flaws in the cutting & sewing process. 3 visit to check pressing and packing activities 4 visit when 4/5 of packaging is done. d) Production monitoring: To speed up delivery of the goods, often work with supplier to create a production schedule. They would send their engineers to work with suppliers for expertise and suggestion. e) Raw material and component sourcing: Often found advising suppliers on how to obtain raw materials at a quality & price that suite each customers preferences. f) Customized service offerings:
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Always work with customers through the whole process of product development & design.

II) Most of the products that they produce are labour intensive. Main focus to find the ways of cutting costs on labour without compromising the quality of the product. The product should meet standard defined by customers and same time to be cheap enough to be competitive in the market. Search for manufacturing site where the cost of production in minimum Knowledge on cost of labour in different countries. Able to meet the desires of their customers.

So, the knowledge of the labour cost on various countries is crucial for them to maintain the cutting edge.

2. Should Charles Ho (HX Div. Manager) send Classiques order to Quindao, China or the Phillipines? I would suggest giving order to Manilla instead of Qingdon. Several factors to be consider before taking the decision: Qingdao of China, offered at US$ 7.50 per piece whereas the other bidder is Manila of Philippines who could produce the same at US$ 8 per piece.

Quota system: The Chinese government has not yet confirmed the quota for Qingdon. In case of Manilla, there is no problem.

Furthermore, Qingdon has never worked for Classique before. So, they have not much understanding about the quality that Classique would be expecting.

Deploying staff in that area would again increase their expenditure.

3. If he sends the Order to China, should he ask the HV Division to supervise it? There is no staff working for Li & Fung in that area. Deploying staff in that area would again increase their expenditure. There is no quality control manager in Qingdon. They have to send engineers at least twice which would cost $ 10,500 extra. Apart from this they have to send experts 4 times as recommended.

So they will have to ask HV division to supervise the project

4. If he sends it to China and has his own staff supervises it, how many visits should they make to the Factory two, three or four? Consider the Divisional Managers Personal Interests, as well as those of Customer and Li Fung. They have to send engineers at least twice which would cost $ 10,500 extra. Apart from this they have to send experts 4 times as recommended

5. Assess Li Fungs International 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 Fungs Financial Performance? Structure: 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. Align employees interest with both customers satisfaction & financial performance: Customers satisfaction: 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. To satisfy customers, each of its branches 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. Financial performance: 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.

6. 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. Whereas 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.