MANAGEMENT DECISION CASE:

Pushing Supply Chain Efficiencies to the Maximum in Retailing

To effectively and consistently compete, major retailers like Macy's, Kohl's, Sears, and JCPenney need stylish, high-quality, yet affordable merchandise available at all times. Customer appetites for fashion necessitate that these and other stores develop strong partnerships with suppliers from around the world, expanding their network for sourcing the right goods quickly. One supplier, Li & Fung, has filled the need for retailer inventory considerably better than most others and, as a result it has become "the most important company most American shoppers have never heard of." It does a great job of enhancing supply chains to deliver affordable,

high-quality merchandise on time and in large quantities. Providing such capabilities to almost a third of retailers found in most American shopping malls, including those listed above plus others like Walmart, Target, and Kmart, has allowed Li & Fung to achieve an incredible $204 billion in revenue over the last several years.

Li & Fung achieves this success despite not owning any clothing factories, sewing machines, or fabric mills. Instead, the company's main assets are its relationships with more than 15,000 suppliers in over 60 countries. Those relationships allow Li & Fung to reduce the time to market from six months to an incredible six weeks on large-scale orders. For example, an order for 500,000 specially designed skirts can now go from the drawing board to the store shelf in less than half the time it takes a student to complete one semester at college! If a rush order is needed, the company is well known for making it happenfor example it might turn to a Mexican port that can accept a shipment faster than could some different port of entry. Suffice it to say, Li & Fung has made itself virtually indispensable to many of its retail customers.

As an intermediary, Li & Fung performs many physiCal distribution functions, leverages its connections with those suppliers to drastically reduce the number of transactions a retailer like Macy' has to engage in to procure its inventory, and provides transportation and storage. The ability to store inventory and then transport goods to a specific retailer's warehouse location at a specific time is crucial to the retailer's strategy of just-in-time inventory control and gives Li & Fung d strong competitive advantage that is difficult for its competitors to duplicate.

Because Li & Fung is so successful at providing its retail customers with affordable and stylish clothing in a reduced time frame, some have labeled it the "Walmart of purchasing," which is intended as a supreme compliment. Unfortunately, certain aspects of its business practices also have earned it the moniker of "the garment industryS sweatshop locator," In fact, the list of employee safety incidents involving suppliers to Li & Fung is quite long and includes a fire at a factory in Bangladesh producing clothing for Kohl's in which 29 people died, an explosion and stampede where 50 were injured and 2 were killed at a factory producing clothing for Tommy Hilfiger, and a fire that killed 112 workers after many of them were ordered to continue working even though fire alarms were blaring. In addition, the company has been accused of cheating workers at a factory in Turkey out of wages and contracting with a factory in Cambodia where conditions caused several hundred workers to become ill. All of this has occurred despite Li & Fung proclaiming that it conducts rigorous safety audits to ensure the company does business only with factories that adhere to its safety standards.

Bottom line, the pressure to find low

Questions for Consideration

. What type of intermediary is Li & Fung for its customers? Is it an agent, a wholesaler, a manufacturer's agent, jobber, or some other choice? What evidence can you offer to support your choice?

2. Some critics have said that American consumers ultimately are to blame for a lack of safety precautions at factories utilized by Li & Fung because they are addicted to low-cost merchandise and generally refuse to pay higher prices for items. What is your reaction to this statement? Are you willing to pay an extra $5 or SIO for a pair of jeans, for example, if that additional money is used to enhance employee

3. Retailers Nordstrom and Walmart are positioned very differently in the marketplace. Using the characteristics of store retailers addressed in the chapter, which includes merchandise assortment, level of service, and retail value proposition, compare the retail strategy implemented by Nordstrom to that utilized by Walmart