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Li & Fung outlines plans for ‘supply chain of the future’

Li & Fung has launched a three-year plan to create the “supply chain of the future” as it fights to turnaround a period of decling sales and profits.

Group chief executive Spencer Fung said 2016 produced “one of the toughest trading environments” the company has ever experienced.

Like-for-like sales for the year to 31 December fell 8.3% to $16.2bn (£13bn) excluding the impact from selling the firm’s Asia consumer and healthcare distribution business in June.

Total reported turnover dropped by 11% to $16.8bn (£13.5bn). The company said the results were “resilient” against the “challenging macroeconomic environment and ongoing disruption at retail”.

Like-for-like operating profit fell 17.7% to $408m (£328m) but the firm said it was making “sustained efforts” to improve operating efficiency and productivity through technology and streamlining of the cost base.

On the trading side of the business a reduction in order volume, deflation and the drop in the value of various currencies against the dollar caused sales to fall by 8.7% compared to 2015.

In the logistics part of the firm, the company said it continued to grow profits organically through increased market share with existing customers, new customer contracts and geographic expansion.

Fung said its plan for 2017 to 2019 would realign the business to focus on the changing environment.

“This has been one of the toughest trading environments Li & Fung has ever seen,” he added. ”Macroeconomic conditions weakened, the retail environment worsened, input prices deflated two years in a row, and retailers continued to de-stock; all impacting our results for the three years ended 2016.”

He continued: “As we enter the next three years, our entire organisation is aligned around the need to transform the business in a fast-changing environment. We have a comprehensive plan in place to create the supply chain of the future.”

The three-year plan will focus on speed, innovation and digitisation.

The first step will see the company reorganised into two major divisions – one focused on services which includes supply chain and logistics solutions, and the second on products, which features the firm’s retail and wholesale business. Each will have its own management team.

The company said speed is crucial in meeting the needs of its brand and retail customers who are operating on shorter lead times, placing smaller orders and requiring greater flexibility in inventory replenishment. Li & Fung said they would focus on being more agile and simplifying processes in order to meet these demands.

Fung said agility was key to the success of the business in future. “Openly collaborating in new ways of working and developing new value-added services is a key part of our innovation strategy,” he explained. ”Creating end-to-end digital supply chains will bring data-driven insight for our partners, help us make faster decisions and create better solutions for our customers.”

The firm also plans to innovate its products and services and encourage collaboration with customers.

In order to speed up and create new products Li & Fung aims to digitalise all key aspects of the supply chain from product development, material costings, and sampling, to the final creation and delivery of products.

Li & Fung employs 22,000 people in more than 250 locations in over 40 different markets. 

In the UK Fung Group has a history of snapping up suppliers and brands.

Trinity Limited, part of the Fung Group through the Fung Retailing arm, acquired Gieves & Hawkes in April 2012. Fung Capital, the private equity partnership of Li & Fung honorary Chairman Victor and group managing director William Fung, acquired Savile Row brands Hardy Amies in 2008 and Kilgour in September 2013.

In 2014 LF Europe, a division of Li & Fung, acquired certain assets from the liquidators of May Trading, supplier to high street multiples including Primark, Next and Topman. 

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