Spencer Fung is the Silicon Valley-trained CEO of Li & Fung, the billion-pound supplier to the high street’s biggest names. Now, he is tasked with revolutionising the 111-year-old business founded by his great-grandfather.
Imagine this: Taylor Swift wears a dress that trends on social media. Data is collected and automatically triggers a digital supply chain process. A virtual sample of a design similar to the dress is sent to a factory, which begins manufacturing. At the same time, it appears on the retailer’s transactional website, being sold before it has even been produced. Logistics providers begin organising deliveries, which then deliver the dress direct to consumers in as little as five days.
By reacting to the social media buzz in this way, the retailer could boost its sales and eliminate excess inventory and markdowns.
For Spencer Fung, the 44-year-old CEO of billion-pound global supply chain giant Li & Fung, this Taylor Swift example is not a figment of the imagination. It is the ambitious, data-driven, speed-focused digital supply chain of the not-too-distant future.
“It’s very possible. It’s not science fiction,” he says with a confident smile.
This vision – and $150m (£114m) worth of investment – forms part of Fung’s latest three-year plan to “transform” the 111-year-old company founded by his great-grandfather in 1906 in Guangzhou, China, and return it to its former glory.
You might not be familiar with Li & Fung, but as its CEO states: “You’ve probably worn something that has come via us, but not known it. We’re very much behind the scenes.”
We’re the company behind most of the products you see every day
Now based in Hong Kong, it is one of the world’s biggest global supply chain management companies. It has 22,000 employees in 40 countries, matchmaking 15,000 suppliers with 8,000 customers. Turnover for the six months to 30 June 2017 was £5.66bn.
Although the Group has grown into a large and complex business with various sub-companies – including Li & Fung Limited, Global Brands Group Holding Limited, Convenience Retail Asia Limited and Trinity Limited – and numerous acquisitions, among them UK supplier May Trading UK in 2014, Fung sums it up: “We’re the company behind most of the products you see every day. We design, produce, coordinate and provide logistics to the products you buy in most stores.”
Apparel is the company’s biggest sector, and accounts for 70% of its overall business. The US provides 70% of the group’s turnover, and Europe 19%.
It maintains an air of mystery around its clients, though Fung reveals it works with “pretty much everyone in the UK. All the supermarkets. All the high street.”
When we meet at the company’s swish central London office, Fung has just jetted in from Germany ahead of returning to Hong Kong the same evening. In all, he will have notched up six countries in three days.
Far from a stuffy corporate CEO stereotype, he’s relaxed, casual and warm. He wears his signature blue jeans and blazer combo, his shirt casually unbuttoned at the collar.
Born in Hong Kong, Fung is the eldest son of Li & Fung honorary chairman Victor Fung and nephew to group chairman William Fung. He says he had little exposure to the family business as a child and felt no expectation to join the firm.
Spencer fung 001
He moved to the US to go to school in 1988, and went on to study at both Harvard and Northeastern, picking up a fast-paced American accent.
He joined PwC as an accountant in 1996, and three years later co-founded HelloAsia.com, a Silicon Valley start-up that launched with $30m (£23m) of venture capital funding. He left the business two years later.
“My passion was in tech,” he says, playing with his iPhone, which is never far from reach. “All of us in Silicon Valley aspired to be the next [Apple founder] Steve Jobs. I was at the cutting edge of the digital world. It was so exciting. If I had been successful, I would still be there.”
After leaving HelloAsia, he returned to Hong Kong for a three-month break. As he was hanging around the family home, his father persuaded him to take a short-term role at Li & Fung.
When he became CEO in 2014, Fung was tasked with reversing the fortunes of a company that had been slow to modernise or innovate. It was experiencing consecutive declines in performance as more retailers moved to direct sourcing to cut costs.
Even up until its most recent full-year results, for the year to 31 December 2016, “one of the toughest trading environments”, like-for-like sales fell 8.3% to $16.2bn (£13bn). Total reported turnover dropped by 11% to $16.8bn (£13.5bn), while like-for-like operating profit fell 17.7% to $408m (£328m).
In February 2017, the business was dropped from the Hang Seng Index of the largest 50 companies on the Hong Kong stock market. It had been listed on Hang Seng since 2000.
Fung knew it was time to implement change. Part of the company’s overall strategy is for it to restructure every three years, conducting “zero-base planning as if we are a new company,” he says. This year it was reshuffled to focus on two main divisions: “services”, which includes supply chain and logistics, and “products” – the retail and wholesale business. The services segment is the largest at 80% of total group turnover.
We have zero doubt that some day, someone will digitise the whole supply chain. We want to be the first to do it
A more audacious element of Fung’s latest three-year plan focuses on three areas – speed, digitisation and innovation – and promises to transform the business by 2019.
“Our goal is to create the supply chain of the future, to help our customers navigate the disrupted digital economy,” says Fung. “When we say supply chain of the future it implies that we don’t have that today. It implies that everything that we do today will probably change. We’re disrupting our own business.”
Since the 1970s, cost has been the driving force behind most supply chain decisions, but now, thanks to digitalisation and the success of the fast fashion players, attention is turning to speed. As Fung says: “cost is still important, but speed trumps cost in today’s world.”
Engaging his Silicon Valley experiences, Fung’s other focus is on digitising the company and the wider supply chain, which remains a traditional, analogue world: “We have zero doubt that some day, someone will digitise the whole supply chain. We want to be the first to do it.”
Li & Fung is starting its digital transformation by focusing on 3D design and virtual sampling, becoming expert in this field to give it a competitive edge and capture market share. While the normal product development process from idea to final product can take “on average 40 weeks”, Fung says using virtual sampling can dramatically speed up the process, and all but eliminates the need for physical samples.
“It’s very fast and the benefits are enormous,” he says. “You save money, time and costs, and you delay the buy. Delaying the buy is what Zara does, so it always gets the right trend. If you can delay by three months that means your inventory will more accurate, your markdowns will be reduced, and your sales will go up because your buy is right.”
The end result, when everything is digital, is data
So far there has only been a 2% take-up of digital sampling among Li & Fung’s clients. Does he foresee that all companies will eventually make the switch?
“I don’t think it will be 100%. I think some companies will still like to see some samples. It’s hard to know what will happen, but that’s the exciting part,” he says, smiling.
Fung admits that changing people’s mindsets – both within the company and externally – is the biggest challenge, but he is resolutely set on being a digital pioneer.
Next on Fung’s digital journey is revolutionising costing: “Currently it’s all Excel-based. We have more than 1 million Excel sheets in the business. It’s mind-boggling.” After that, he intends to take its fabrics digital and create one of the world’s largest material libraries.
“The end result, when everything is digital, is data,” says Fung. He wants to be the first to create an end-to-end stream of supply chain data, something he says even vertically integrated companies such as Zara have not achieved: “All the way from the cotton fields to the consumer – when you can do that the results will be enormous, in terms of improving costs, efficiencies, speed, and end-to-end traceability.”
By owning this data, Li & Fung can remain the central point between each element of the supply chain: “If you have the data, or the brain that controls that flow of data, we believe that is going to be key. It will become the new middle man. Eventually we may become a data company.”
His efforts to take the business digital are not going unnoticed.
“I know Spencer very well having worked for the Fung family for almost 10 years,” says Ray Clacher, executive vice-president at menswear group Trinity Limited, part of the Fung Group. “As the main family member driving the Fung empire as CEO, he has impressive boots to fill, but seems to be coping with it beautifully by taking an analogue world of sourcing and transforming the business for a digital world.”
Importantly, the company’s performance has also improved. For the six months to 30 June 2017 operating profit increased by 12% to £132.5m, although turnover edged down by 2.1% to £5.66bn. Total margin increased from 11.4% to 11.5%, and there was a 4.5% decrease in operating costs.
Fung anticipates more shifts ahead as sourcing hotspots change as a result of this new digital, speed-driven focus: “When you change to speed, you need an infrastructure that some countries don’t have. For example, if you don’t have many vertical factories that can do the fabric and the production, it’s very hard to do speed. You need peripheral industries to be around you – the buttons, the labels, the professional service companies.”
He confesses he is “bullish” that China may be a winner in the speed world. He points out that “although it’s not cheap, they are the fastest,” and adds that countries that can do “local for local” – Turkey for Turkey, for example – might also succeed.
Almost a year into his three-year transformation plan for Li & Fung, the CEO confesses that he does, at times, feel like he’s “trying to move a mountain, one stone at a time”. However, he is relishing the opportunity to disrupt not just Li & Fung, but the wider industry.
“This gives me almost the same excitement that I had in Silicon Valley, if not more. Now I marry the best of both worlds, bringing tech and digital into the family company, and the industry. We’re trying to create something that doesn’t exist.”
Fond of a metaphor, he refers to his job almost like an “extreme sport”: he is diving off a cliff edge into an unknown digital future. Like an extreme sport, it is difficult and dangerous, and the chance of failure is high, but success can bring great rewards.
“But to be honest I don’t think there is a choice,” he says. “So, we chose to jump.”