It is possible to elicit several pressures falling on the supply chain of Li & Fung co. The first pressure could be felt from the company’s nature, which operates because it does not facilitate any manufacturing factories. The control over their dispersed network of suppliers is looser in contrast to factory-owned companies (Melvin, 2015). In addition, network management requires enduring connections and a sense of empowerment. The company referred to this as a loose-tight connection and had a goal of controlling at least 30% to 70% of a specific supplier’s business (Melvin, 2015). The managers of various divisions at LF were encouraged to operate entrepreneurially on behalf of their clients and give a great deal of autonomy (Melvin, 2015). This pressure implies the difficulty of maintaining such a diverse network of suppliers.
The management difficulty is followed by the high risk of the business model. Most LF suppliers were located in developing nations where labor forces were highly liquid, transportation was frequently unreliable, and safety and environmental regulations were often not implemented (Melvin, 2015). Thus, LF had to constantly watch things like harvest times, weather, and political stability (Melvin, 2015). It was necessary to conduct thorough on-site audits of the factories it dealt with to check for infractions like fire regulations and child labor laws (Melvin, 2015). LF was open to criticism if an issue developed at a plant with close ties (Melvin, 2015). The constant need for audits and overseeing the company’s operations creates separate pressure for its management.
The company required a sharp transformation of its internal structure. The business community, including Li & Fung, had gradually come to terms with the fact that conventional methods of assuring manufacturing compliance promoted a box-ticking attitude that did nothing to ensure long-term, healthy operations (Melvin, 2015). LF needed to develop into a coach that offered connections, training, technology, capacity-building, skills, and knowledge support. These goals had to be developed on par with the company’s sustainability development.
The development of a sustainable company structure depends on changes in various aspects of the company’s and its suppliers’ operations. In order to address these goals, LF has created a separate company unit, Vendor Support Service (VSS), that will oversee the management of the company’s suppliers and guide them towards a more sustainable business structure (Melvin, 2015). For many years, social problems like labor and working conditions dominated the compliance industry’s conversation. However, customers were becoming more concerned about how businesses affected the environment. As a result, VSS anticipated putting much emphasis on energy, which would result in cost savings for the business and its warehouses, clients, suppliers, and consumers (Melvin, 2015). By teaching them about energy efficiency, carbon emissions management, waste and water management, and then supporting the implementation of changes, VSS would aim to make its manufacturers more environmentally friendly.
LF’s sustainability initiatives aimed to improve the economic, environmental, and social ecosystems of the areas where its numerous vendors were based. The firm has long seen itself as a critical hub in economic growth (Melvin, 2015). It starts with allowing job creation in emerging countries and assisting factories in keeping moving up the value chain, the government affairs executive said (Melvin, 2015). Increases in manufacturing productivity may directly benefit employees (Melvin, 2015). In one Indian firm, for instance, a considerable rise in productivity over six months contributed to raising the monthly payment of piece-rate employees from 1,000 to 4,000 rupees and causing a sharp decline in absenteeism (Melvin, 2015). This is a positive change that directs improvement of economic environment in the local communities where the company conducts its operations.
Reference
Melvin, S. (2015). Everything is connected: A new era of sustainability at Li & Fung. Stanford Graduate Schoool of Business Case: GS-87.