The emergence of digital technologies and ever-changing customer demands are exerting mounting pressure across many industries to embrace changes. Companies in the supply chain business are no exception. They have to disrupt or to be disrupted in the digital economy.
Hong Kong-based trading group Li & Fung recently unveiled its three-year digitization plan with a goal to create “the supply chain of the future”. The company plans to invest US$150 million over the next three years to carry out this plan.
“Our focus is to digitize every aspect of the supply chain, speed up the time-to-market and gather more data to make better decisions for our retailers and ourselves,” said Manuel Fernandez, Group CTO at Li & Fung (Trading) Ltd.
Indeed, this is not the company’s first endeavor to transform its business digitally. Since 2011, the company has been going through digital transformation to lower manufacturing costs and improve production efficiency. Its technology investments focused on core ERP consolidation and documentation digitization to support its order, transport and freight management—areas that are core to Li & Fung’s supply chain business.
But the company finds that is not enough. Fernandez noted that retail customers are seeing the significance of speed to market and innovation, instead of merely cost reduction.
Digital supply chain platform
This is one of the drivers for Li & Fung to broaden its digital transformation journey by incorporating speed, innovation and data-driven insights into this new three-year plan.
“We are always digitizing [our processes], but we now have a clear business focus to expand the scope across the entire supply chain,” he said.
Fernandez said the company has built a digital platform to connect different stakeholders across its global supply chain business. To align this business goal, he said the company’s enterprise architecture is also moving away from an on-premise and closed design approach, into a modular and open platform to accelerate application development.
Some of the new digital initiatives include introducing new virtual design process and costing analysis.
In traditional product design for apparel, bags and shoes, physical samples are commonly used in the design process. Li & Fung is adopting 3D design software to create virtual product design samples, aiming to replace physical samples. With these virtual samples, the product design approach can be more iterative with the experimentation of different colors and patterns.
The company is also introducing a new costing analysis application. To be completed by July, the application aims to replace Excel spreadsheet to calculate and compare material cost for its customers. It aims to automate the costing analysis and provide reports with different material’s cost, background data and images on a dashboard. The application also aims to provide comparative and dynamic costing analysis based on different factors, like the choice of factories or the source of raw material.
Creating a data ecosystem
Apart from speeding up application development, Li & Fung also aims to use the digital platform to capture and share data across the entire value chain to create a data ecosystem.
“With the use of predictive and prescriptive analytics, we hope to help our customers and ourselves to make better commercial decisions,” he said.
According to Fernandez, the company’s previous documentation digitization initiative has created an internal digital library that consists of virtual samples and raw materials assets like fabrics and trims. Adding to this library is market and regulatory data from external parties. Data collected from different governments, shipping companies, financial services providers and weather observatories can now be included to make logistics decisions.
By consolidating data from its internal digital library and external providers, Li & Fung has deployed advanced data analytics to support the company in three different areas. First it helps to optimize the company’s logistic business by automating its daily delivery schedule.
Such analytics platform also provides its customers with better logistics recommendations like the best route for their shipments and the delivery ports, as well as the associated cost and time involved.
Most recently, this analytic platform is also extended towards manufacturing planning. Based on factors like availability of raw materials, customers’ requirements in production costs and time, the analytics platform can provide a list of recommended manufacturers.
During its digitization journey, Li & Fung faced challenges in two areas—changing mindset and identifying the right technologies.
Fernandez noted mindset change is the biggest issue. It is not easy for brand owners and retailer to accept virtual samples. But they are more open to new technologies, as long as the technologies demonstrate value to their businesses.
Comparatively, internal employees may take a longer time to embrace digitization. Aside from launching pilots to demonstrate the value for specific project, new skills training and idea generation workshops were also arranged to nurture a culture of open innovation among the staff at Li & Fung.
Another challenge is identifying the relevant technologies for its digital transformation. Fernandez pointed out business leaders should not be distracted by different emerging technologies. It is important to identify a specific objective in its digital initiative and adopt technologies that have been tested and proven to achieve such objective.
Reducing 50% lead time
Despite the hard work, initial success is starting to reveal at Li & Fung’s digitization journey.
The virtual design process has shortened product development time for its brand owners and retail customers. Fernandez noted that a traditional fabric sample typically takes weeks to produce and delivered, but a virtual sample can be created within a few hours. The end-to-end supply chain—from product design, material costing, product development, sampling to final creation and delivery—is also expected to reduce from 40 weeks to 21 weeks.
“We see a 50% increase in speed and an improvement in inventory markdowns,” he added.
With shorter lead times, retailers could place smaller orders, enabling them to have greater flexibility in inventory replenishment.
Looking ahead to emerging technologies
Fernandez noted the company is exploring disruptive technologies like industrial IoT, blockchain and AI.
One of the pilot projects is to experiment the use of sensors in factories. Some pilot projects are undergoing in factories in China, Bangladesh and Vietnam to monitor productivity, work progress, raw materials scheduling and capacity planning.
Li & Fung is also conducting a pilot project of using blockchain to manage documentation with customers, vendors and banks. The company is also exploring other opportunities with different financial institutions.
Fernandez added the company is also in conversation with IBM to use Watson for enhancing its call center services. He noted that AI is expected to bring more proactive or predictive responds towards customers’ enquiries and in the long term reduce manpower.
“As a result of our digitization journey, we aim to speed up time-to-market for our customers,” he said. “At the same time, we are hoping to build a culture of innovation and develop a digital-savvy business.”