HONG KONG – Global sourcing and trading firm Li & Fung said it wants to digitize its entire supply chain by the end of 2019, creating what it calls the “supply chain of the future.”
Speaking at a press conference on Wednesday here, company chief executive officer Spencer Fung said: “Supply chains in the past, for many decades, have been optimized for cost. Supply chains of the future [are] going to be optimized for speed and also the use of data and analytics, automation – all of that. “
Li & Fung is planning to spend an additional $150 million for digitalization over the next three years to achieve this goal, part of its newly announced three-year plan. Creating digital samples instead of physical ones is one example of how the supply chain could convert, Fung said. At present, about 50 to 60 percent of the Li & Fung supply chain has been digitized.
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Last week, Li & Fung announced a new 10-year agreement with PVH Corp., the owner of Tommy Hilfiger, which has switched to a see-now-buy-now model.
“What we’re really trying to help PVH with is efficiency in the supply chain as well as speed of the supply chain,” Fung said. “Now I can’t disclose anymore than that because this is between two companies. But let’s just say that we’re very excited to start the three-year plan, to start the plan with a new arrangement with PVH, which is one of our closest customers.”
Fung added that he wanted to “move as fast as a startup” and implement changes that would allow digital processes to take hours rather than weeks. The company is well-positioned for a new emphasis on data, he said, with “the biggest supply chain data bar none, equal to the size of $100 billion retail sales [a year].”
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Despite the ambitious plan, 2016 was a tough year for the company. Annual profit adjusted to exclude the write-back of acquisitions payable and other non-cash mergers-and-acquisitions-related items was $261 million, a 24.4 percent decrease year-on-year.
Excluding the impact of the disposal of its Asia consumer and healthcare distribution business in June 2016, total sales decreased 8.3 percent to $16.2 billion. In reported terms, revenues declined 11 percent to $16.8 billion.
“The retail landscape now is almost permanently promotional,” Fung said. “The consumers are really all trained to look for a discount. We think this is here to stay. This is the new normal, if you will. We see that retailers are looking to decrease their lead times and are destocking. There are also many unexpected bankruptcies and store closures. The demand for general apparel remains soft, but demand for home and ath-leisure remains strong.”
“I have never encountered a more challenging backdrop to our business,” William Fung, group chairman of Li & Fung, added.
While the general retail landscape is facing an unprecedented number of store closures, “what we can control is share of wallet among our main customers, and we’ve maintained that wallet share,” Fung said.
Li & Fung said it was converting more non-apparel customers, for example the company signed a new contract with large and fast-growing Dutch home-goods value retailer Action.