SCM and Network Orchestration The Li & Fung Experience

1. SCM and Network OrchestrationThe Li & Fung Experience Chang Ka Mun Managing Director Li & Fung Development (China) Limited Li & Fung Research Centre 9 November 2010 APEC e-Trade and Supply Chain Management Training Course

2. Li & Fung Group • Founded in Canton (now Guangzhou) in 1906 • Global multinational headquartered in Hong Kong • World’s leading supply chain manager in the consumer goods market • 2009 Total Revenue: US$16 billion • Staff Population: 35,000 • Geographic Spread: Across 40 economies worldwide

3. Li & Fung Group • Ranked number 888 in Forbes’ “The World’s 2,000 Largest Public Companies” in April 2009 • One of Hong Kong’s top 10 companies in the Wall Street Journal Asia’s “Asia’s 200 Most-Admired companies” in September 2009 and one of the top 40 companies in BusinessWeek’s “The World’s Best Companies” in October 2009 • Financial Times’ “FT Global 500” in September 2009 and Forbes Asia’s “Fabulous 50” from 2007 to 2009 • Dr. Victor Fung & Dr. William Fung have been inaugurated to the World Retail Hall of Fame by World Retail Congress in 2009

4. Our Chairman & Group Managing Director Victor K. Fung Group Chairman William K. Fung Group Managing Director

5. Group Structure Li & Fung (1937) Ltd. A privately held entity and controlling shareholder of the Li & Fung Group EXPORT SOURCING The Group’s export trading arm is Li & Fung Limited – one of the largest global supply chain management companies that manages the supply chain of high-volume, time-sensitive consumer goods through its office network in more than 40 economics DISTRIBUTIONThe Group’s distribution businesses are housed under the integrated Distribution Services Group which provides its customers with a menu of integrated Distribution Services in three core businesses across Asia: Manufacturing, Logistics and Distribution RETAILINGThe Group’s retailing businesses include the publicly listed Convenience Retail Asia Ltd, the Trinity Group and privately held Toys “R” Us, with store networks extending from the China markets to Singapore, Malaysia, Thailand, Indonesia, south Korea and the Philippines Privately Held entity Listed on HKSE Listed on HKSE Listed on HKSE

6. Li & Fung Trading

7. Li & Fung Trading • 100 years of trading history since 1906 • Export trading arm handles the supply chain of high volume, time-sensitive consumer goods through its worldwide office network • Around 14,000 staff • Orchestrates nearly 15,000 international suppliers in over 40 economies to service approximately 2,000 customers • Member of Hang Seng Index, MSCI Index and FTSE4Good Index • 2009 Revenue: US$13.4 billion

8. Li & Fung Trading • Li & Fung specializes in orchestrating a highly-customized path through the supply chain in order to deliver high-quality, low-cost products to its customers reliably and quickly. Suppliers Manufacturers Distribution

9. Europe & The Mediterranean : 29 • Bucharest Cairo CasablancaDenizli Istanbul Izmir • Kahramanmaras Keighley Lucca • Milan Moscow Oporto • Sofia St.Albans Trowbridge Vilnius • Marketing Offices • Amersfoort Amsterdam Barcelona Bremerhaven Druillat Dusseldorf • Hamburg Huddersfield London • Paris St.Gallen Vienna • Warsaw East Asia : 24 Beihai Beijing Changsha Chengdu Dalian Dongguan Guangzhou Hangzhou Hong Kong Liuyang Longhua Macau Nanjing Ningbo Panyu Qingdao Seoul Shanghai Shantou Shenzhen Taipei Xiamen Zhanjiang Marketing Offices Tokyo South Africa : 3 Antananarivo Durban Moka Southeast Asia : 9 Bangkok Hanoi Ho Chi Minh City Jakarta Johor Makati Phnom Penh Saipan Singapore The Americas : 8 Guatemala City Managua Santo Domingo Marketing Offices Gaffney Mexico City New York City San Francisco San Pedro Sula South Asia : 12 Amman Bangalore Chennai Colombo Delhi DhakaFaisalabad Karachi Lahore Mumbai Sharjah Tirupur GlobalNetwork Over 80 offices in over 40 economies with about 14,000 employees and a sourcing network of nearly 15,000 international suppliers

10. Global and Diversified Customer Base North America Customers European Customers Others Approximately 2,000 customers in major developed markets

11. Li & Fung Retailing

12. Li & Fung Retailing • Focused on convenience retailing, toy retailing, international designer brands and lifestyle brands • Around 13,000 staff • 2009 Revenue: US$0.8 billion • Over 1,000 retailing outlets in Greater China, SE Asia and South Korea

13. Li & Fung Retailing

14. 114 Stores 493 Stores 398 Stores Li & Fung Retailing Li & Fung Retailing Outlets (as of 31 Dec 2009) Total : Over 1,000 outlets

15. South Korea Taiwan The Philippines Mainland China Hong Kong and Macau Thailand Malaysia Singapore 60 Stores 14 Stores 36 Stores 21 Stores 28 Stores 10 Stores 379 Stores 457 Stores Li & Fung Retailing Li & Fung Retailing Outlets (as of 31 Dec 2009) Total : Over 1,000 outlets

16. Established in 1986 as a joint-venture with Toys “R” Us, USA • In May 2002, Li & Fung Retailing acquired 100% ownership as a licensee of Toys “R” Us International • Operates over 114 outlets across the region in Mainland China, in Hong Kong, Macau, Taiwan, Singapore, Malaysia, Thailand and the Philippines

17. Established the Circle K Convenience Store chain in Hong Kong in 1985 • Listed on the Hong Kong Stock Exchange in January 2001 • Over 392 company owned and managed stores in Hong Kong, Macau, Guangzhou, Zhuhai and Shenzhen

18. The Saint Honore Cake shop in Hong Kong was established in 1973 • Acquired by Convenience Retail Asia, the holding company of Circle K in February 2007 • 101 company owned and managed stores

19. Trinity Group • Established in Hong Kong in 1971 as an apparel export manufacturer • On 29 April 2006, Li & Fung (1937) Limited, with funds managed by LF Asia Investments Limited, acquired 100% of the Trinity Group of companies from the owner operators • Currently one of the largest high-end menswear retailers in the Greater China region • A fully integrated business model with in-house capabilities for product design, buying, sourcing, assembly and finishing plus a wholly controlled retail network • Operates a portfolio of 7 menswear brands through over 390 mono-brand outlets in major high-end malls and department stores • Successfully listed on the main board of the Hong Kong Stock Exchange in November 2009

20. 7 1 6 2 3 5 4 Trinity Group Trinity has full control over the value chain, from design and sourcing, to sales and marketing allowing it to swiftly respond to changes in customer needs whilst maintaining the highest standards of quality Strong Customer Service In-House Design Self-Managed Retail network Fabric Sourcing Marketing and Pricing Outsourced Manufacturing Critical Assembly / Finishing

21. Trinity Portfolio Trinity Group

22. Trinity Group Li & Fung Retailing 398 Stores

23. IDS

24. IDS stands for .... Integrated Distribution Services

25. Provides a menu of Integrated-Distribution Services in three core businesses across Asia: Marketing, Logistics and Manufacturing • 2009 Revenue: US$1.8 billion • Around 8,000 staff

26. Marketing • Provide comprehensive distribution services specializing in Consumer and Healthcare products • National coverage of over 150 cities • Distribution coverage reached 15,000 retail points (Abbott’s distribution is over 11,000) • Operating in 6 regions supported by 18 branch offices and over 500 staff across China • Logistics • Logistics services managed by IDS Logistics (23 facilities, 1100 staff, 1.6M ft² of warehouse space in China) • Investment on technology to support operation & provide information visibility

27. UK China Taiwan Pakistan Hong Kong Bangladesh Cambodia Thailand Philippines US Malaysia Brunei Singapore Indonesia Our Business Network Distribution Manufacturing Logistics International • 1,200 staff, 4 centers of excellence • Home & personal care, health & beauty, food & beverage, and pharmaceuticals with growing export volume • Diverse production lines with full GMP & ISO compliance – TetraPak, Hot PET, aerosol, jars, tubes, sachets etc • 4,000 staff • 100 DCs & depots covering over 10m sq ft with deep & extensive logistics network in ASEAN, Greater China, USA & UK • Transportation Management Services • Regional and global SCM services with hubbing and end-to-end logistics capabilities • Freight Forwarding services to facilitate International Trade • Offices in HK, SG, US & UK • 2,500 staff • Asian-wide distribution network for FMCG and Healthcare products covering modern trade and traditional trade, hospitals & clinics • Asian wholesaling of apparel & accessories

28. Our Business Partners 400 local, regional and global brands partner with IDS, throughout Asia and across our core businesses

29. I. Basic concepts

30. 1. Supply Chain Management

31. Supply Chain • A supply chain encompasses all activities from obtaining the raw materials, through production, wholesale, retail, warehousing and transportation, to the delivery of the final goods or services to the end-customers. • “Four Flows” (1) Work flow • (2) Physical flow • (3) Information flow • (4) Funds flow

32. Supply Chain Management (SCM) • Supply chain optimization • Deliver the right product at the lowest price, in the shortest time, and in the right place to the end user • Advantage：Overall cost reduction with maximum efficiency

33. Orchestrator of the Supply Chain Li & Fung (Trading) Supply Chain Management Supply Chain Financing Supply Chain Consumer Needs Financing Raw Material Mills Product Design Financing Factories Product Development Optimize the Supply Chain Factory &Raw Material Sourcing Financing Shipping / Airlines Importers, Wholesalers Manufacturing Control Forwarder Consolidation Retailers Customs Clearance Consumers Local Forwarding Consolidation Distribution Services Inventory Management

34. Principles of SCM • Globalization effect: Competition is no longer between companies but between companies’ supply chains • Definition of SCM is yet being compromised • 5 fundamental principles are identified

35. Consumers Distribution/ retail Manufacturers Sell Sell Inventory Inventory Supplier-centric/ the “Push” model Consumers Manufacturers Distribution/ retail Demand Demand Quick response, zero-inventory Customer-centric/ the “Pull” model 5 Principles of SCM • Be customer-centric and respond accordingly to the market demand

36. The uniqueness of the capability High Self-established M & A Develop with outside consultant Low Can consider outsourcing Outsourcing Low High The enterprise’s capability 5 Principles of SCM • Focus on one’s core competency and outsource non-core activities, and develop a positioning in the supply chain

37. 5 Principles of SCM • (3) In contrast to the traditional adversial relationship, modern SCM emphases a close, risk- and profit-sharing relationship with business partners • A collaborative environment that is flexible and adaptable to the changing customer needs • Working with critical entities along the supply chain as a team to eliminate non value-added processes, and leveraging the capabilities of each team member to maximize value. • Avoid wasting time in matching the right partners, improve product quality, shorten production lead-time and lower costs.

38. 5 Principles of SCM • Adopt IT to optimize the operation of the supply chain • Facilitating information sharing, reducing lead times, increasing accuracy in planning and enabling business partners to engage in instantaneous worldwide communication, analysis of complex decision rules, and real-time visibility in most business processes. • “Business drives IT” not “IT drives business”

39. 5 Principles of SCM • Design, implement, evaluate and adjust the work flow, physical flow, information flow and fund flow in the supply chain • Shorten product lead time and delivery cycles • Lower costs in sourcing, warehousing and transportation

40. 2. Network orchestration and supply chains

41. Networks and supply chains

42. Three roles of Network Orchestration • Design and manage networks • The best supply chain is drawn from a robust universe of suppliers • The orchestrator creates, develops, and expands the network, and then draw supply chain from it

43. Three roles of Network Orchestration • Control through empowerment • In contrast to rigid control system, a combination of empowerment, training and certification is adopted to manage a network • Actors along the supply chains can act entrepreneurially

44. Three roles of Network Orchestration (3) Create value through integration • Identify new opportunities by leveraging the competence of actors across the network

45. 3. Process orchestration —Dispersed and virtual manufacturing

46. Process orchestration • It is more than sourcing products or components • It involves: • Breaking up the processes/ stages of the supply chain • Farming them out to different companies in different locations • Managing these dispersed processes • It requires designing the entire supply chain, drawing players from the networks, optimizing and managing the whole process

47. Dispersed Manufacturing /Borderless Manufacturing Lining Taiwan Assembly Chinese Mainland Design USA Made BY Hong Kong Shell Korea Label, elastic, studs, toggle and string Hong Kong Filler Chinese Mainland Zipper Japan Performing ‘production slicing’ to identify the best location/ country to undertake each stage of process, adding value along the way & integrating the entire supply chain

48. Virtual Manufacturing • Benefits from owning 12,000+ “smokeless factories” without investing huge sums of money to acquire the production and associated logistics facilities • Leverages the assets of our partners and mobilizes them to reach our growth initiatives, instead of owning them • Reduces the risks associated with the burden of asset ownership • Enjoys high degree of flexibility • More responsive to potential market shifts and technological changes

49. The 10 flatteners – Competing in a flat world

50. The 10 flatteners • End of the Cold War • Computer technology development – personal computer and internet • Available resources on the Net • Free tools and workflow software • Search for free information • Changing ways of production • Offshoring • Outsourcing • Insourcing • Supply Chain