Monthly Archives: August 2013

Li & Fung, The Most Important Company You Never Heard Of

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AUGUST 9, 2013

Li & Fung workers protesting unpaid wages

Li & Fung — the most important company that most American shoppers have never heard of — has long been on the cutting edge of globalization, chasing cheap labor to garment factories first in China, then elsewhere in Asia, including Bangladesh. Now, with sweatshop disasters there drawing international scrutiny, the business is looking for the next best place where it can steer apparel buyers seeking workers to stitch clothing together for a few dollars a day.

“As the world’s largest sourcing and logistics company,” writes The New York Times (Aug. 8, 2013), “Li & Fung plays matchmaker between poor countries’ factories and affluent countries’ vendors, finding the lowest-cost workers, haggling over prices and handling the logistics for 1/3 of the retailers found in the typical American shopping mall, including Sears, Macy’s, JCPenney and Kohl’s.”

The Hong Kong merchandiser owns no clothing factories, no sewing machines and no fabric mills. Its chief asset is the 15,000 suppliers in over 60 countries that make up a network so sprawling that an order for 500,000 bubble skirts that once took 6 months from drawing board to store shelf now takes 6 weeks at a sliver of the price.

“If globalization is a race to the bottom, where lowest wages win,” says an A.F.L.-C.I.O. spokeswoman, “Li & Fung is the sherpa showing companies the fastest route down that slope.” Li & Fung’s ability to exert pressure on factories can have unfortunate consequences, adds a labor advocacy group executive: “Every extra penny you squeeze from a factory is a step closer to that factory cutting the kind of corners that lead to deadly disasters.”

Meanwhile Li & Fung’s CEO says his company is considering South America and sub-Saharan Africa as possible places for growth. ”I wouldn’t write Bangladesh off,” he said. “It still has some of the cheapest labor in the world. For factories to get safer, clothing prices would have to go up. So far, consumers have just not been willing to accept higher costs.”

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.com. Professors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

Things China Makes

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AUGUST 7, 2013

Even though economists expected that the Chinese manufacturing sector would contract in July 2013, it did exactly the opposite. China’s economy is heavily dependent on manufacturing and exports; its citizens consume only a fraction of all the goods made in the country, and the rest are exported to the U.S., Europe and other markets. In fact, China makes so much stuff that if it suddenly decided to stop, most of the rest of the world would experience impossibly high demand for many “essentials” of modern life — things like air conditioners, cell phones and personal computers.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.com. Professors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

The Challenge of Fixing a Boeing 787

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AUGUST 6, 2013

ethiopian airDesigning a new product such as the Boeing 787 is a huge undertaking. The thin plastic skin on the 787 Dreamliner, writes The New York Times (July 30, 2013),  ”is an engineering marvel, a mix of carbon fibers and epoxy molded into large barrel-shaped sections that are then baked at up to 350 degrees in giant ovens.” But while airlines love how this lightweight concoction saves fuel, the recent fire on a Ethiopian Air 787 in London provides the first test of how much more difficult and costly it will be to repair serious damage than on older aluminum planes.  Each day a jet remains grounded costs an airline tens of thousands of dollars.

The cause of the fire, a pinched wire on an emergency transmitter, was fairly mundane. But the high temperatures weakened the supports in a 10-foot stretch at the top of the rear fuselage and seared the paint on the top of the skin, causing the most extensive damage yet to one of the new 787s. Boeing will have to cut out the damaged areas and bolt a large patch, made of overlapping panels of composite materials, onto the plane. It will also need to install new composite supports and shore up the structural integrity of the plane. If the damage were more extreme, Boeing could remove the entire 23-foot-long barrel containing most of the jet’s rear fuselage and snap in another one.

The use of composite materials on planes has grown steadily over the last 4 decades. Only 1% of the weight of Boeing’s 747 jumbo jet came from composite parts when it was introduced in 1969. That increased to 11% by 1995 on the 777, which has an all-composite tail section. Composites now account for half of the 787’s weight, which, together with more efficient engines, cut fuel consumption by 20%.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.com. Professors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.