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1 KCB ID: 15040 MANAGING INFORMATION SYSTEMS: A CASE STUDY OF LI & FUNG SUBMITTED TO PROF.DAVID TAYLOR SUBMITTED ON 7/12/2011 WORD COUNT: 4380
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Page 1: MANAGING INFORMATION SYSTEMS: A CASE STUDY OF LI & FUNG

1

KCB ID:

15040

MANAGING INFORMATION

SYSTEMS: A CASE STUDY OF

LI & FUNG

SUBMITTED TO PROF.DAVID TAYLOR

SUBMITTED ON 7/12/2011

WORD COUNT: 4380

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TABLE OF CONTENTS

1. Introduction...........................................................3

2. Background of the company...................................4

3. SWOT Analysis........................................................5

4. Gap Analysis...........................................................6

5. Internet Issues........................................................7

6. IT in Supply chain and its management...................8

7. Bubble in or Turnkey solution.................................10

8. Security Issues in implementing E commerce..........12

9. Recommendation....................................................15

10. Conclusion.............................................................16

11. Reference..............................................................17

12. Bibliography..........................................................18

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MANAGING INFORMATION SYSTEMS: A CASE STUDY OF LI & FUNG

This report will be critically analyzing how Integrated Managing Information System

has helped Li & Fung to achieve their strategic growth. Bubble in concept and the

security issues needed to be considered for the implementation of e –commerce.

Introduction

Managing information system is one of the major computer based information

system. The main objective of managing information system is to meet all the general

information need of the managers of the organisation or in its “sub units” where it can be

various levels of management level in the organisation (Asemi et al., 2011).

According to Watson in 1987 Managing Information system can be defined

as “an organisational method of providing past, present and projected information related to

an internal operation and external information. It supports planning function and operation

control of an organisation by furnishing uniform information in the proper time frame to

assist the decision makers” (Asemi et al., 2011).

Data can be defined as raw facts and distinctive piece of information that are formatted in a

distinctive way. Information can defined as a collection of facts organised in a distinctive

way that they have value beyond the value of the facts. System is defines as a set of elements

or components that interact to accomplish a goal. System consists of input, transforming

process and output. Input can be defined as gathering data what goes in to the compute

Process can be defined as converting data into useful output. Output is the useful information.

Information system‟s role in an organisation

Fig:1 Role of information system in organisation (Boddy et al., 2005)

People are the most important element in computer based information

system. People use MIS in all level of hierarchy. In an organisation they should work in a

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way that adds value to the resources of the company because they are the one who enters the

data. If we select the wrong people the information entered will also invalid and output will

also be invalid „garbage in garbage out‟. For example in the above diagram let us take an

example of a manufacturing industry in which the input data could include cost, availability

of material, staff and equipment. Information of input helps to manage the transforming

processed which manages delivery schedule, quality cost and capacity utilisation and output

includes information of goods, service and customer satisfaction gained due to timely

delivery. (Boddy et al., 2005). The quality of output helps in attracting and retaining the input

resources. So it is important that quality is maintained throughout the process.

Background of the Company

„Li & Fung‟ was founded on 1906 it was an export trading company in

southern China. After the second world was it was permanently located to Hong Kong. It‟s a

third generation‟s company which is presently managed by William &Victor both Harvard

graduates. In 2000 Li& Fung was a $2 Billion global export trading company with 3600

staffs in 48 offices in 32 countries. In 2000 Li & Fung was nearly 5 times its near competitor

and 69% of the revenue was from US and 27% from Europe. Li & Fung had achieved this

growth by organic growth due to rapid industrialization of the Asian markets and by a series

of acquisitions in 1995 Inchcape Buying service and in 1999 they had acquired Swire Group

& Camberley. Li & Fung had expanded its customer base in Europe.

. „Li & Fung‟ used to supply hard goods which included fashion

accessories, furniture‟s, gifts, handicrafts, fireworks, toys and travel goods and soft goods

which include apparels woven and knit for women, men and children. They had higher

margin for hard goods. Margin for soft goods were 6% to 8% and hard goods were 10 to 30%

depending upon the complexity of sourcing the raw material. In 1996 „Li & Fung‟ had

adopted a 3 year plan. „Li & Fung‟ in 2000 had outperformed The Hang Seng Index by

75%.They had a market capitalisation of $ 6.6 billion dollar.

After analyzing „Li & Fung‟ I strongly believe that company is market

driven and has a growth strategy and it is evident from the case study that the revenue and

profit of the company is increasing in a year on year basis.

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SWOT Analysis

SWOT stands for Strength, Weakness, Opportunities and Threat. SWOT

analysis as a tool which is used to quickly analyse the various aspect of current scenario of

business process which is undergoing change (Iba, 2009).The strength and weakness

constitute internal factors and opportunities and threat constitute external factors. In 1957

Selznick had said that SWOT refers to matching the internal resources to external threat and

opportunities (Gill, 2006). In SWOT analysis the best strategy that a company should

execute is to exploit the organisational strength and opportunities to neutralize its threat and

control its weakness (Griffin, 2011).

STRENGTH (INTERNAL)

1. Supplier facility screening

e.g. Direct access to manufacturing

sites

2. Multi sourcing

e.g. Orders are divided between the

factories in Thailand

3. Supply diversification

4. Decentralization of management

e.g. To adapt to rapidly changing

fashion environment

5. Brand Value

e.g. Association with Abercrombie

and Fitch, Tesco, American Eagle,

Reebok

6. Strong leadership

e.g. William Fung and Victor Fung

3 year strategic planning

7. Strong financial position

e.g. Market capitalisation of $6.6

Billion

8. Supply chain customization

e.g. Shorten order fulfilment from 3

months to 5 weeks.

WEAKNESS (INTERNAL)

1. Lack of knowlege e commerce

e.g.They included two tecnical

director .One academic and another

CEO of tecnology company

2. Lack of people to implement e

commerce

e.g.They had asked Casling CEO to

be a part of their new IT venture

3. Weak IT department

e.g.Even though they had IT

department of 60 people intranet and

extranet was outsourced.

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After doing SWOT analysis I was able to identify that the company had opportunities in e

commerce and they were having a weak IT department.

Gap Analysis

Gap analysis is the starting place to develop the implementing

strategy to understand the gap between the current and future situation. In 2000 „Li & Fung‟

was a $2 billion export company and was 5 times the near competitor with a market

capitalization of $6 billion with 69% of sales from USA and rest from Europe. As it is well

documented in the case study that „Li &Fung‟ had done an Top down bottom up market

9. Quality assurance e.g. Quality inspectors for watches, suitcase, shoes.

OPPORTUNITIES (EXTERNAL)

1. E commerce

e.g.B2B site targeting SME in USA a

market of $54Billion.

2. Operational efficiency.

e.g. Implementation of intranet

operation efficiency raised from .8%

to 3 %

Within 3 years

3. Electronic stock offer portal

THREAT (EXTERNAL)

1. Online business

e.g.Alibaba.com.,globalsources.com

2. Phasing out of role of middle man

3. Loss of key employees

e.g. New generation company may

buy their key employee

4. If technology was outsourced they

e.g. will have to depend on that

company.

Depend on outsiders

5. Conflict between online and offline

business

E.g.Working directly with the

competitors of existing customers.

Abercrombie and Fitch had expressed

their concern

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research and by 2004 „Li &Fung‟ was targeting one third of its total revenue , $2Billion

dollar in sales from its online business, „lifung.com‟ . They were mainly targeting the highly

fragmented retailer and warehouse sector of USA of annual turn over $100million and

$50million respectively with a total market size of $54Billion.

After doing the gap analysis of the company I strongly

believe that there is a huge potential for Li & Fung‟s new e commerce business.

Internet issues

„Li & Fung‟ was constantly monitoring the external factors affecting the organisation

.William was on the point of view that one of the potential threat that the company was

facing was from new generation online companies buying the old offline companies and

become competitors overnight. William had hinted that his strategy behind the acquisition of

„Swire & Maclaine‟ was a defensive move to avoid new generation companies buying them.

Before 1995 if there was any quality issue problem in any

manufacturing sites „Li & Fung‟ had to send the supervisors physically to that location .For

example if they had quality problems in their Bangladesh manufacturing site they had to send

the supervisor to the site, it was time consuming and extra burden for the company. By 1995

they had implemented „Intranet‟ which had connected all their offices around the world to the

manufacturing sites .It helped the company in many ways It helped in sending high quality

digital photos to the manufacturing sites .The communication between the companies was

much faster .By 2000 they had connected secure extranet sites to their customers The extranet

acted as a platform for the buyers and the manufactures. The Buyers were able to track the

progress of their shipmen. The monitoring also helped in timely production of goods. The

extranet of „Li & Fung‟ was also connected directly to the EPR of the customers.

„Li & Fung‟ soon realised that internet is just a technology which helps in

transferring information more quickly. In 2000 Li & Fung had decided to a start a new e

commerce Business to business website which would target the SME, wholesalers retailers in

USA of annual turnover of 50 million and 100 million. „Li& Fung‟s‟ research determine that

there are about 20000 retailers and 2800 wholesalers with a market capitalisation of 54

billion. Traditionally the SME were depended on importers and they had charged 25%-

30%.as commission.

„Li& Fung‟s‟ ecommerce strategy to attract customers was limited

mass customisation and they had charged a commission of 10%-15%. ‟Li& Fung‟s‟ strategy

was to aggregate the stock from different SME in their online platform. Their main strategy

was to increase their market share.

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IT in Supply chain management

SCM is the “observation and administration of logistical process across the entire value

creation chain which includes suppliers customers and end customers” (Kappauf et al., 2011).

Fig 2: Supply Chain Management (Russell & W. Taylor, 2006)

The above diagram shows the entire supply chain

process. The tier 3 supplies materials to tier 2 supplier‟s .The tier 2 supplier‟s supplies to tier

1 suppliers and they in turn supply directly to the ware house or factory. The finished goods

are transported to the distribution centres and from the distribution centres they are sending to

different stores. The entire process involves lot of information and data transfer from

sourcing the raw material to manufacturing and distributing it .Managing information plays a

significant role in supply chain management.

Simchi Levi,E in 2000 had stated that “Supply chain management is a set of

approaches utilised to efficiently integrate suppliers manufacturers, warehouse and stores so

that merchandise is produced and distributed at the right quantities, to the right location, at

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the right time in order to minimise system wide cost while satisfying service level

requirement” (Overbeck, 2009).

Advantage‟s of supply chain management information system

includes high quality relevant timely information, it gives alerts for replenishment of

inventory, capacity activation, it helps in synchronising material flow. It helps in preventing

the supply chain management from becoming complicated .It helps in to increase the supply

chain management performance (Soroor et al., 2009).With the implementation of extranet

sites in 2000 some of the customers of Li& Fung had connected the extranet sites directly to

their companies EPR .

According to Chang and Chang in 2009 to manage the

supply chain that consist of consumers, subordinates and suppliers the organisation will need

large Information technology which should be integrated with the existing Enterprise

resource planning system of the organisation in different sites (Y.C.Wang et al., 2010). In

2000 „Li &Fung‟ had decided to start a new E commerce business and to invest 200 million

in that venture which would be an integral part of their existing business.

In 2005 Standler had stated that the „building blocks‟ of Supply

chain is the integration, collaboration and use of IT in the system. Rehan in 2009 had

emphasized that EPR is the back bone of Supply chain integration. The recent advances in

Information technology had facilitated the coordination among the different system in the

supply chain (Akyuz & Erkan, 2010). The integration with the internet is known as „e -supply

chain management‟.

It is evident from the case study that the extranet and intranet sites had played an

important role in the efficiency of the company‟s supply chain management .The

implementation of intranet had simplified their internal communication. It reduced their

operational cost by sending high quality digital images and online inspection. The

implementation of extranet sites had acted as a platform through which the buyers can

directly interact with the manufactures and can even change the design model .The extranet

platform have also helped in product development. It was also beneficial for its customers as

they can monitor the production which promoted quick response. The buyers also had

advantages like until the cloth was dyed they could notify the manufactures to change the

colour and until the fabric was cut they could change the design. The extranet site was so

useful that some of the customers had connected it to their Enterprise Resource Planning.

Disadvantages of IT in Supply chain management

Bull Whip Effect

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Fig 3 Bull Whip Effect (Russell & W. Taylor, 2006)

It shows that the slight demand variability magnifies as it moves

back the upstream from customer to tier 3 suppliers. In a decentralized supply chain only the

retailer knows the customer demand and it will show a higher variability than the centralised

supply chain where the customer demand information is available at each level of supply

chain. „Li & Fung‟ having a decentralised supply chain can be prone to Bull whip effect.

„Li & Fung‟ can reduce Bull Whip effect by reducing uncertainty. It

can be reduced by sharing demand in all stages of supply chain. By reducing the variability in

the customer demand process. By reducing lead time, it magnifies the variability which

causes to demand forecasting. It can also be reduced by engaging in strategic partnership

(Simchi-Levi et al., 2003).

Bubble In or Turnkey solution

Turnkey solutions can be defined as a type of solution which can be easily

implemented in to existing business process which was designed to fulfil certain procedure.

In 2000 ‘Li & Fung‟ had decided to have an ecommerce strategy for their ne B2B

portal. Li & Fung wanted the e commerce business to add value to their existing business. „Li

& Fung‟ insisted that their ecommerce strategy should be from inside either by using their

existing IT department or absorb new people it was known as „Bubble in‟ concept.

„Li & Fung‟ didn‟t want to relay entirely on outsider because of

the risk involved. „Li & Fung‟ was concerned that if they outsource the IT they will have to

depend on them completely and will have to share their business model, strategy and

proprietary information. In future if they terminate the deal the outsourced company can join

hand with Li and Fung‟s competitors and start a new business.

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„Li & Fung‟ were also concerned with the risk of confidentiality of its

customers. Big customers like Abercrombie and Fitch had also raised their concern with „Li

& Fung‟ as they are also doing business with their rivalries like American eagle. They were

concerned about the security of the designs. What will happen if their competitors get the

information of their new design?

„Li & Fung‟ wanted their new company to be there for the next 100 years

.So they were not interested in outsourcing it for a fee. Since the technology is a constantly

evolving industry there will be frequent up grades .There will be also difficulty in selecting

the right service provider for IT outsourcing. Before selecting any company for out sourcing

they should check the credibility of the company because the new venture requires high

investment of $ 200 million .If anything goes wrong it will affect the confidence of the

investors. If we select the wrong company for outsourcing it will make a deep impact on the

company.

Since IT is not their core competence they can invest the money that was

raised from the market, $250 million for their core business and outsource the IT business. In

a rapid expansion phase the back office operation will also expand. For e.g. if there are too

many projects like „Li& Fung‟ is going to start an B2B E commerce site and as a part of

future venture they are planning to start “electronic stock offer” it is better to outsource it

rather than investing in the IT wing .

It will be better to outsource the IT because of complicated procedures like

software development, implementation and upgrading, its maintenance .At present „Li &

Fung‟ had outsourced its intranet and extranet to an IT outsourcing company and it is also

working well for the company since some of its customers had connected the extranet of „Li

& Fung‟ to their EPR. It also improves the financial ratio of the company.

As technology is constantly evolving new security issues are raised each

day .The cost for disaster recovery and IT department maintenance will increase each year.

So it would be better to outsource IT.

As the company grows the number of people working will increase and

need for office spaces will also increase. The IT professionals are also highly paid. High

employee turnover will cause inconsistency and uncertainty in operation which will affect the

overall performance of the company, so it would be better to outsource the IT wing.

By outsourcing „Li & Fung‟ can shorten the time to market new IT

services since information technology is constantly evolving and innovation are required.

Outsourcing will be also helpful to „Li & Fung‟ since their growth is by both organic and

through acquisition. Integrating new companies IT to existing companies IT is a complex

process and time consuming as it requires lot of testing .So it would be better to outsource to

an IT company.

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I strongly believe that Li & Fung should outsource its IT because it is

not their core competence and they should give the contract to a credible IT company with

good track record.

Security issues in implementation of e commerce system

Internet has played an important role in how we meet people and how we do business. It is

with the onset of internet now many organisations are doing ecommerce. Internet is a double

edge sword with opportunities on one side and risks on other side. Managing security issues

is an ongoing challenge.

Physical security

It is the protection of hardware; programme network data from physical sabotage.

It includes protection from theft, fire, natural disaster. The first level of protection can be

implemented by multiple lock, fencing, and fire proof safes. Second layer of protection can

be implemented on surveillance, smoke detector, intrusions, alarms and camera. The third

level of protection can be give before incident happen.

It works in the following mechanism

Detection

1. Exterior /interior intrusion sensor

2. Alarm Assessment

3. Alarm Communication

Delay

1. Access Delay

Response

1. Response force

2. Response force communication

The Physical security‟s function of Detection and delay is by either guard or

hardware and response is by guards (Garcia, 2006).Li & Fung‟s new office is in San

Francisco will give them high level of physical protection.

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Electronic security

E security or electronic security is a system to protect the systems information

assets. It adds value to the network and has a hard infrastructure and soft infrastructure. The

„soft infrastructure‟ consist of‟ policies , protocols and process‟ and guidelines that protect

the system from compromise The „hard infrastructure‟ consist of software and hardware

needed to protect the data from threat.

Security risk on Enterprise Network

Lewis in 2000 is of the view that the security issue is linked to business revenue.

Lack of security issues will lose confidence of the customers and too much security issues

will create a hindrance for the customers to access .He suggested that the best way is to

provide the adequately strong security measures so that the customers can access. „Li and

Fung‟ company should take steps to make sure that the new web portal has a right mix of

security should be appealing to customers (Mylonakis & Malioukis, 2010).

Importance of Information Risk Management System

It will not be possible to protect the company from all security issues because the

security attackers are constantly evolving. Information risk management is the process to

identify and understand the risk to the confidentiality, integrity, the availability of

information and information system (Mylonakis & Malioukis, 2010).

Besillissimo Burgess & Fu in 2006 had said that IT security efforts are

concentrated on firewall, virus scan, authentication, intrusion detection. As the no of

vulnerabilities are increasing and the cost for fixing it is also increasing each year it

becoming extremely hard to fix all the problems of the company (Mylonakis & Malioukis,

2010).

Risk Management is a „process that allows IT manager to balance the

operation and cost of protective measures‟. A well structured risk management system when

used efficiently can help the management to identify the problem.

„Li and Fung‟ should understand the importance of risk management and

IT security efforts should be given to firewall, virus scan, authentication, intrusion detection.

If there will be a breach of security issue it will have catastrophic effect on them because the

supply chain is highly delicate and it takes only seconds to make inventory. If the order gets

cancelled it will make a negative impact on the company‟s earning and reputation. It will also

lose confidence of the stake holders.

The security system objectives include

If „Li & Fung‟ can give emphasis to the procedures noted below they can protect

the network from security breach.

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1. Availability

It is the „processes, policies and control‟ used to ensure that authorized

users have access to information.

2. Integrity Of Data and System

It is the „processes, policies and control‟ used to ensure Information

has not been allowed to alter in an unauthorised manner.

3. Confidentiality

It is the „processes, policies and control‟ used to ensure to protect the

information of the user and organisation from unauthorised user.

4. Accountability

It is the „processes, policies and control‟ used to ensure to trace the

action of sources.

5. Assurance

It is the „processes, policies and control‟ used to ensure that operational

and technical security works as needed.

Li & Fung will become vulnerable to security risk if there is a lapse in any of this IT

architecture.

1. Intrusion: „Li & Fung‟ should ensure that access to information is only through

authorised access methods

2. Availability: „Li & Fung‟ should ensure that system and information is always

available for authorized users.

3. Authentication: „Li & Fung‟s‟ should ensure that only authorized person have access

to information and data.

4. Encryption „Li & Fung‟ should ensure that all the data that are used an in storage are

encrypted.

5. Accountability „Li &Fung‟ should make sure that information used by the users are

recorded properly.

6. Endurabilty „Li &Fung‟ should ensure that risks are maintained at acceptable level.

7. Authorization: „Li & Fung‟ should ensure that system and information is restricted

and has authorization to access.

Security risks involved

Viruses - The virus infects every application of the PC and slowly infects the documents of

the computer. It gets attached itself to the software programme or files to be executed. If there

is an incidence of Virus attack in „Li & Fung‟ network it will make a deep impact. There will

be a chance of losing all the data.

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Worms - They are independent programme which spread rapidly through the network from

one computer to another by copying.

Trojan Horses - They appear to be benign but cause more damages.

Hacking is the process of gaining access in to one computer without having legal

authorization

Online payment- It is a process to illegally receive money through fraudulent name from a

different bank account.

„Li & Fung‟ should consider the above security risk for the implementation of

their new e commerce business. The breach of security will have disruptions in their business.

If there is a system crash and loss of financial accounts it will have deep impact of the

company.

Recommendations

These recommendations will be useful for „Li & Fung‟ because they will be

dealing with huge amount of information .A disruption in their back office will cause a

catastrophic effect on their supply chain management segment worldwide. It will affect their

business and the customers and stake holders will lose confidence in their business model. As

a result the company will lose the capital spent on the venture. The recommendations are:-

1. Protect information, system and network from virus by installing antivirus software.

This will protect the system from viral and worm attack.

2. Provide security for internet connection by installing and connecting to hardware

firewall between internal network and internet

3. Install and activate software firewall. If we are using hardware firewall we should use

software fire wall also it usually comes along with windows operating system

4. Make a backup and recovery copies of important data‟s. Without back up data we will

be in a situation to recreate our data from the hard copies manually. It is important to

5. Make a back up data once in an month and store it in a place away from the office

location so that in an incident of fire or natural disaster the data doesn‟t get lost

6. Control physical access to the computer and the network area. They should restrict

unauthorised people accessing that area.

7. Implement each employee a distinct user account for business computer and business

application. Each password should be selected randomly with letters number and

special character

8. Safety with online credit card payment can be provided by encrypted numbers.

9. Relying on Data hosting centre is critical for stability and prosperity

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Conclusion

Breach of security happens, but the company must be always vigilant. „Li & Fung‟

should assume that disruptions may occur and plan a strategy accordingly so that they will be

well prepared in the situation if disruption occurs. Disruption can cause serious damage to the

company‟s reputation, and it impacts the bottom line of the business.

The assignment gave me an opportunity to analyze how an

Integrated Managing Information System helped Li & Fung to achieve their strategic growth

and the security issues concerned with the implementation of E commerce.

I would like to summarize that it was worth studying this case.

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