The drivers for the formation of IDS were the seen challenges in the Asian distribution landscape and the rise of consumer markets in Asia.And so with the more than 100 years of experience Li & Fu Group (LFG) had on sourcing products and materials form Asia and selling them to the WestIDS was formed as a result of “reversing” LFG’s trading model this was made possible by LFG taking over IMS, an Asia distribution business of the Inchchape Group, which at that time was a highly diversified business lacking a core focus Due to IMS’ already established regional reach and rich customer base, LFG decided to acquire the company and help Brand Owners in managing chaotic markets Victor Fung, chairman of the LFG, had the vision of taking an old business that was broken and re-making it in a different way, or reinventing a sunset industryalso since LFG was already known to be an excellent “orchestrator” of supply chain, they wanted to incorporate their expertise in their new business as well
Inchchape, upon its operations in Asia, invested in a lot of core assets (had manufacturing sites in thailand, Malaysia and indonesia) In addition to making use of theses assets, LPG’s management team thought of a New Business model now termed to be value-chain logisticsValue Chain Logistics- consider logistics as the main driver for companies to have maximum efficiency, as the absolute key to building an effective distribution network in Asia3 services formed a value-chain solution= logistics, distribution and manufacturing and with this they Positioned logistics as the main front-end business connecting traditional distribution service and manufacturing
Soon after the acquisition, IDS introduced a three-year strategy planning cycle that aligned the overall business direction and commitment throughout the organization.
In the first 3 years, IDS identified these things as their main challenges. As you have seen in the video earlier, the Asian market has undergone a drastic change, thus requiring adjustments in the way most multinational companies worked.
Focus: real time data collection, interaction among its branches
Focus is on the handling of your product. IDS makes possible the efficient handling of your products through its well-established network of companies and regional hubs in Asia.
Focus is on the marketing of your product.
In here comes the question of whether to make or buy.
IDS has a number of global brands as its key clients.
Brand Owners perspectives are generally based on evaluating the costs and benefits of operating the specific functions internally versus outsourcing.
IDS is here to cover the supply chain needs so as the brand owners are able to conveniently focus on their core competencies such as marketing or product design.
(1) recruiting top talent due to negative perceptions of the logistics industry; (2) losing their ability to be agile and entrepreneurial as they became a big company; and (3) continuing to manage the organizational complexity of clients.
As IDS is a pioneer in value-chain logistics concept. However, there are competitors in each of its menu service offerings and in all the Asian countriesin which it operated from many established regional and local distributors, well- established western logistics giants and long-standing local logistics and manufacturing companies. As such, for each individual business stream, there were competitors of varying sizes and capabilities.
As IDS grew, it hoped to continue to innovate and expand its menu of services along the entire supply chain. Redefining Value-Add: Some of the service offerings (as of 2007) were offered as discrete services. AND management connected them and redefine the value proposition as an end-to-endsolution. In addition, IDS planned to continue to pioneer new services, such as a strategy for managing sales-to- cash conversion cycles, since billing and collection was a big issue for brand owners. The vision for IDS was to become a full-service supply chain management provider, with the flexibility to allow clients to pick and choose pieces they wanted to outsource.Account-Focused Model for Revenue Management:The ‘pick and choose’ menu allowed IDS to price more intelligently, which in turn led to better margins. However, once a customer signed up, even for a single IDS service, we believe there are possibilities to expand that opportunity into multiple services or multiple country relationships. In addition, IDS found that most multinational companies in Asia preferred to have only one point of contact—in this case, a dedicated account manager from IDS who focused on a few individual accounts.
That’s why, for example, every 3 years, our strategic plans are updated as IDS is very open to change to cope with the behavior of the market. We are doing our best to be the number 1 in what we’re doing! Moreover…
With the seen steady increase in the consumption of alcohol and non-alcoholic beverage since 2002, a leading global premium beverage alcohol company confided in IDS to come up with ways to improve the efficiency of the supply chain this model gave the company numerous problems such as the high inventory build-up in warehouses, slow responses to market changes and etc As IDS was asked to deliver a “regional hubbing solution” they came up with a initial solution with the following steps: First is Finding an optimal geographic location, second, optimizing or minimizing the tariff and tax costs in moving goods to asia, and finally a set of packaging solutions
What IDS did for the beverage company was First, the selection of a location of regional hub for the company by IDS. the site chosen was Singapore due to its ideal location to serve various Asian Markets and due to its attractive tariff schemes for import and export good. It also had an effective port so it can contribute to the efficiency of the processSecond was the Customized Warehousing Solution wherein IDS invested significantly in building a fully-automated storage and retrieval system (ASRS) as they viewed this beverage company to be a long-term strategic partner. This computerized system eliminated human error and allowed 100% visibility on the inventory level
For Marketing Services: (DKSH and Zuellig)Swiss family owned businesses with decades of Asian experience and longstanding relationships with multinationals.Focused mainly on marketing and distribution services = traditional distribution but interested in logisticsFor Logistics Services: (DHL and Kerry Logistics)More so the numerous local logistic providers in each country. The logistics business is highly fragmented as few had the assets to have nationwide coverage. As a result, most brand owners needed to work with multiple logistics companies. --- only provided warehousing, trucking and deliveryFor Manufacturing Services: in house operations of the brand owners themselves and local companies
Integrated Distribution Services: The Asian Context
INTEGRATED DISTRIBUTIONSERVICES GROUP (IDS)Redefining the Asia Distribution Landscape
Opportunities in Asia• Fastest-growing consumer market in the world• Mosaic of Nationalities, languages, and cultures• Provided the greatest long-term market potential
Challenges in Asia‟s Supply ChainSystem• Complex supply chain system• Difficulty in getting access to the final consumers• Freight cost = 8-12% of total product price
Background on the Asia Supply chain landscape• Most brand owners generally used local Asian distributors to import goods• Pre-1990‟s :generally lacking in high quality consumer goods• Local demand generally exceeded supply of imported goods• Mark-ups of 20-30%
Background on the Asian Supply ChainLandscape• Change around late 1980s • Global companies started to set up operation in Asia (Wal-Mart, Carrefour) • Consumers had more product choices • Both Asian and Western brand owners started to develop new products to capture growing consumer demand • Consumers became more demanding (low prices)
Background on the Asian Supply ChainLandscape• Traditional distributors started to feel the squeeze from both directions• Brand principals no longer wanted to give distributors the lucrative margins• Supply chain issues: Logistics & Client Account Warehousing Management
INTEGRATED DISTRIBUTIONSERVICES GROUP (IDS)Redefining the Asia Distribution Landscape
IDS Overview and Historical Context• Challenges in Asia distribution landscape• Li & Fung Group (LFG) over 100 years experience in Asia-West distribution• IDS as a result of “reversing” LFG‟s trading model• Acquisition of Inchchape Marketing Services (IMS)
A New Business ModelMake use of old assets + Think of a BetterBusiness Model = Value-Chain Logistics Logistics as a fundamental enabler to drive maximum efficiency Position logistics as the main front-end business connecting traditional distribution service and manufacturing It now calls itself an Integrated Distribution Service Provider
STRATEGIC PLANS(1999-2001, 2002-2004)Reorganization and a Menu of Services
1999–2001, 2002-2004Challenges Manage Create a change new culture
How? Do away with country-based structures.Reorganize as a regional company with 3 business streams and key support functions across Asia. Prioritize logistics, followed by technology. Allow customization.
Business Streams Logistics Distribution Manufacturing
Integrated Distribution Services Group (IDS): GS-59 p. 23 Exhibit 5 Menu of Services – Distribution 1 2 3 Credit and Selling Marketing Cash Management Selling and demand creation Marketing services Order management and credit Merchandising support Trade marketing management control Key account management Advertising and consumer Billing and collection promotion Claims and returns Wholesale and sub-distributor Relationship management Sales analysis and market planning Customer Services Market intelligence 4 5 6 Inventory Mgmt and Logistics Value- Value-Added Services Working Capital Solutions Comprehensive logistics Inventory management Product registration support (provided by IDS Working capital solutions Category management Logistics streams or another vendor) Vendor financing Tracing and tracking Co-packing After-sales services Demand forecasting and inventory planningSource: Information provided by IDS Group Exhibit 6 Menu of Services - Manufacturing
Demand forecasting and inventory planningSource: Information provided by IDS Group Exhibit 6 Menu of Services - Manufacturing 1 2 Contract Manufacturing Compounding and Mixing First-party – also responsible for procurement of Based on formulation and procedure provided by raw materials clients Third party– raw materials provided by clients 3 4 5 Filling and Packing Value- Value Added Services Logistics Services Wide range of packing solutions Product registration Comprehensive logistics support Handle pack sizes of various sizes Laboratory testing Quality assuranceSource: Information provided by IDS Group
STRATEGIC PLAN FOR2005-2007Rewarded in the Capital Market
Expansion Malaysia Singapore United Kingdom Taiwan China Philippines USA
Global brands as its key clients! Operating the specific functions internally VS Outsourcing
Global brands as its key clients! IDS‟ value proposition is “compelling” • Allowed the brand owners to focus on their core competencies (e.g. marketing or product design)
Differentiator: China Advantage • Invested significantly in operations in China • Built a national distribution network • In 2004, IDS received a nationwide license • Expanded further • Held first mover advantage! • Helped drive brand owners‟ growth in China
Unique China Advantage over 100 years of China supply chain experience acquisition of Inchcape assets and investments in various Asian countries optimal supply chain serving this region.
Competition• NO competitors in Asia that offered this type of complete pan-Asia end-to-end array of services. • A pioneer of the „Value-Chain Logistics‟ concept• Only have competitors of varying sizes and capabilities in EACH of its menu service offerings
Growth and Aspiration Redefining Value-Add The Three Growth Account- Focused Drivers Model for Revenue Management Organization Restructuring
Global Ambitions I won’t call it a revolution; I think it’s been an aggressive evolution.
Where is IDS heading? IDS wants to be able to designcomprehensive global supply chain solutions that are truly end-to-end: from the sourcingof the raw materials to the delivery of goods to consumers anywhere in the world.
A Global Premium BeverageAlcohol Company Each country‟s market in Asia independently fed it‟s respective demand forecast Problems: high inventory build-up, slow response to market change, etc. IDS asked to deliver a “regional hubbing solution” Identify Optimal Geographic Location, Optimize tariff, Packaging Solutions
Location Selection Customized Warehousing Solution Value Added Services