As practiced by the Chinese supply-chain firm, Li & Fung, which has been written about by John Seely Brown, the former head of Xerox PARC.
"The firm functions as a loose network, almost like a social guild, in which everyone accepts flexibility and there are social affinities and a sense of mutual commitment. No one supplier can ever get more than 30 or 40% of business from Li & Fung (I forget the exact number), so that no one becomes overly dependent on the firm.
This analysis has implications for open-source supply chains and the greater efficiency, flexibility and innovation they can unleash, in part by being socially based and commons-based rather than market-driven.
Seely Brown has written more extensively about Li & Fung in a number of essays and his books (with John Hagel). But here is a relevant excerpt:
- 'Companies have started to unbundle their corporate structures, but few of them have unbundled the processes that span disaggregated enterprises. Most companies cling to a managerial preference for controlling their activi- ties tightly even if they now contract for —rather than directly own— those activities. But by tightly managing the work of specialists, such companies limit the value that innovative thinking might yield. Managing their pro- cesses more loosely would permit them to unlock the full value of specializa- tion for themselves and their partners and to gain flexibility’s more strategic value, including the ability not onlyto make operational changes quickly but also to sculpt customer offerings.Consider how these goals are achieved at Li & Fung, a Hong Kong–based trading company.
Li & Fung makes no products of its own. Rather, it “orchestrates” the production of goods by others, drawing on a vast global network of highly focused providers to arrange for private-label manufacturing, primarily on behalf of US and European clothiers. For a specific product or client, Li & Fung assembles a customized set of specialized providers to handle everything from product development to the sourcing of raw materials, pro- duction planning and management, and, eventually, shipping. If glitches pop up at any stage of the intricate process along the network, the company can quickly shift an activity from one provider to another.
Such flexibility promotes high-output performance. Rather than squeeze supply chain costs by tightly integrating activities, Li & Fung gains efficien- cies through the specialization of suppliers. The performance of the com- pany has been extraordinary for its sector: Li & Fung’s return on equity has exceeded 30 percent a year since the mid-1990s; 2001 revenues amounted to just over $1 million per employee.
Loosely coupled processes are the building blocks of networked companies.1 We call businesses such as Li & Fung “process orchestrators” because we believe that the key to achievement in this field is the way companies manage processes, not how they structure and monitor outsourcing contracts or implement new Internet technologies in their supply chains.' (http://www.johnseelybrown.com/McKinsey_version_loosening_up_how_process_networks.pdf)
- the Wikipedia entry for Li & Fung