The IDS story: Reinventing distribution through value-chain logistics

Abstract

The increasingly cutthroat competitive environment today has led to an unprecedented level of business failures in Asia and around the world. Keeping one’s business model current is paramount to organizational survival. Making one’s service offering relevant is key to gaining competitive advantage. During the past couple of decades, we have witnessed the rise and fall of the distribution business in Asia. The major players in the industry have been engaged in head-to-head competition resulting in an industry-wide bloodbath and leading to margin erosion and profit shrinkage. We happen to be in the thick of this environment. Upon Li & Fung Group’s acquisition of the Asia-Pacific marketing services business of Inchcape PLC in 1999, we spent the last six years analyzing the typical relationship between a distributor and its principals, suppliers and customers. We studied their revenue and profit patterns. We took note of what worked and what didn’t. Our conclusion suggests the need to develop a non-traditional approach focusing less on direct “buy/sell” competition but more on service “value” generation. Upon working through the various iterations and simulating different business models, we have formulated the framework for Reinventing Distribution in Asia. We call this Value-Chain Logistics. Value-Chain Logistics provides an illuminating perspective on how to innovatively use Logistics as the fundamental enabler to seamlessly connect with our two other core businesses of Marketing and Manufacturing. This is the story of the IDS Group, its creation and our successful launch on the Hong Kong Stock Exchange in December 2004. And this is a story that’s just beginning to unfold.