World Trade - August 2008 - (Page 40)

GLOBAL SUPPLY CHAIN mize, warn that far-ﬂung suppliers will push up costs. One manufacturing company helped its managers at home to “get over it” by using its existing processes to select, approve, negotiate with, and manage new Chinese suppliers, instead of setting up a special initiative staffed by employees whose powers usurped the authority of current sourcing and product managers. Processes and sourcing roles changed only after the company became comfortable working with Chinese suppliers. Headquarters isn’t the only hurdle to cross, however. Increasing procurement requires the company to build a staff of people in China capable of making the right decisions for the company. Talented engineers and designers must be moved from headquarters or recruited and trained on the ground in China. Sourcing in China complicates product development decision-making when these functions are half a world apart. A few MNCs are planning to integrate design and manufacturing functions and co-locate them in China to reduce design-to-order cycle times. Executives at these MNCs have taken to heart lessons from the notebook computer industry, which has blazed this trail to good effect. “China sourcing must be managed from China—not from the U.S., and not even from Hong Kong buying ofﬁces, which are too far from the Chinese factories and the information they need,” says Diane Long, head of adidas’s China sourcing. Long has been sourcing in China for twenty years. Before joining adidas, she was head of the Shanghai-based sourcing ofﬁce of Liz Claiborne. “If a designer is here, they will be more likely to pick a material or an accessory that is here in China and that the vendor already has.” In the apparel sector, there are frequent tales of designers in New York or Paris who pick a button or a ribbon from a Japanese vendor that is two or three times (sometimes even ﬁve to ten times) more costly than a comparable product of equal quality from a local vendor. Buying from the Japanese vendor also adds six weeks for delivery. “In apparel, higher-end garments designed and made in China can take thirty-six to forty-two weeks to get from concept to store, down from about a year. Some of the time saved is through better sourcing, like buying fabric in China instead of importing it, but having designers there can shorten lead times by at least 30 percent.” Adapting Global Standards State of Logistics in China As China occupies an increasingly larger space in the global economy, questions about in-country logistics—both for outbound exports and internal distribution—face foreign shippers and manufacturers. Two leading U.S. transportation companies—Werner Enterprises and Schneider Logistics—have staked out beach-heads in China and we decided to see what they think about the state of logistics there. Derek J. Leathers, President of Werner Global Logistics, which has been in China since 2005, notes that logistics costs are proportionately three times higher than in developed countries (“in the U.S. or Japan distribution costs are between 6% to 9%, in China the low-side estimates are 20%, but many claim it’s north of 30%”). Why? The answer is a combination of infrastructure and scale. “China is very similar to early 1990s pre-NAFTA Mexico,” notes Leathers, who was there. “You’ve got tons and tons of players, the average ﬂeet size is less than ﬁve trucks, there is no national player.” The big thing missing, thinks Leathers, is “the logistics analysis piece.” That’s Werner’s business strategy in China, to offer better designed networks to move goods (“there’s not a lot of mode analysis around”). But with all those tiny ﬂeets, he admits optimization is tough: “We do it with people on the street, capacity managers whose job is to spend all day calling on trucking companies and to build alliances with transportation providers.” Compared to the capacity piece, ﬁnding customers is relatively easy. Tom Escott, President of Schneider Logistics, is undertaking a different Tom Escott, President of Schneider Logistics. mission. “Our main strategic thrust is serving the domestic Chinese market for the same customers we have in North America (e.g. Wal-Mart, Kimberly-Clark).” Of late, though, service has broadened to some Chinese national companies (“there’s an interest in elevating the way they look at their supply chains”). Schneider’s focus is on transportation, warehousing and distribution (working primarily with independent operators and leased facilities, “We’re asset light”). Escott sees the physical infrastructure improving. “It continues moving forward at a rapid pace, there are better and better highways, especially along the developed coastal area, but also inland.” Next on Schnedier Logistics’ strategic agenda is to further extend its network into the center of the country, while further expanding its domestic footprint. “We’re in the process of acquiring freight forwarding license,” says Escott. “By year’s end, we’ll be offering door-to-door service from the U.S. to China.” — Neil Shister increase China sourcing frequently are undermined in the home ofﬁce by middle managers who believe they are acting in their function’s best interests but actually are impeding the interests of the company overall. Supply managers measured in inventory turns, for example, might worry that distant and uncertain supply lines will require them to hold larger inventories, thereby driving up costs and reducing turns. Similarly, logistics managers, who are evaluated on their ability to econo40 WORLD TRADE AUGUST 2008 For companies to crack new markets with new products in China, they need to get their procurement and sourcing operations into world-class shape. Multinational companies in China need to do a lot of work to boost the capabilities of suppliers. To improve their own manufacturing productivity in China—to do lean right—they need to bring suppliers up to global standards. For instance, Chinese suppliers’ component failure rates are higher than global standards, their deliveries are not sufﬁciently reliable, and their costs could be squeezed

Table of Contents Feed for the Digital Edition of World Trade - August 2008

World Trade - August 2008 Contents Weathering the Storm Helping the World’s Poorest Nations Benefit from Global Trade Supply Chain Watch Tradewinds World Trade’s Top U.S. Trading Partners LTL Shipping ‘On the Fly’ Air Cargo Flies a New Heading Getting More from China Sourcing Why 3PLs Need a Seat at the C-TPAT Table Performance-based Supply Chains Drive Total Lifecycle Value SmartWay Navigates Sustainable Transportation Around the World in 80 Days—Hours—Minutes

World Trade - August 2008

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