World Trade - August 2008 - (Page 42)

GLOBAL SUPPLY CHAIN through more attention to efﬁciency and reduction of waste. (Rejected parts of incoming components run as high as 7 percent in some industries; 1 percent is the norm in established supply chains in developed markets.) Linear performance pricing is another common procurement technique that works well in China. It is an analysis that builds on comparing price to performance rather than on a supplier’s intrinsic economics. The chosen performance factor of the various products on the market is plotted against their price. If the supplier’s price falls high above the revealed trend line, negotiation can ensue on why that gap exists and the possible ways to reduce it. If other products fall well below the trend line, they may be studied for production or supply innovations that allow their lower price. The technique is also ready-made to negotiate future price points when the supplier is able to lift its product to a higher performance level. Execution Is in the Details Sourcing well in China is about paying attention to the details. What surprises executives about sourcing in China is the number of details that can go wrong and the effort required to hold a program together. Companies ﬁnd that they have to pay much more attention than expected to monitoring their suppliers’ processes—working back from expected delivery dates to check that suppliers receive raw materials on time and meet every subsequent milestone until the products ship. Diane Long advises American Chamber of Commerce members in China to pay “unrelenting attention to detail.” It is one of the factors that separates good-enough from world-class sourcing practice here. “Understand the exact process used to make the product, from beginning to end, and never be satisﬁed that it will be done well without watching every step. Do not accept general explanations.” “And, do not accept ‘meiyou wen ti’ (no problem) as an answer, because when a vendor in China says meiyou wen ti, you can count on there being a small problem that is growing into a big one! If a mistake happens, it is usually because someone failed to follow the disciplined process that has been mapped out for them. We use a ‘ﬁve whys’ dialogue to ﬁnd out what went wrong—literally asking ‘Why?’ ﬁve times until you get to the bottom of it.” WT Reprinted by permission of Harvard Business School Press. Excerpted from Operation China: From Strategy to Execution. © 2007 McKinsey & Company, Inc.; All Rights Reserved. Jimmy Hexter is a director of McKinsey & Company and leads the ﬁrm’s Operations Practice in Asia. Jonathan Woetzel is McKinsey director and cofounder of the ﬁrm’s China ofﬁce. For reprints of this article, please contact Cindy Williams at williamsc@bnpmedia. com or 610-436-4220 ext. 8516. 42 WORLD TRADE AUGUST 2008 WTM08084PRIN.indd 1 7/16/08 9:35:00 AM http://www.rupertport.com http://www.rupertport.com

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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