Logistics Strategies for a New China. Richard Zhu UPS Supply Chain Solutions April 14, 2004
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1 Logistics Strategies for a New China Richard Zhu UPS Supply Chain Solutions April 14, 2004
2 Agenda China transportation and logistics market overview Four logistics strategies 2
3 Compared to the U.S., China transportation and logistics spend is small, but a relatively large percentage of GDP Market Size 2001 ($ U.S. Billion) GDP $10,082 Transportation and Logistics Spend 10% $5,976 11% $1,008 $657 19% $214 $1,150 US Japan China Source: BEA National Economic Accounts; CSFB; Chinainfobank; European Commission; Securities 3
4 China s transportation and logistics market exhibits low efficiency and poor service quality attributable to four major factors Regulatory History and Constraints Lack of Expertise and Technology Low Efficiency and Poor Quality Fragmented/ Segmented Market Under-developed Infrastructure 4
5 Hurdles are being addressed Regulatory History and Constraints WT reforms Competition Lack of Expertise and Technology Low Efficiency and Poor Quality Fragmented/ Segmented Market 10,000 logistics specialists graduating each year Under-developed Infrastructure Multinationals and integrated services National road and rail network Triple container port capacity 5
6 Growth of 3PL outsourcing From in-house to third party 25-30% 3PL growth rate More foreign-owned 3PLs establishing networks Domestic providers to play a role 6
7 UPS Supply Chain Solutions in China 3PL air and ocean forwarding 1,000 people, 24 locations, 1.5 million sq. ft. of warehouse space 6 weekly direct flights 7
8 Four strategies for efficient logistics management Integrate everything Share the pain By-pass the DCs Make sure you can see 8
9 Integrate everything Fragmented suppliers hinder visibility, increase hand-off problems 3PLs handle suppliers, for one point of contact 9
10 A High-tech Manufacturer About the Company Scope of UPS Solution World s largest manufacturer of hard disk drives Vertically integrated manufacturer heads, media, PCB, final assembly Technology leadership and leverage Very competitive industry with steep year-over-year reductions in price Strategic focus on R&D, marketing and sales VMI hubs for inbound component parts Airfreight (2,000+ tons/month) Ocean freight Customs Brokerage LTL/TL transportation Global finished goods distribution Reverse logistics for warranty/repair Supply chain visibility in-transit and in-site 10
11 UPS manages the Company s China pre-manufacturing VMI logistics, finished goods fulfillment and returns consolidation 60+ Global Suppliers Beijing VMI Wuxi EPZ 11
12 UPS manages the Company s China pre-manufacturing VMI logistics, finished goods fulfillment and returns consolidation 60+ Global Suppliers Beijing North America VMI DC Wuxi EPZ Asia Pacific 12
13 UPS manages the Company s China pre-manufacturing VMI logistics, finished goods fulfillment and returns consolidation 60+ Global Suppliers Beijing Dallas, TX Singapore VMI DC Global Repair Mexico 13
14 The Client has reduced costs, improved performance and simplified their supply chain Freight Cost: $ per drive -10% -15% Loss Management: $ per drive -64% -50% E Program Results Economics Logistics cost per drive reduced by 25% over 2 years Improved asset utilization and lower capital expense 5% US transportation expense reduction Simplification Air freight providers reduced from 6 to 2 US carriers reduced from 62 to 7 Materials reduction via site consolidation Lower capital expense Service Levels and Optimization Direct fulfillment improved from 20% to 83% Utilization of ocean for selected products Customer error reduction Visibility and Integration Elimination of redundancy and wasted communication time 14
15 Share the pain Sharing regional distribution facilities with other companies Share costs, minimize delivery times 15
16 By-pass the DCs Speed to market UPS Trade Direct SM Ocean An integrated solution combining ocean freight and customs clearance with final UPS package, TL or LTL delivery. UPS Trade Direct SM Air An integrated solution for moving time-sensitive shipments from your international origins direct to customers or stores. Combines air freight and customs clearance with final UPS package or LTL delivery. 16
17 DC By-pass video clip 17
18 Make sure you can see Customers demand visibility Track products, track costs, speed delivery Using 4PL is one way to achieve visibility 18
19 Lucent Technologies China Logistics Activities Challenges Freight forwarding Inland Transportation Customs Brokerage Express Package Freight payables Visibility Systems Warehousing Transportation Management Order Fulfillment Inbound Process Management Outbound Process Management Increased complexity in logistics coordination Over 40 regional and 2 nd tier warehouses Over 14 transportation LSPs Global industry slowdown led to organization downsizing and cost reduction pressure Increased competition led to lower margin and higher service levels Project-based deployment practice requires greater flexibility in resources Global realignment to the virtual manufacturing model requires the SCN organization to outsource 19
20 Lucent Technologies China Lead Logistics Provider Logistics network management and execution Lucent China Total supply chain visibility solutions Management of logistics service providers 20
21 Logistics in China: From a question mark to an exclamation mark! 21
22 Thank you Copyright 2004 United Parcel Service of America, Inc. UPS, the UPS brandmark and the color brown are trademarks of United Parcel Service of America, Inc. All rights reserved.
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